TheWorldBank FOROFFICIAL USEONLY Report No: 31828-HO PROJECTAPPRAISALDOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OFSDR 13.3 MILLION (US$20.0 MILLIONEQUIVALENT) TO THE REPUBLICOFHONDURAS FOR A NUTRITIONAND SOCIALPROTECTIONPROJECT May 17,2005 HumanDevelopment Sector Management Unit Central America Country Management Unit Latin America and the Caribbean Region This document has a restricteddistribution and may be usedby recipients only in the performanceof their official duties. Its contents may not be otherwise disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate EffectiveJanuary 31,2005) Currency Unit = Lempira (L) 1Lempira = US$O.OS US$l.OO = L 18.70 FISCAL YEAR ABBREVIATIONS AND ACRONYMS '4ECI SpanishAgency for InternationalCooperation AIN-C Community BasedNutrition (AtencMn Integral a la Niiiez en la Comunidad) AMHON Honduran Association of Municipalities APL Adjustable ProgramLoan BPHS Basic Packageof Health Services CAS Country Assistance Strategy CADERH Advisor Center for Human ResourcesDevelopment CECAP Training Center CESAMO SOHHealthCenter CESAR SOH HealthPost CFAA Country Financial Accountability Assessment CPIA Country Policy and InstitutionalAssessment COHEP HonduranPrivate Sector Confederation CPAR Country ProcurementAssessment Report DCA Development Credit Agreement UDECOFISS Unitfor CoverageExtension andFinanceof Health ServicesofSOH DOE Department of Employment of SLSS EDUCATODOS Education for All alternative formal educationprogram GNI Gross Net Income FM Financial Management FMR Financial ManagementReport FY Fiscal Year GDP Gross Domestic Product GDI GrossDomestic Income GNI GrossNationalIncome GOH Government of Honduras GTZ GermanAgency for Technical Cooperation HDI Human Development Index HIPC Highly IndebtedPoor Countries HOGASA Household ManagedBasic Health Care Program IDA International Development Association IDB Inter-American Development Bank MNFA Honduran Institute for Children andFamilies L O International Labor Organization LMF International Monetary Fund INE National Statistics Institute INFOP Professional Training Institute IPDP Indigenous PeoplesDevelopment Plan KAP Knowledge, attitudes and practices LAC Latin America and the CaribbeanRegion LCS Least-Cost Selection MDC MetropolitanTegucigalpa andComayaguela MDG MillenniumDevelopment Goal MIS ManagementInformation System M&E Monitoring and Evaluation NGO Non Governmental Organization OAS The Organization of American States FOROFFICIAL USEONLY OEI Ibero-American States Organization for Education PCU Project Coordination Unit PHC Primary Health Care PHRD JapanPolicy andHumanResourceDevelopment Fund PAHO The PanAmerican Health Organization PME SchoolLunchProgram PMA World FoodProgram(Program Mundial de Alimento) POA Annual OperatingPlan PRALEBAH Programfor Adult Literacy and Basic Education of Honduras PRAF Family AssistanceProgram (Program deAsignacidn Familiar) PRESS Programfor the Reorganization and Extension of Basic HealthSector Services PROEMPLEO Programfor Employment Promotion (ProgramaPromoci6n a1 Empleo) PROMYPE Programfor Micro, Small andMediumEnterprises PRS PovertyReduction Strategy PRSC PovertyReduction StrategyCredit PRSP Poverty Reduction Strategy Paper PRSP-PR Poverty Reduction Strategy Paperfirst ProgressReport QCBS Quality- and Cost-BasedSelection RPRA Rapid Participatory Rural Appraisal RPUA RapidParticipatory UrbanAppraisal SA SpecialAccount S U F I Honduran GovernmentFinancial Reporting System S I L SectorInvestmentLoan SOE Statementof Expenses SOH Secretariatof Health SOP Secretariatof the Presidency SLSS Secretariatof Labor and Social Security SP Social Protection PCU Project Coordination Unitin SLSS TA Technical Assistance UNAT Technical AssistanceUnitin SOP UPEG Management,Evaluation, and Planning Unitin SOH USAID UnitedStatesAgency for InternationalDevelopment WB World Bank WFP World FoodProgram Vice President: Pamela Cox Country Managermirector: Jane Armitage Country Sector Leader Laura Rawlings Sector Manager: Helena Ribe Task Team Leader: Manuel Salazar .This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization. HONDURAS NutritionandSocial ProtectionProject CONTENTS Page A. STRATEGICCONTEXT AND RATIONALE ..................................................... 1 1. Country andsector issues........................................................................................ 1 2. Rationale for Bank involvement ............................................................................. 5 3. Higher levelobjectives to which the project contributes........................................ 6 B . PROJECTDESCRIPTION ..................................................................................... 7 1. Lendinginst~ment ................................................................................................. 7 2. Project development objective and key indicators.................................................. 7 3. Project components................................................................................................. 8 4. Lessonslearned and reflected inthe project design.............................................. 13 5. Alternatives considered and reasonsfor rejection ................................................ 15 C IMPLEMENTATION . .............................................................................................. 17 1.Partnership arrangements.......................................................................................... 17 2. Institutionaland implementation arrangements.................................................... 17 3. Monitoringand evaluation of outcomes/results.................................................... 20 4. Sustainability......................................................................................................... . . . 20 5. Critical risks and possible controversial aspects................................................... 21 6. . Loadcredit conditions andcovenants................................................................... 23 D APPRAISAL SUMMARY . ..................................................................................... 24 1. Economic and financial analyses (Annex 9)......................................................... 24 2. Technical............................................................................................................... 26 3. Fiduciary............................................................................................................... 29 4. Social..................................................................................................................... 30 5. Environment.......................................................................................................... 32 6. Safeguardpolicies ................................................................................................. 32 7. Policy Exceptions andReadiness.......................................................................... 32 Annex 1:Country and Sector Background .................................................................. 33 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies .....44 Annex 3: Results Framework and Monitoring ............................................................ 46 Annex 4: Detailed Project Description .......................................................................... 50 Annex 5: Project Costs ................................................................................................... 59 Annex 6: Institutionaland Implementation Arrangements ....................................... 61 Annex 7: FinancialManagementand DisbursementArrangements ......................... 71 Annex 8: Procurement .................................................................................................... 77 Annex 9: Economic and FinancialAnalysis ................................................................. 82 Annex 10: Safeguards ..................................................................................................... 90 Annex 11:Project Preparationand Supervision ....................................................... 101 Annex 12: Documentsinthe Project File ................................................................... 102 Annex 13: Statement of Loans and Credits ................................................................ 104 Annex 14: Country at a Glance ................................................................................... 105 Annex 15: Preliminary Results of Evaluation of AIN-C Implementation and Impact 2000-2002 ....................................................................................................................... 107 Annex 16: IBRDMap 33418 ........................................................................................ 111 HONDURAS NUTRITIONAND SOCIAL PROTECTIONPROJECT PROJECTAPPRAISALDOCUMENT LATINAMERICA AND CARIBBEAN LCSHS-DPT May 10,2005 TeamLeader: ManuelSalazar Country Director: Jane Armitage SocialProtection,child nutrition,youth Sector ManagerDirector: HelenaG. Ribe development. ProjectID: PO82242 Environmentalscreeningcategory: Financial IntermediaryAssessment LendingInstrument: Specific InvestmentLoan Safeguardscreeningcategory: Limited impact Project Financing Data [ 1Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other: ForLoans/Credits/Others: TotalBankfinancing(US$m.): 20.00 Source Local Foreign Total BORROWERRECIPIENT 3.3 0.0 3.3 INTERNATIONALDEVELOPMENT 18.4 1.6 20.00 ASSOCIATION(IDA) Total: 21.7 1.6 23.3 Borrower: Republicof Honduras Honduras ResponsibleAgency: Ministry of Presidency RocioTabora DeputyMinister of Presidency Tegucigalpa Does the project depart from the CAS incontent or other significant respects? Ref. PADA.3 []Yes [XINO Does the project require any exceptions from Bank policies? Ref. PAD D.7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO I s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated "substantial" or "high"? Ref. PAD C.5 [XIYes []No Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ] N o Project development objective Ref. PAD B.2, TechnicalAnnex 3 The project development objective is to improveHonduras' socialsafety net for childrenand 1 'youth. This would be achieved by (i) improvingnutritional and basic health status of young children through and expanding the successfulAIN-C program, and (ii) increasing employability of disadvantagedyouth through piloting a FirstEmployment program. The coordinated implementation of these interventions constitutes the first step towards consolidating the government's institutional and technical capacity to formulate, coordinate, and monitor a comprehensive social safety net. This objective supports government's strategy of fostering human capital investment among poor families inthe poorest municipalities of the country to reducepoverty. The project representsthe initial phase of a concerted effort to improve Honduras' social safety net. With its emphasis on improving the institutionalframework for the two program interventions, the project will help to: (i)create conditions to further expand such programs basedon soundpolicies and strategies and accurate information from monitoring and evaluation mechanisms; (ii)enhancethe GOH's capacity to include additional vulnerable groups and interventions gradually as part of the process to consolidate a national social protectionstructure, and (iii) improve and consolidate a monitoring and evaluation systemfor social protectionprograms. Project description [one-sentence summary of each component] Ref. PAD B.3.a, Technical Annex 4 The project consists o f three components. Component 1: Institutional Strengthening of the social protectionframework for childrenand youth (US$ 1million). The project will support long term efforts to create a coherent institutional structure to make policy decisions, coordinate implementation and budget allocations, and monitor social protection interventions, starting with the children and youth programs. Through these efforts, the creation of adequate institutional, administrative, and technical conditions will enable the government to gradually define and implement additional social protectionprograms Component 2: Consolidation and Expansion of the AIN-C program (US$11.5 million). The objective of this component i s to prevent chronic early childhood malnutritionby strengthening the institutional base and expanding coverage of a community-based program of growth promotion and basic health activities. The first step, with the support of this project, will incorporate an additional 1,000communities incommunities with more than ten children, to reach about 35,000 children under 2 years old and a total of about 85,000 under age 5. Shouldthe project be able to incorporate more than 1000communities, a proposal within its operating plan from the GOHand satisfactory to the World Bank will be sufficient. Component 3: First EmploymentProgramfor Youth at Risk(US$7.5 million). This component aims to promote the labor market insertionof approximately 7,000 poor urban youths who have abandoned the conventionaleducationsystem, and who do not work or who work invery low return informal activities. This pilot programi s part of a largereffort of the Governmentof Honduras, and specifically, the Ministry of Labor and Social Security, to construct a systemfor training and professionaldevelopmentfor youth to improve their possibilities for labor market insertion. Which safeguardpolicies are triggered, if any? Ref. PAD D.6, TechnicalAnnex 10 The O.D. 4.20 is triggeredby the presenceof indigenous peoples inthe project areas. A social assessment was carried out by two teams of local consultants ledby the Ministries of Labor and Health, with technical assistanceof the Bank inthe Departments of Copan, Intibuca, Lempira and La Paz (for Am-C) andthe Metropolitan Regions of MDC (which includes Tegucigalpa), SanPedro Sula andLa Ceiba. No significant impact is expectedon the communities affectedby the project. However, careful attention has beenpaid to ensure the culturally differentiated groups of the population, such as the Chorti and the Lenca which account for 40 percent of the affected population, andthe peasantsof Lenca tradition inthe project area which account for another 40 percent, benefit with the AIN-C project ina culturally-adequate manner. A pro-active approachhasbeentaken for the "First Employment" component, to ensure indigenous and Afro-descendant youths living inthe MDC, San Pedro Sula and La Ceiba regions are identifiedand informedabout the opportunity to register inthe EDUCATODOS lists inorder to becomeeligible for project benefits. The indigenous federations have agreedto mobilize their social networks to guide ethnic youth invulnerable situation to sign-up at the registration centers. Significant, non-standardconditions, if any, for: Ref. PAD C.7 Boardpresentation: Boardpresentation is scheduledfor July 5,2005. The final board package should be sent to SECBO by June 6,2005. Loadcredit effectiveness: Declaration of Effectiveness is planned for October 31,2005. Covenantsapplicable to project implementation: NIA. A. STRATEGIC CONTEXTAND RATIONALE 1. Country and sector issues Countrv Issues The Governmentof Honduras (GOH)needs to focus its efforts to sustainably reduce poverty and vulnerability. The challenge to break the intergenerational transmission of poverty is now being addressedby the Honduras Poverty Reduction Strategy,' which proposesto acceleratehuman capital accumulation through an integrated set of social policies (education, health, nutrition, labor) with complementary social protection interventions targetedto the most vulnerable groups andthose that have traditionally beenleft behind. The social protection programs complement the Government's broader efforts to enhance the opportunities providedby economic growth and improved social service delivery to the entire population. The government must meet the challengesof sustaining-and insome cases, expanding-the social protection programs by consolidating their institutional arrangements, (including the administrative and legal frameworks) and ensuring the qualitative and quantitative adequacy of their technical and human resourceinputs. Interventions for poor population groups under 20 years old are particularly important. These groups representa disproportionate majority of the poor population inHonduras and offer the greatest leverage for human capital investments, making them the primary target groups for sustainable poverty reduction efforts. For many Hondurans, economic and human development opportunities remain beyond reach. Honduras continues to be one of the poorest countries inthe hemisphere, with a 2002 per capita GNIof US$920. Nearly two-thirds of the population i s poor and more than half is extremely poor, with a per capita income that i s less than the cost of a food basket designed to meet basic nutritionalrequirements. Inrural areas, almost 70percent of the population i s consideredextremely poor. Despite modest gains inpovertyreduction inthe 1990s, social indicators have largely stagnated since 1998, and the prevalence of vulnerability remains high. Progressinpoverty reduction has slowed due to low GDP growth, increasing inequality, and continued highpopulation growth rates. Even though the prevalence of poverty declined from 75 percent of households in 1991to 64 percent in2004 (INE2004), not all groups have benefited from economic growth. Inparticular, inequality betweenurban andrural areas has increased, exacerbating sharp differences inliving standards. While important gains have beenmade inexpanding the coverage and quality of health and education services, indicators still lag well behindthose of almost all of the other countries in Central America, and there are important inequities inquality and access. Poor young children andyouth are particularly exposedto risks that may cause irreversible lossesofhumancapital. The most vulnerable Hondurans are primarily young children and youth. Individuals inthese groups are the least able to take advantage of opportunities to reducetheir poverty, while at the same time they are exposed to additional risks that increase the probability of beingpoor. While the most important additional risks confronted by these groups vary, they contribute to long-term social problems by undermininghuman capital formation and economic growth. For children less than 6 years of age, the critical additional 'Thefull PRSPwas completedin July 2001, and the secondannual PRSPprogressreport was issuedin February2005. risk factor is chronic malnutrition. For youth 15-19years of age-and especially a subsetof them, school dropouts-the critical additional risk factor i s an inadequate level of skills due to incomplete and poor quality education. Despite government efforts to address these specific problems, these two groups remain especially vulnerable and unprotected, allowing breaks inthe chain of human development. Inthe case of chronic malnutrition, the impact of this break is irreversible. The physical andmental development of children less than two years of age who suffer malnutrition i s compromised forever, throttling potential human capital formation, undermining the potential effectiveness and efficiency of broader social policies and slowing the potential pace of economic development. Inthe case of youth, inadequate skills development limits social and economic potential, undermines hopes and aspirations, while sowing seeds of pessimism and cynicism manifested by the growth in disaffected youth, social anomie and gangs (marus). Sector Issues Social Protection. To reduce the exclusionof vulnerable groups, Honduras' broad economic growth and socialstrategiesmust be complementedby effective interventions targeted to the most vulnerable groups. Honduras' numerous social protection programs have beendesigned, implemented or funded by a myriad of uncoordinated agencies from central and local government, NGOs, and civil society, as well as international agencies. These programs are frequently duplicative and overlapping, yet many groups are excluded. A recent assessment of the Honduran social safety net indicates that the needs of the most vulnerable groups-in particular, infants, preschool children, and youth-remain inadequately addressed. Other weaknesses include the relative neglect of prevention and mitigation interventions and a more systematic approachto program monitoring and evaluation. These factors limit the effectiveness and efficiency of social protection policy. Inorder to promote Honduras' broad economic growth and social strategies and effectively address these high-riskgroups, there is a needto change the focus of public efforts from palliative measuresto specific targeted interventions that aimto prevent malnutrition (young children) and exclusion (youth). Several successfulpilot interventions aim to serve the priority groups o f young children and youth, but the development of a coherent strategy to institutionalize and expand them i s constrained by two factors: (i) inadequate coordination, which has led to both program duplication and exclusion; and (ii) weak institutional arrangements, which impede program coordination, expansion and sustainability. As a result, programs coverage remains limited. Infants andpreschool children. Malnutrition is a key riskjeopardizingthe survival and impedingthe long-term development of children inHonduras. Childrenwho are mildly underweight have a two- fold higher risk of death, and those who are moderately to severely malnourished have a 5- to 8-fold higher risk of death, than those who are better nourished (The Bellagio Group, 2003). More than half of the deaths of children under five in Honduras are attributable to malnutrition4ither directly, or incombination with acute respiratory illnesses or diarrhea. Honduras' highrate of malnutrition may prevent it from achieving its nutritionMillennium Development Goal (MDG) and the MDGgoals to reduce infant and child mortality. 2 Malnutrition is also one of the most important factors affecting the intergenerational transmissionof poverty. Poorly nourished children have concentrationproblems, reduced cognitive skills, and have low school attendance, high dropout and high repetition rates. As a result, they are relativelypoor students, and are less likely to develop job-related skills or social skills, and are more likely to be limitedto lower qualityjobs and a lower income- earning potential. Student malnutritionundermines the effectiveness andefficiency of the education sector and adds to the burden on the health care system. Chronic malnutrition and stunted development, therefore, not only perpetuateindividual and intergenerational chronic poverty; they also slow the potential rate of economic development. Despite some progress, government's overall response to child malnutrition is inadequate. Since 1987, Honduras has reduced the proportion of its children that are chronically malnourished (height-for-age) by 25 percent. Despite this considerable progress, the prevalence of chronic malnutrition among children remains unacceptably highat 32 percent (12-59 months of age). Honduras' rate i s more than twice the Latin American average, and, inCentral America, it i s secondonly to Guatemala, which has one of the highest rates inworld. Much more needsto be done to combat child malnutrition in Honduras and the pace of progressmust be accelerated. Youth-at-socialrisk (15-19years of age). Honduranyouth are at high risk. InHonduras, access to secondary education i s limited and its quality and relevance for poor families i s low, leavingpoor youth at risk of inadequate knowledge and skills to compete inthe labor market. More than 400,000 adolescents aged 15-19 live inextreme poverty. By the time they turn 19 years old, impoverished youth have two years less schooling than the national average (5.4 years vs. 7.4 years), and 55 percent of girls have at least one child. Their underemployment and unemployment rates are twice the national average. Inactivity leaves youth increasingly likely to turn to alternatives such as gangs, drugs, adolescentpregnancy, and crime. Between 15,000-20,000 youth belong to gangs, two-thirds of whom are male. Few programs address low education attendance rates and attainment among youth over age 15. Secondaryeducation i s available to less than 35 percent of all youth, yet there are no significant trainingprograms to improve the skills andemployability o f youth. The returnsto education inHonduras are the lowest inCentral America, reflectinglow quality, and inturn, depressingthe demand for education. As a result, youth are poorly prepared for the labor market. About 25 percent of youth between 15-19 years of age neither attend school nor work (the highest rate in Central America). Those who do find ajob in the labor market are poorly prepared and are trapped inlow productivity, bad qualityjobs that generate low incomes. Inthe long term, only improving human capital formation throughout all stages of life will sustainably reduce the vulnerability o f poor Honduran youth. Yet, there i s a need to addressthis problem inthe short term to prevent additional irreversible losses of human capital. Inadequateand insufficient investment inyouth directly threatens (i) their opportunities to close their skills gap; (ii) poverty reduction efforts; and (iii) ability to their transfer benefits to the next generation. The Government Agenda The GOH's commitment to reducethe vulnerability of particularly underserved groups of the population is expressedinits Poverty ReductionStrategy (PRSP). The fifth pillar 3 of the PRSP(the social protection strategy) emphasizesimprovingthe welfare of disadvantagedgroups of the population by addressingriskfactors among specific groups of greatest vulnerability, includingchildren and youth, to overcome obstacles to their social integration and development. The Government's strategy acknowledges that human development duringchildhood and adolescencerequires specific interventions during the life-cycle, and achieving the maximum benefits inone age group will depend on adequate interventions at other ages. Inthis regard, the GOHrecognizes that a focus on these groups significantly improves the poverty reduction impact of program resources because children and youth are central to the human capital formation chain. Investments inchildren and youth are the required complements to government efforts to improve the effectiveness of basic social services, inparticular basic education. A key priority of the Government's socialprotection strategy is diminishing the gaps in the chainof human capital development of childrenand youth. The first joint IDMMF staff assessmento f the PRSPimplementation progressconcludes that if Honduras i s to meet the PRSPgoals and the MDGs, the country mustdo more to ensure that growth translates into poverty reduction via strengthenedsector strategiesand improved implementation efficiency-including strengthening and rationalizing the social protection strategy. Investments inyoung children and youth will help to close human development gaps by enabling poor groups to take advantage of opportunities offered by economic growth and improvedsocial programs. As outlined inthe PRSPand inIDA'SPoverty Reduction Strategy Credit (PRSC), which supports its implementation, the GOH aims to improve the welfare of poor and vulnerable groups, especially young children and adolescentsvia, inter alia, support for child nutrition and development, and youth education and employment opportunities. e Child Nutrition and Develoument: The government is committed to streamlining its efforts by focusing on priority programs of proveneffectiveness, including inparticular the community-based health and nutritionprogram for children under 5 years old (AIN-C -Atencidn Integral a la Nifiez en la Comunidad). This innovativeprogram, developed in Honduras, i s recognized worldwide as an effective, yet inexpensive preventive health and nutritionprogram. The government has targeted the expansion of AIN-C to the 80 poorest municipalities inthe poorest departments of the country, all of which have chronic child malnutritionrates in excess of 50 percent, well above the national average. A key constraint to be addressedinthe expansion of this programis the needfor sound institutional arrangements in the Secretariat of Health (SOH). The lack of such support inthe pasthas prevented the institutionalizationofthe program and limited its expansion and sustainability. The GOHhas set a goal of covering 10,000 communities by 2015, or approximately 40 percent of all Honduran communities. This expansion of AIN-C i s a key element of the development of the country's social protectionpolicy that will be supportedunder the first component of this project. e Youth Education andEmployment: The efforts outlined inthe PRSP to prevent chronic malnutritionand strengthenthe educational system offer long-term responsesto human development challenges. Butfor those young people who have already left the educational systemor will do so over the next few years, a more immediate approach- providing basic life and vocational skills training, coupled with a first labor market experience and insertion assistance-is needed. The GOH's PRSPdefines support for youth labor market insertion as the primary social protection strategy responsefor this 4 group. To implement this, the GOH is creating the "First Employment" program (Programa Mi Primer Empleo) for disadvantagedyouth. The program draws from international experience, adaptedto domestic conditions. It will be implemented via an alliance between the Secretariat of Labor and Social Security (SLSS), and governmental and non-governmental training organizations, incollaboration with the private sector, and alternative formal education programs. As this will be the first IDA-financedproject to be administered by the SLSS, the project will focus special attention on the institutional arrangements for implementing and scaling-up this intervention. At the policy level, Hondurasneeds to develop a coherent social protectionstrategy that contributes to breakingthe intergenerational transmission of poverty. The GOH considers its current focus on social protection for young children and youth as the entry point to strengthening its social protection strategy. Inorder to addressthe needsof young children and adolescents at risk coherently, social protection interventions must be closely coordinated with other government strategies, inparticular for health, education, and labor. Coordination and direction of policies and programs at the highest level is currently improving under the leadership of the Secretariat of Presidency (SOP), the government agency incharge of the PRSP, but much work remains to develop the strategies and to prepare the line institutions to implement them. 2. Rationalefor Bankinvolvement The World Bank involvement inthe proposed project is the logical next stage to consolidatea broadprocess initiatedseveral years ago and consistingof various elements. First,considerable analytical work has identified the mainissues and near term priorities insocial protection. Second, investment operations, and related technical assistance have providedvaluable inputsto understand the context and needsof the Honduran population. Third, an ongoing policy dialogue between the GOHand the Bank has identified key areas of collaboration. Finally, the proposed Nutrition and Social Protection Project buildson current IDA-financed operations to support the PRSP(PRSC Iand 11)by focusing on children and youth as key groups for poverty reduction. Insum, the GOH and the Bank have worked closely to develop the analytical and operational building blocks to support public efforts to reduce poverty sustainably by including young children and adolescents as elements ina social protection policy. The proposed project i s a logical next step for IDA support and collaboration with the government inthese endeavors. Inthis framework, the GOHhasdefined andis implementinganagendato reducethe vulnerability of unprotected populations, focused especially on childrenand youth. Consistent with the work outlined inthe PRSP, the Secretariat o f the Presidency has taken the lead to improvecross-sectoral coordination, and to identify and prioritize the main vulnerabilities that a social protection strategy should address inthe short term. Inlight of the remaining challenges to develop meaningfulpolicies, efficient institutional structures, and effective instruments and interventions for social protectioningeneral and for infants, pre- school children and youth inparticular, the GOH, through the Secretariat of the Presidency, has requestedIDA support. Specifically, IDA support of this project i s expected to help the GOHconsolidate institutionalarrangementsinthe following three key policy areas: 5 a. The institutionalization and consolidation of the fifth pillar of the PRSPby helping to strengthen the GOH's capacity to formulate, implement and monitor social protection strategiesand programs, starting with young children and youth as entry points. b. Despite a long pioneering experiencewith AIN-C, programexpansion to date has only been achieved via parallel structuresrather than through consolidation of a coherent institutionalframework. The result has been limited coverage and weak sustainability. This project will support the institutionalization of the program within the SOH, and i s expected to buildthe institutional, technical and administrative conditions to expand and sustainit nationally. c. The launch of an innovative and comprehensive model for first-time labor market insertion that provides work skills to disadvantagedyouth and links this support to the labor market, with the development of institutional arrangements to sustainit inthe long term. Finally, World Bank involvement is expected to strengthen the government's capacity for donor coordination inkey sectors. The proposed project i s partof a comprehensive government effort to define and implement a social protection strategy, linkedto current policies inhealth, education, and labor. Through specific additional support, the project will help to consolidate government's programs for infants, preschool children and youth as a vehicle to strengthen a national social safety net. The project aims to work with the other actors financing these two interventions to systematize the many activities underway for children and youth and to improveprogram coordination to maximize the effectiveness of available resources. With AIN-C, the project will support the government's efforts to institutionalize and mainstream a proven, successfulnutrition strategy by strengthening the SOH'Scapacity to administer the program and to coordinate its implementation across all donors and implementing agencies (IDB and USAID). Inthe youth component, the government will develop a sustainablenational youth training system closely linked to the private productive sector for labor market insertion. The project will facilitate donor coordination (including GTZ, AECI, and IDB), improve informationon existing initiatives and provide a means to better prioritize and coordinate these efforts. 3. Higher level objectivesto which the project contributes The current CAS objectivesfor World Bank Group assistance includeongoing investmentsinhumandevelopment and the protection of vulnerable groups. This is one of three areas for IDA support to Honduras' efforts to improve sustainedeconomic growth and reducepoverty and inequality. The proposed project i s part of the CAS basecase lendingprogram, and aims to complement other IDA-financed health and education investments by targeting those importantpopulationgroups who fall through the cracks of the mainstream programs and ensuring that those groups also have opportunities for their human development. The project design buildson IDA'Spast support for Honduras' Social Investment Fund and the findings of both the Honduras Social Safety Nets Assessment (2003) andthe Central America study on Shocks and Social Protection, (2005) and ongoing policy dialogue on social protectionissues. The projectdirectly supports the 5thpillar of the PRSP,and will improveHonduras' chances to meet the MDGsand break the intergenerationaltransmission of poverty. The project will support government efforts to consolidate a realistic mid-term social 6 protection agenda according to the PRSP's fifth pillar. Specifically, the project will address the goals to improve health service coverage, especially AIN-C coverage, and the reduction of chronic malnutrition. Complementing current efforts inHealth and the Educationfur All initiative, also supported by IDA,this project will contribute to PRSP and CAS priorities in improvingthe human capital of the Honduranpopulation by increasing children's learning capacity and offering youth-at-risk opportunities to improve their skills for labor market insertion. The project will set inmotion the PRSC monitoringbenchmark for nutrition2. Working inconjunction with the IDA-financedHealth Project3,this project will develop nutrition program-specific tools for improving the stewardship of nutrition within the health sector. Finally, the implementation of the AIN-C program and the FirstEmployment program will both serve to create and strengthen linksbetween the government, private sector and NGOs operating inthe targetedregions of the country. B. PROJECTDESCRIPTION 1. Lendinginstrument The lending instrumentis a Specific Investment Loan (SIL). A SIL i s the most appropriate choice becausethe project focuses on capacity buildingto create (i) institutional and technical conditions to strengthen and consolidate social protectionimplementing agencies and to scale-up specific interventions; (ii) key elements of a social protection policy, specifically for young children and youth; and (iii) an entry point to gradually enhance government capacity to improve the living conditions of infants, preschool children, and youth through specific well-designed and coordinated interventions. The consolidation of these conditions will pennit the GOH to expand these and other social safety net programs coherently. Once such conditions are inplace, evaluated, and adjusted, a programmatic approachcould be considered inthe future. 2. Project development objective and key indicators The project development objective is to improveHonduras' socialsafety net for childrenand youth. This would be achieved by (i) improving nutritional and basic health status of young children by expanding the successfulAIN-C program, and (ii) increasing employability of disadvantaged youth by piloting aFirstEmployment program. The coordinated implementation of these interventions constitutes the first step towards consolidating the government's institutional and technical capacity to formulate, coordinate, and monitor a comprehensive social safety net. This objective supports the government's strategy to foster human capital investment targeted to poor families inthe poorest areas. The project representsthe initial phase of a concerted effort to improve Honduras' socialsafety net. With its emphasis on improving institutional arrangements for the two program interventions and buildingcapacity in the Ministries of Health and Labor, the project will help to: (i) createconditions to further expand such programs based on sound strategies, and accurateinformation from monitoring and evaluation mechanisms; (ii) ~~ ~ According to the PRSC, the governmentis committed "to inventory all nutrition programs, with emphasis on those serving children underJive years of age, and prepare a cost estimate and implementation planfor expansion of AIN-C to 1,000 communities in the 80 municipalities prioritized in the PRSP." HealthSystem ReformProject (36400-HO) 7 enhance the GOH's capacity to gradually include additional vulnerable groups and interventions in a processto consolidate a national social protection structure, and (iii) improve and consolidate a monitoring and evaluation system for social protection programs. The expected mainoutputs ineach component are summarized as follows: Component 1:(i) an institutional structure capable of administering, coordinating and monitoring public social safety net interventions, initially focused on children and youth; (ii) instruments to supervise and monitor these interventions, and mechanismsto improve inter- institutional coordination; (iii) as part of a national social protection strategy, a draft policy in the areas of children and youth and its three year implementation plan, which defines roles, responsibilities and expectedresults of eachparticipating institution. Component 2: i)1,000 new communities will be participating inAIN-C by the first quarter of 2008, covering 35,000 children younger than two years of age; (ii) percent of the children 90 less than 24 months of age intarget communities will be registeredandparticipating inAIN- C; (iii) years after the programhas begun implementation, child malnutritionrates three among children less than 24 months of age inthe newly participating communities will be 20 percent less than inthe 2005 baseline. Component 3: (i) Approximately 6,000 15-19year old youth participating inthe program; (ii) percentofthetrainingbeneficiarieswillhavetheirfirstlabormarketexperiencevia 80 program training internships; (iii) 40 percent of training beneficiaries will be employed 6 months after completing the program, whether inpaidjobs or incompetitive self- employment. 3. Projectcomponents The project consists of three components. Component 1: InstitutionalStrengthening of the social protection framework for children and youth (US$l.O million). This componentseeks to improvegovernment capacity to protect andimprovethe human capital of poor infants, children, and youth inHonduras, as the first stage to consolidatea comprehensivesocialsafety net. The project will support long-term efforts to create a coherent institutional structure to make policy decisions, coordinate implementation and budget allocations, and monitor social protectioninterventions, starting with the children and youth programs. Through these efforts, the creation of adequateinstitutional, administrative, and technical conditions will enable the government to gradually define and implement additional social protection programs. This component has four subcomponents: Subcomponent 1. Social protection policy formulation and coordination: This subcomponent will finance support and technical assistance to consolidate an institutional structure to formulate, implement and monitor social protectionpolicies andprograms, beginning with children and youth. Activities will support a coherentprocess to identify priorities, make decisions, coordinate budgetary appropriations and implementation, and follow-up on programs and interventions. 8 Subcomponent 2. Instruments to improve the effectiveness of social protection expenditures. Activities included inthis subcomponentsupport capacity buildingwithin the social protection institutions through the design and implementation of instruments to improve the effectiveness of public expenditures on social protection. The institutional arrangements supported by the previous subcomponent will be complemented by a set of instruments to improve targeting and beneficiary selection of social protection interventions, monitoring and supervision, and impact evaluation of selectedinterventions. Subcomponent 3. Support to the Secretariatof the Presidency as coordinator of Social Protection Policv, and coordinator of this proiect. The project will provide technical support, assistance, training and equipment for the Secretariatof Presidency and the UNAT (Unidad de Apoyo Tkcnico) as neededto support the above mentioned policy development andproject coordination activities. Subcomponent 4. Social Audit of Social Protection promams. The project will finance technical assistancefor the identificationof community counterparts, and the development of participatory instruments for local level monitoringof social protection programs for children and youth, to obtain feedback on design and impact. Component 2: Consolidation and Expansion of the AIN-C program(US$lS.O millionin project costs; US$12.0 million incredit financing). The objective of this component is to prevent chronic early childhood malnutrition by strengthening the institutionalbase and expanding coverageof a community-based programof growth promotionand basic health activities. The AIN-C programworks via community-based health networks, basedon community volunteers (monitores)who monitor the growth of children younger than two years of age, advise mothers on caring for their babies and toddlers, and provide curative primary health care services to children under age five. The project will support the standardization of the AIN-C model, basedon rigorous evaluations of the currently provided packages. The model will consist of three principal components: i)a preventive component that includes growth monitoring and early stimulation; ii)a component on neonatal care; andiii)a curative component that includes managementof prevalent childhood diseases, such as respiratory and diarrheic diseases. Also, as part of the AIN-C, the project will support the adoption of regular workshops for mothers regarding childcare, home hygiene, water usage, etc., and the full involvement of communities and local governments inthe program to guarantee future sustainability. Ifthe project i s able to incorporate additional AIN-C modules, or conversely, encounters training bottlenecks for inclusionof the neonatal component, then the GOHcan propose a revised operating planconsistent with its operating manual that i s satisfactory to IDA. The Secretariat of Health intends to expandthe programto all communities infour of the six poorest departments prioritizedinthe PRSP. The first step, with the support of this project, will incorporate an additional 1,000 communities, to reach about 35,000 children under age two and a total of about 85,000 childrenunder age five. Ifthe project can incorporate more than 1,000 communities, the GOH can present a proposal within its operating plan that i s satisfactory to IDA.The project will also address the shortfalls identifiedinthe evaluation, by supporting the broader institutionalizationof the program, so that further programexpansion can be supported and sustained. 9 Thiscomponent hastwo subcomponents: (i) coverage expansion of the AIN-C model; and (ii)institutional strengthening of the Secretariat of Health. Subcomponent 1: Coverageexpansion of the AIN-C model: (US$12 million). This subcomponent aims to improve and expandcoverage of AIN-C activities for children under two years of age to no less than 1,000 new communities inthe poorest departmentsof Honduras. The expansion of AIN-C to new communities includes the following activities: (i) the identification of participating communities; (ii) community needs survey; (iii) specific program validation with the community and local/municipal authorities to reinforce their collective responsibility to sponsor the program and to review and enhancethe AIN-C package; (iv) selection of community volunteers (monitores); (v) a broadenedprogram of local level training and workshops inAIN-C activities to improve personnel quality (primarily monitores), (vi) incentives for monitores; (vii) AIN-C materials; and (viii) a communications program (intended to complement a program currently beingimplemented with USAIDfunding) that i s designedto accompany the expansion of AIN-C with general information about nutrition, as well as anexplanation o f how AIN-C works, including the role of the monitores, and how families can participate. The project will operate via several modalities for coverage expansion: (i) contracts with private providers, primarily NGOs and other civil organizations, (ii) municipal execution of the program, and (iii) strengthening the SOHto deliver the services itself. It is expectedthat most of the coverage expansion will be implemented via NGOs. Inall cases, a previous process of certification will guaranteethe suitability of the chosen providers. The SOH will work with the departmental and local levels to choosethe most appropriate service provision modality. The implementation capacity of the municipalitieswill be assessedby the central level of the SOHin collaboration with the HonduranAssociation of Municipalities (AMHON) and the Secretariat of Presidency. To ensure a sound institutionalbasis to support AIN-C expansion, no new communities will be incorporated duringthe project's first year becauseefforts will be devoted to the preparationof administrative systems, including the monitoring, supervision andevaluation designs, the incentive system for the monitores, design o f the private contracting mechanisms and the selection of municipalities that will directly implement the program. The program will expand to 500 new communities in2006,250 more in2007, and another 250 communities in2008 for a total of 1,000 over the life of the project. Subcomponent 2: InstitutionalStrengtheningof the SOH at the central and local levels lUS$3.0 million). This subcomponent will help the SOHto consolidate its capacity to implement the AIN-C program successfully. Inparticular, the project will strengthenthe capacity to plan, implement, supervise and evaluate AIN-C activities at all levels of the Secretariat. These activities will not only create the capacity for the SOHto manage the proposedproject, the institutional strengthening provided by this project will also benefit the AIN-C processesalready underway inother communities. Inaddition, this subcomponent will consolidate the institutionalbasis for the further expansion of AIN-C to other areas of the country, as contemplated inthe PRSP. There are two mainactivities to be financed as describedbelow. 10 a. Strengthening the central level of the SOH, including activities to strengthen the planning, implementation, and supervision and evaluation processesinthe SOH, for a successful expansion of AIN-C. The Unidad de Extensidnde Coberturay Financiamiento de Sewiciosde Salud - UDECOFISS (under the office of the Minister of the SOH) i s the administrative unit through which the SOHwill coordinate, implement, evaluate and administer all resourcesdesignated for the expansion of maternal and child health programs. Strengthening this unit is key for project implementation. The SOH will finance the neededpersonnel, along with logistical and administrative support, while the project will finance those instruments neededfor planning, supervising and evaluating AIN-C activities, human resources, computer equipment for the UDECOFISS, training, technical assistanceand workshops. The project will also strengthen the Direccidn General de Promocio'nde la Salud,which i s in charge of providing technical and normative guidance for AIN-C, includingthe operational structure and guidelines for the program. It will be responsible for coordination with other relevant offices inthe SOH (General Departments of Systems and Health Services, Sanitary Regulation, IntegralHealth to the Family, HealthVigilance, and Regional Departments) and it will be responsible for the following operational aspectsof AIN-C: (i) training departmental facilitators; (ii) monitoring and supervision of the departmental level by the central level; (iii)an information system for AIN-C; (iv) Referralkounter-referral system for AIN-C. b. Strengthening the departmentallevel of the SOHfor AIN-C coverageexpansion. The project will develop a process to strengthen all of the SOH departmental delegations to implement AIN-C, inorder to ensure uniform implementation of the model across the country and to lay the basis for further program expansion beyond the 1,000 communities contemplated inthis project. This process will include improvedservice provider training and supervision and coordination mechanisms with other community groups to ensure AIN-C expansion i s as inclusive as possible. To enhance the GOH's institutionalcapacity to increase AIN-C coverage, the project will finance personnel, technical assistance, training, instruments and methodologies for supervising and monitoring, transport, materials, and equipment, and it will finance quarterly supervision meetings with service providers to determine results andperformance. It will also define the processby which the GOH will gradually assumethe recurrent costs of this model. Component 3: FirstEmployment Pilot Programfor Youth-at-Risk (US$7.3 millionin Projectcosts; US$7.0 million incredit financing). This componentaimsto promotethe labor market insertion of poor urbanyouth who haveabandoned the conventional educationsystem, and who do not work or who work invery low returninformal activities. Thispilot programis partof a larger GOHeffort, specifically of the Secretariat of Labor and Social Security (SLSS), to construct a system for training and professional development for youth to improve their possibilities for labor market insertion. The SLSS i s mandated with this task through its creating law. The pilot focuses on the employability of disadvantaged youth via an integrated approach that would provide (i) orientation for life and work skills, (ii) job training, (iii) internship specific an directly linked to that training, and (iv) support for job search after the traininghntemship. The pilot will be implemented intwo phases. The first phase, financed with the PPFadvance, 11 will set up the basic elements of the model and strengthenthe SLSS's and other participating entities' capacity to implement the pilot. The program would then be scaled-up and refined duringthe secondphase. This approachbuilds on Honduran andinternational experience with youth at risklabor market insertion programs. It would be mandatory for beneficiaries to continue their education inan alternative formal school program while they participate inthe pilot. Of utmost importance inthe implementation of the program i s the close coordination of the government, representedby the SLSS, public and private training institutions, andprivate sector enterprises to offer opportunities for youth-at-risk - a novum inHonduras. The pilot would include four subcomponents: Subcomponent 1. Targeting and selection of beneficiaries: Youth aged 15-19living in selectedmarginalized urban areas of Tegucigalpa, San Pedro Sula, and La Ceiba (and possibly others to be determined by the GOH), and enrolled in aprogramof alternative formal education would be eligible for the program? Eligible youth can apply to participate inthe programeither through apotential training provider or through the Secretariatof Labor's "job orientation services," offered by the SLSS's Department of Employment, which would be strengthenedunder the project. Subcomponent 2. Training services and preparation for the world of work: Training will be offered by private and public training centers, competitively selected, which will be responsible for defining the specific areas of training they offer, based on the internship opportunities they have previously identified with employers. The three to four month training will be designed so that it will prepare the participant for the internship inan enterprise (also three to four months induration). Preferably, the training and internships would be closely linked to the `clusters' that GOHhas identifiedto have good prospectsin the country's economic development (tourism, maquiladora, etc.). Throughout the training, the program will ensure appropriate supervision of training center performance. The curriculum will also include a basic component of "training for life," which seeks to develop non-academic skills that are valued inthe market place and civil society. Program participants will receive a stipend duringthe training and internship to cover the costs of transportation andfood for each day o f attendance. Subcomponent 3. Promotion, dissemination, and support for labor market insertion: Informationabout this pilot will need to be disseminated to three target groups: potential beneficiaries, training institutions, and employers. Promotion efforts will be led by the SLSS with support from the Secretariat of the Presidency (SOP) and will include socialization workshops with relevant groups of civil society, including ethnic federations. Promotion efforts directed to training institutions and employers will aimto create alliances between the two groups inorder to meet the goals and requirements of the program. Community volunteers working with the EDUCATODOS and other alternative formal education programs would disseminate information about the program inselected neighborhoods. After the training andinternship phase, graduates will be registered inthe Bolsa de Empleo, and Alternative formaleducation programsare definedas those promotedand accreditedby the Honduras Secretariatof Education(e.g. EDUCATODOS, PRALEBAH - ProgramadeAlfabetizacidn y Educacidn Ba`sicadeAdultos en Honduras). This criterionprovidesthe addedincentivefor youth to returnto the educationsystem. 12 they will be eligible to receive counseling services, employment referrals and follow up. Finally, the program will also include activities designed to promote non-risky behaviors of youth inurban areas, and for employers, to emphasizetheir corporate social responsibility. This would be done through mass media, seminars, website information, and other means. Subcomponent 4. Program ManagementandEvaluation: The project will finance the development of a monitoring and evaluation system in the SLSS, to inform and support the development of a youth training andlabor market insertion system as part of a wider youth development strategy. The SLSS's Management Information System (MIS) will be strengthenedand complemented by an impact evaluation, which will encompassthe First Employment and the Proempleo' programs and will include the collection of baseline data and the implementation of a comparative impact evaluation (as far as the programs are comparable). The evaluation would also include an economic analysis of the intervention. Finally, this subcomponent will finance the program's incremental start-up costs for the SLSS, including training activities, technical assistance, equipment and materials for the institutional strengthening of the Secretariat, and some operating costs to implement the pilot. 4. Lessonslearnedand reflectedinthe project design The needto develou an institutional structure to systematize and more adequately supervise the AIN-C program. Initial work on the identificationand design of this project resulted inthe Secretariat of the Presidency concluding that there was marked variation inhow AIN-C i s implemented, which madeearly efforts to develop an inventory of the current program implementation sites and efforts to estimate the current costs of the program difficult. This diversity shows inthe absence of the SOH's institutionalownership of the program or leadership of the program at the national level. While the implementation of AIN-C has beenrelatively widespread, the SOH's perception of the program, its value, and the role of the SOH insupervising and monitoringit vary widely from one local health network or health region to another. Furthermore, although the program has proven effective, there i s still much room for improvement. Comparing the findings of the 2000 and 2002 evaluations reveals some shortcomings and possibly some troubling trends that should be addressed. (See Annex 15)6 AIN-C should be targeted to improve its impact and efficiency. To date, the AIN-C program has not been a well-targeted program. Only 494 (29 percent) of the 1,932 communities which had an AIN-C program at the beginning of 2004 were among the 80poorest municipios of the country that have been prioritizedby the GOH. Although 68 (85 percent) of the 80 municipios had at least one such program, only 10.3 percent of the 3,257 caserios inthe priority departments had an AIN-C. Thus, the way the program has been implemented-generally injust afew communities inonly some of the municipios in only 11of 18 of Honduras' departments-means the program has been spreadthinly about Proempleo(Programfor HumanCapitalandTechnicalEducation), financedby the IDB, is arecentlylaunchedon- the-jobtrainingprogramfor youngadults. It is unlikely that one can directly compare the findings of the two evaluationsof AIN-C that havebeenconducted becausethey are cross-sectionsof differenthouseholds with populationsthat may vary systematically-most importantlyby thosecharacteristics relatedto healthandnutrition status-who have beenexposedto possibly significantly different versions of AIN-C. 13 the country. This has servedto lesson administrative burdens, but it has increased the overhead costs of training and supervision, while it has diffused the amount of attention and resources devoted to the program. This effect has beenunderscoredby the still relatively small scale of the program which after more than ten years still covers less than 10percent of Honduran children under the age of two. AIN-C monitores should receive periodic retraining. One of the key lessonslearned from other community volunteer-basedprograms that have been able to maintain highcoverage and participation rates i s the importance of retraining or refresher training. The total absence of retraining inthe program to date, in combination with its inadequatelevel of supervision, appear to be the primary reasons why some of the program's performance indicators faltered between 2000 and 2002. (See Annex 15.) There i s a needfor periodic, quasi-experimental design-basedevaluations to better understand how the programi s being implemented (its processes) and its outcomes/impacts. In2000, arigorous processevaluation of AIN-C was conducted. Itfound significant differences in how programs were implemented with differential impacts on mothers' knowledge, attitudes andpractices regarding child nutrition and child-rearing practices. It did not, however, document children's nutritionalor health status. Thus, it was not possible to understand what the significance of the differences inprogram implementation was in terms of their impacts on children's nutritional status and health. Conversely, in2002 there was an outcome evaluation that did not investigate whether or not there were differences in implementing agencies or, more specifically, how the program was implemented that accounted for the differences inthe program outcomes/impacts. An evaluation that investigates both processand outcome i s essential to understanding how and how well the program functions and constituting an effective feedback mechanism to improve its performance. The proposed project has set aside adequateresources to undertake a rigorous impact evaluation. The 2002 evaluation found that there was a dose-response relationship between the level of AIN-C participation and its impact on nutrition status. This i s an important lessonthat has been taken into account indeveloping indicators for this project. There i s a needto build a comprehensive strategy to support vouth-at-risk inHonduras. Inthe design of the pilot FirstEmployment Program, lessonslearned and reflectedinclude consciously linkingthis First Employment Program with other relevant activities (e.g. Bolsa de Trubajo) and other programs (e.g. Proempleo) inthe sector, thus providing the building blocks for a more comprehensive government strategy to help disadvantagedyouth build human capital and integrate into the labor market. By giving these youth a chance to become productive members of society, risky behaviors are expected to be prevented. International best practices in youth programs need to be adequateto the Honduran context and conditions of the target population. The basic design of the FirstEmploymentPilot Program draws on the accumulated lessons learned inLatin America, particularly the ChiEeJoven, Peru Joven and ColombianJdvenes enAccidn programs, which have been evaluated rigorously and have shown to be effective mechanismsto improve youth labor market insertion. Key lessonsfrom those experiences include the needfor effective targeting, a focus on incorporating "life skills" (proyecto de vidu) and vocational skills, the importance of the internship as a signal of training pertinence 14 and as a key factor inraising participant employability, the mobilizationof private and public actors to supply training services, and payment for results. Inadapting this approachto Honduras, several innovations have beenintroduced: 0 usingalternative formal education programs as an entry point for targeting the youth population that has dropped out of the formal system; 0 more flexible rules for the size and level of formality of internshipemployers; 0 the requirement for beneficiaries to continue their participation in an alternative formal education program to create a link and culture of continuingeducation for employment, and to ensure that the program focus on the poorest youth does not overly limit the employability of program graduates; and 0 connecting graduatesto active labor market support services for labor market insertion offered by various institutions inthe country. This adaptation aims to meet the objectives of the PRSPand to avoid the tendency of similar programs to serve the best educatedand more socially integrated training candidates. Later phases of this program may consider including a component for self employment, but the mechanismsand strategies to do so have not yet been defined. 5. Alternatives considered and reasons for rejection LendingInstrument. Several alternatives were considered inproject design. For the selection of lending instrument,the decision to use a SIL insteadof an APL reflects the focus of this project on creating the institutionalbasis upon which further programs can build. While the use of an APL assumes a basic institutional structure inplace which can then coordinate and implement a program of action, the S I L allows the project to focus more specifically on the creation of that institutional presence. This SIL aims to provide the basis for apossible APL inthe future. Proiect Design and General Arrangements. Similarly, the project team decided infavor of institutional implementation of the project rather than creating a Project Coordinating Unit (PCU), becausethis option would strengthen the core institutional competencies of the participating government agencies. While all three implementingagencies are weak, the project will provide substantial support for project execution. Inparticular, the project will strengthenthe Secretariat of the Presidency to assume its role as coordinator of social policy ingeneraland social protectionpolicy inparticular as a basic objective of this project. For example, by creating the conditions to enable the Secretariat of the Presidency to implement the policy component directly, the project supports that objective. A similar argument applies to the health and labor ministries as implementingagencies. Additional alternatives considered for proiect design include: (i) to work through the Programa deAsignaciones Familiares (PRAF)7for AIN-C implementation. Although the PRAFis an agile institution, the task team decided against this option infavor of the SOH, becauseof the importance of strengthening the line agency and integrating this work as part of core government responsibilities. Inaddition, PRAF's performance inimplementing the AIN-C program has shown several weaknesses. (ii) The task team also discussedthe GOH's The PRAFhas the institutional mission to target benefits to poor populations through direct conditional cashtransfers (vouchers); it is located in the Secretariat of Presidency. 15 decision to adopt a young children and adolescents approach or to target other vulnerable groups -the sexually exploited, orphans, disabled, etc. While all of these groups are an important part o f the social protection agenda, the team agreed with the GOH to concentrate on the largest size groups-early childhood and youth-which meritlarger scale interventions where the World Bank has a comparative advantage, and to maximize project impact. The decision to create three accounts for the proiect instead of one account coordinated under the main leadership of the Secretariatof the Presidency, further supports the institutional strengthening approach of this project. While the Secretariat of the Presidency will be responsible for reporting on project accounts, each implementing agency will have responsibility over the execution of its funds. There are other projects already under implementation ineachof the institutions that canprovide the basic account management infrastructure, a feature that convinced the project team of the feasibility of this design option. AIN-C component. Inthe technical design of the AIN-C component, one option considered was to have the SOH act as the principal AIN-C service provider. Since the health sector reform programi s supporting the development of new modalities of service delivery inorder to reachpoor and remote populations, this project includes the option for private sector providers to deliver AIN-C. This design option i s superior becauseit conserves the limited institutional capacity inthe SOH for supervision, an area of weakness inprior experiences with AIN-C. Another AIN-C design option considered was to include the delivery of the AIN-C model within the packageof basic health care delivered byprivate service providers, as it i s in other countries (e.g., El Salvador, Guatemala). The problem with this option inHonduras i s that AIN-C i s a model basedinthe community that requires frequent contact and interaction, at a level much higher than that contemplated within the basic health model inthe country. To put AIN-C within this model would incur the riskthat AIN-C would not receive the attention it needs for success, especially inthe areaof counseling of mothers, and thereby could reduce project impact. Nevertheless, consolidating the program administration under direct responsibility of the SOH guarantees its coherence with the basic health system. The AIN-C Program was originally intended to target only those poor children inthe communities served. The logistical and social problems posed by targeting only some children in the community did notjustify the risk of not including non-poor children inthe program, especially considering that the municipalities being targeted are among the poorest inthe country with ratesofmalnutrition well above the national average. Therefore, the project opted to cover all children inthe municipalities targeted according to their vulnerability inmalnutrition. FirstEmplovment component. Inthe youth employment component, severalpossible institutional arrangements were considered before reaching the current design, the most important of which was to execute via the Programa de Asignacidn FamiEiar (PRAF). PRAF has good technical and administrative capacity for program implementation, and it i s already implementing a youth training program for poor youth. However, this option was discarded infavor of locating the program inits logical home inthe SLSS, which holds the legal mandate in this area, and where the corresponding institutional structures should be 16 consolidated. Inaddition, the operating mechanismsof the PRAF are not entirely compatible with those o f the proposedprogram, which could create confusion among beneficiary populations. For this same reason, the proposed project will operateindifferent locations than the PRAF. Finally, the strong linksof the SLSS to the private sector and to training institutions improves the probability of component success inthe social inclusionof youth and breaking the intergenerational transmission of poverty. C. IMPLEMENTATION 1.Partnershiparrangements Thisproject hasno formal cofinancing arrangementswith other donors. Inboththe AIN-C and First Employment components, however, considerable coordination i s contemplated with other donors active in the sectors. The government has taken the lead to coordinate AIN-C donors, both interms of geographic areas of intervention and the standardization of the intervention model, and this project will support that continued coordination. Particularly important has been coordination with other supply-side health and child and maternal care programs, especially those supportedby the Bank (the Health System ReformProject) and the IDB (Mejoramiento del Nivel de Salud de la Poblacidn Hondurelia). Also, there has been extended coordination with IDB's third social protectionoperation implemented by PRAF, which provides conditional cash transfers as demand subsidiesto poor families to encourage them to use the AIN-C package. Duringproject preparation, the Bank worked with the GOH, IDB, andUSAIDto cultivate active coordination with bothdonors and their implementing agencies to ensure common goals, a shared agenda, and an agreed division of labor. Similarly, during preparation of the FirstEmploymentpilot program, the Bank and the GOH organized a series of workshops and meetings with the sector's major stakeholders, donors and NGOs to pursue synergies and collaboration with other projects that support activities for youth-at-risk related to the labor market. These include the IDB's Proempleo Project, the GTZ's project for small andmediumenterprise development (Programade la Micro, Pequelia y Medianu Empresa - PROMYPE/GTZ), and several projects supported by the Spanishdevelopment cooperation. The pilot program will be implemented via national institutions and NGOs, but it will interact directly with a number of donor-supported programs, including the US AID-supported programs of alternative formal education (e.g., EDUCATODOS). Becausethe design o f the component encourages open architecture, further links will be cultivated during implementation. The project will support the SLSS to take a leadership role in coordinating programs for youth labor market insertion under the National Labor Training System. Finally, project implementation will entail considerable operational coordination with the IDB, as single unitsinthe SLSS and SOHwill be responsible for project administration, financial managementandprocurement for both the World Bank and IDBprojects. 2. Institutionalandimplementationarrangements This project respondsto the social protectionpriorities of the PRSP, under the coordination of the Secretariatof Presidency. The SOP will have overall responsibility for project coordination and implementation incollaboration with the Secretariatsof Health and Labor. 17 Withinthe SOP, the project will strengthenUNAT's capacity to coordinate ongoing project administration with the Secretariats of Health andLabor. Component 1: The SOP is the implementing agency for this component, which will support the institutional strengthening of the Secretariatto fulfill its role incoordinating overall social policy, including social protection. The SOP will benefit from technical assistanceto help develop the instruments and mechanismsfor the design, coordination, finance and evaluation of social protection actions. The SOP will also be responsible for coordination of the implementation of this project with the two line agencies, the SOH and the SLSS, and to consolidate M&Eand other progressreports for proper oversight and supervision of project implementation. Component 2: The SOH i s the implementing agency of the AIN-C program. Within the Secretariat, the UDECOFISS will be responsible for administering the program. Its functions include: (i) administering and evaluating performance contracts and agreements for coverage expansion; (ii) administering resources from international cooperation. The SOH i s currently inthe processof institutionalizingvarious project execution unitsinorder to develop aSector Wide Approach in health and better harmonize the use of donor resources. As part of this process, inJanuary 2005, the SOH created the UDECOFISS. To ensure adequatemaintenance of AIN-C financial accounts, the UDECOFISS will be supportedby the Directorate of Finance and Administration of the SOH. The SOH already has some financial andadministrative experience with contracting for private service provisionbecausethe Program for the InstitutionalReorganization and Extension of Basic HealthSector Services (PRESS) has contracted NGOs. Component 3: The FirstEmployment pilot program will be implemented by the Secretariat of Labor and Social Security. The general coordination of the pilot program and its financial administration will be camed out by the Secretariat's Coordination Project Unit (CPU), which is also responsible for implementingparts of the IDB-financed Proempleo Project and others. While the CPU will be responsible for general management of the subcomponents 1, 2 and4, the Department of Employment (DOEor Divisidn de Empleo) will beresponsible for assistingthe SPUtechnically, and for offering the expandedjob market orientation and placement services. This arrangement offers three advantages.First, from the beginning, the pilot program works through the Secretariat's unitsthat are incharge of the public policy for training and labor market insertion. Second, the arrangementscoincide and reinforce two large reforms that are currently taking place: the modernization of the SLSS which intends, inter alia,to strengthenthe Secretariat's active role in labor market orientation and regulation (supported under the IDA-financed Competitiveness Project), and the creation of the National Systemfor Labor Market Training, which seeks to bringgovernment, the private sector and private andpublic training institutionscloser together. Finally, the additional burden of setting up apilot program would be sharedby the CPU, which is composed of long-term consultants to manage the start-up phase, and the SLSS, staffed by permanent employees and will be strengthenedover time to runthe programs once it i s consolidated. The training services under subcomponent 2 will be contracted through a competitive bidding process. The administration of these services (request for proposals, evaluation of proposals and recommendationsabout their eligibility, contracting, supervision of contracts, reporting, 18 etc.) will be delegated (through a service contract) to a managementagency. The most likely candidate i s the Advisory Center for Human ResourcesDevelopment (CADERH), a non- profit organization which has contributed to the development of a network of 31independent training centers with a long track record of excellence inthe training sector and close links to the private sector. Finally, the SLSS will establish agreementswith relevant programs for alternative formal education, includingEDUCATODOS and PRALEBAH, supported by USAIDand the Ibero- American States Organization for Education respectively to (i) reach out to their beneficiaries with information and the promotioncampaign about the pilot, and (ii) allow for exchange of data sets on potential and actual participants. Basisfor Selectionof InstitutionalArrangements: Although these agencies are institutionally weak, they have shown recent improvement inimplementation capacities, and the Project will emphasize institutional strengthening. More importantly, these are the correct institutions -they have the legal mandatesintheir respective areas, andthe political support to carry project initiatives forward. The Secretariat of the Presidency has taken the lead inpreparing, monitoring, and coordinating implementation of the Poverty Reduction Strategy, inkeeping with its mandateto serve as the coordinator and technical secretariat of the social cabinet. Inthis latter capacity, the SOP collaborates with a Consultative Group (Consejo Consultive) that meetsperiodically and whose members include Civil Society representatives. Finally, the SOP managesimplementation of the PRSP's fifth pillar (Social Protection strategy), starting with a processto identify vulnerable groups and their mainrisks (Annex 1). To fulfill these mandates, the SOP'SUNAT (Unidud de Apoyo TLcnico) i s being strengthened, and will be further strengthenedunder the project. These arrangementsensure a high level of Government commitment to leadpolicy formulation and appropriate institutional coordination mechanismsto achieve successful implementation. Working with implementing agencies, the SOP i s defining appropriate interventions to close the gaps between the needs of these groups and available programresponses. The two main components of this project -Children and Youth- play a major role in fulfilling these objectives. Despite this progress, further efforts are also neededto develop a comprehensive social protection approach, including better coordination mechanisms for program design, budget allocations, and implementation. The Secretariat of Healthplays a key role within the PRSP and the Social Protection strategy. The SOH prepared the NationalPlanto Reduce Infant, Child, and Maternal Mortality, which prioritizes tackling chronic malnutritionby expanding and improving AIN-C program quality, and i s consistent with the PRSP's SP priorities. To support AIN-C expansion, this Project will help the SOHdevelop a process to institutionalizeAIN-C within the Secretariat. SOH has worked closely with the main AIN-C service provider, and has received further support for this process duringproject preparation. With PHRDproject preparationfunds and a PPFadvance, the SOH has identified and i s implementing key interventions to improve institutional capacity. The SOH i s expected to be ready to implement the AIN-C component and start the process o f institutionalization by project effectiveness. After aprocess of 'The complete Spanish name for this organization is; Organizaci6n de Estados Iberoamericanos para la EducacGn, laCiencia y la Cultura (OEI). Decreto Ejecutivo No. PCM-011-99andLey del Fondopara la Reduccidn de la Pobreza (Decreto Legislativo No. 70-2002). 19 consolidating sound institutional arrangements duringthe first year of the project, the Secretariat will start AIN-C expansion to new communities inthe secondyear. The selection of the SLSS to implement the youth employment component reflects the GOH's desire to focus thiselement of the social protection strategy on buildingthe employability and employment of youth, since the SLSS holds the legal mandate to implement policies and programs in the areas of training and employment. This decision supports two reforms underway in the public sector. First, the SLSS i s being modernized to play a more active role in the orientation and regulation of labor markets. The SLSS will retain responsibility to guide the component, but will partner with a management agency, which will be responsiblefor organizing the competitive contracting processfor training providers and maintaining the registry of accredited providers. Second, the SLSS has created the National Labor Training System, which aims to increasethe participation of employers and training service providers to complement public sector resourcesin this area. 3. Monitoringand evaluation of outcomeshesults Monitoring and evaluation systems are being developed ineach of the three implementing agencies that will permit the collection and analysis of outcome andresults indicators. The M&Esystemswill generatereports that will be consolidated andanalyzed inthe two line ministries incoordination with the SOP, as part of its role in supervising the implementation of the PRSPpriorities, and as the agency ultimately responsible for the social protection strategy and the implementation of this project. The M&Einformation systems will include data on the physical and financial progress of each component, the indicators defined for the baseline of the project, a component of community-based monitoring and social audit, and external impact evaluations. Inparticular, the project will finance baselines and impact evaluations for the two main components. Since the existing AIN-C programwas evaluated recently, it will be important to evaluate the effects and impacts of the strengthenedaspects of AIN-C design to be supported by this project. For the First Employment pilot, a baseline survey and impact evaluation will be designed with a focus on labor market insertion of the participants, and will also include the Proempleo program as far as it is comparable. The evaluation would also include an economic analysis of the intervention. The results and findings of theseM&Esystems are intended to help the implementing agencies determine the next steps for further program development and possible expansion. Project M&Eindicators are presentedinAnnex 3. To the extent feasible, the project will consolidate arrangementsto further evaluate other critical social protection programs, according to government priorities. Also with the support of this project, the SOP will implement a social audit schemefor social protection programs, as part of the overall M&Esystem o f the project. 4. Sustainability The Government of Honduras has demonstrated very strong ownership of this project, and a high level support to lead and coordinate this project from the Vice Minister of the Presidency. The GOH has committed to assume the recurrent costs of this project on a declining basisfor the life of the project to ensure that the programs will be able to continue after project completion. 20 Project design also includes consideration of severalissues to maximize the probability of project success and sustainability. Inthe AIN-C component, limited sustainability was identifiedas one of the main weaknesses of the program duringthe 2000-02 period, as shown by the decline in key output indicators (see Annex 15). Inresponse, a major focus of this project i s to strengthenthe institutional framework for AIN-C inorder to ensure that adequate supervision and follow up are a central part of implementation, and that the capacity i s in place to lead further expansionsof AIN-C coverage, as contemplated under the PRSP. In addition, while the initial investments incapacity building, training, and the buildingof systems and evaluation capacity will be considerable, the recurrent costs of the AIN-C program, once inplace, are fairly small due to the extensive implementation work via community volunteers and existing structuresof the Secretariat of Health. Inaddition, prior to coverage expansion, the project will support government efforts to reach an agreement with AMHON to involve local governments inbothexpansion of the AIN-C at the early stages and program sustainability inthe mediumterm. Inthe First Employment component, the project will support the creation of the institutional framework to coordinate the existing programs" for youth labor market insertion under the SLSS, and thereby contribute to greaterefficiency in the use of resourcesalready dedicated to this area. This result will be supported by the First Employment program becauseit i s designedto integrate the services of these interventions to ensure that beneficiaries can progressthrough all the steps inthe system, rather than only benefitingfrom one or another part of it. Finally, becausethis project supports investments inhuman capital as the most powerful mechanism to prevent and mitigate social risks, the beneficiary results are sustainable; beneficiaries of the AIN-C component receive improved nutritional status, causing sustainable gains incognitive development. Disadvantaged youth who participate successfully inthe training and first job experience, along with support to develop life skills, are more likely to become productive members of society. 5. Critical risks and possiblecontroversial aspects Risks: The mainrisks toproject success involvethe overall weak implementation capacity of the Honduran government, andpotential resistanceto institutional changes supported by the project. Mitigationmeasures: The project will deal with these risks inthree ways. First, it will provide intensive support to the administrative unitsresponsible for project implementation duringthe life of the project. Second, it will reducethe administrative burden on the implementing agencies by usingNGOs for delivery of the AIN-C package and the youth training courses and for the administration of the training contracts. Third, initially the project will emphasizethe consolidation of sound institutional arrangements (particularly in the case of AIN-C) and implementation of a pilot in the First Employment component, prior to scaling upboth interventions. Nevertheless, given the current institutional weakness for loInthe public sector, this includes INFOP, the Military Technical School, and the institutions for vocationaltechnical education and higher technical education. Inthe private sector, there are private and non-profit training centersas well as in-house enterprise training programs for continual education. 21 project implementation and the fact that 2005 i s an election year and a new administration will implement most of the project, the overall risk rating i s Substantial R i S k S RiskMitigation Measures Risk -ating with Mitigation To achievingproject developmentactivities Weak policy formulation - Strongsupport for these actionsfrom the Presidency. M andfollow through - Ongoingsupport under the projectto strengthenandtrainthe key capacity at all levels of administrativeunitsat the different levelsof the govemment. govemmentcan limit the - World Bank support andfollow up with the GOHvia other Bank impact of overall efforts tc instrumentssuch as PRSC. reformand strengthen social protectionsector management. To achievingcomponent results Weak implementation - Considerableemphasis on strengtheningthe institutionalcapacity of the capacity of the SOH SOH to administer andexpand AIN-C is included. (including local level). - Expansionof AIN-C coverageto an additional 1,000communities will start in the secondyear of the project, once the institutionalstrengthening activitiesare well advanced. - Support for the government's efforts to improvecoordinationamong donors financingprogramsto diminish infant andmatemal mortality, -which will facilitatethe administrationandexpansionof interventions. Commitment of the SOH to strengthenthe AIN-C unit, projectsupport for institutionalstrengtheningat the policy andoperationallevels, and training at all levels. - Developmentof a comprehensive work planfor the SOH Department of CoverageExtensionandFinance of HealthServicesto ensure that the demands onpersonnelto implementWorld Bank, IDBandother projects are adequatelyanticipatedandpreparedfor. - Frequentreportingof the progressof this unit by the SOH authorities to avoidbacklogs. - Contractingof outside serviceproviders. Weak implementation - The project will strengthenthe existing institutionalcapacity with a capacity of the SLSS. youth-at-riskdevelopment focus, providing technicalassistancefor administrativecoordinationof the project, andwill use asmallpilot activity to start with, which canbe scaledupover time as results warrant. - Training serviceswill be providedby outsidetraining centersrather thanby the SLSS andthe component will be implementedinpartnership with the NGOCADERH, which has extensiveexperienceintrainingand Links with the productivesector to help the SLSS to institutionalizethe programgradually. -Thiscomponent will implement intwo phasesas a pilot. Once the first phaseis implementedand evaluated, the secondphase will start implementation. Improvementsto AIN-C -Preparationof atraining calendarthat indicatesthe incorporationof modelare too many too :ach of the training modulesfor each groupofmonitores. Focuson fast andoverwhelmthe jeepeningtraining inpreventiveactivities first beforeexpandingfurther capacity of the monitores. intocurativeactivities. .Expansionof the AIN-C programto new communitieswill start inthe secondyear of project,concentratinginitial effortsto implement institutionalstrengthening inthe first year of implementation. The SOH's limited .Considerableemphasisonstrengtheningcapacity for administeringand experiencewith and :xpanding the component i s included inthe project. possible reluctanceto .Intensivepreparationandsupport for procurement andfinancial contract out service nanagementaspects, developed incoordinationwith IDA andthe IDB- provisionto NGOs. Ynanced projects, which are already strengtheningthe SOH's nstitutionalcapacities for purchasinga more broadlydefinedpackageof 22 health services. - Inclusionof contractingarrangements in the DevelopmentCredit -Agreement. The projectsupportsthe expansionof an already existingsuccessful programand many implementationmechanismsare alreadydesigned. - The SOH localunits will be allowedto compete for service provision contracts. Limited interest of service - Clearly defined rules of the game to make sure providershaveall M providersinAIN-C bid. delivery. -informationneededtodefinition of communitylotsfor feasibility of Carefulattentionto coverage. - Ample advance publicationof bidding processesand criteria to enable privateproviders to obtain accreditation. Poor performanceof AIN- -Installationof apermanent supervision system, basedon aM&E M C providersreduces informationsystem, which will includeoutcome indicatorsandprocess programquality. indicators. - Strengthenedsupervisionby the SOH. -- Contract renewalslinked to performance. Consider including apenalty for poorperformancein contracts. - Designingandadoptingan improvedsystem for providers' -certification. Improvingtraining for providers Weak employment - Developmentof broadandflexible training cumculato permit labor M generationinthe mobility and skills to adapt to change. Honduraneconomy limits employment of program -- Inclusionof pertinenttraining, linked to employer needs. Follow up support for job placement. graduates. - Orientationof training towards those clusters definedby the GOH competitivenessprogram. Sustainabilityof the - Medium-termreallocationof funds from other programsto priority programbenefitsdelivered social protectionareas. via NGOs. - Focuson supervisionof quality of servicedelivery andon strengtheningcommunityinvolvementto ensurecontinuity. Difficulty infollowing -- Prior experiencewith this modeldemonstratessustained benefits. IDA-financedaccompanyingprogrammaticlending(PRSC, etc.) will throughwith the supportthese changes. institutionalchanges - Strong support for these changes fromthe Presidency requiredfor better service delivery. Overall Risk 6. Loadcredit conditions and covenants Effectiveness conditions: Adoption of Project Operational Manual satisfactory to IDA. This manual will consist of two elements: general elements that will apply to all components of the project (fiduciary aspects, etc.) and separatepresentations for the operation of each component. Definition of a detailed implementation plan for each component of the project satisfactory to IDA, and includingthe trainingplan for the expansion of AIN-C. Signature of a formal agreement between the Secretariat of Labor and a management agency for administering training contracts. Evidence, satisfactory to IDA, that the UDECOHSS inthe Secretariat of Healthhas commencedoperations. Methodology for the baseline for components 2 and 3 presented and satisfactory to IDA. Evidence, satisfactory to IDA, of the strengthening of each of the project execution units, including: (i) professional staff and project management informationsystems inplace, (ii) installation of accounting software capable of supporting project requirements, (iii) 23 hiringof procurement andaccounting staff adequatefor project needs, and (iv) installation o f systems for planning and supervising procurement processes and contracts, ineach of the executing agencies. 0 Opening o f the special accounts. D. APPRAISAL SUMMARY 1.Economicandfinancial analyses(Annex 9) AIN-C Component: Direct benefits. The AIN-C component of the PROJECT will generate cost savings as a result of the mothers and caretakers of children underfive substituting AIN-C monitor/u care for Secretariatof Healthpreventive and curative care provision. USAIDevaluations of the AIN- C Program found that mothers who participated inthe AIN-C Program substituted their local monitores' care and consultation for visits to the SOH. The study found the following effects: (a) a 29.6% reduction inthe number of SOH outpatient consultations for respiratory illness and (b) a 49% reduction inthe number of SOHoutpatient consultations for diarrheal disease. Indirect Benefits. For the AIN-C component of the project, two types of indirect benefits are estimated: (a) enhancedphysical strength and stamina, (b) enhancedcognitive capability and (c) children's lives savedfrom reduced vitamin A deficiency. Establishment o f "without proiect" and "with Droiect" scenarios. Two scenarios are analyzed inestimating direct and indirect benefits: without project and with project. Inthe "without project" scenario the performance variables of interest are analyzed assuming rates (and rates of improvement) that exist in2004. Inthe "with project" scenario estimates of changes are basedon rates of change in coverage that the Project anticipates making. The difference betweenthese rates may be interpreted as the savings generatedby the project. This is aconservative, low-end estimate of benefits. Due to the difficulties inquantifying some of the expectedbenefits, this analysis produces what should be regarded as minimum benefit estimates, and does not take into account all possible benefits. Inparticular, it excludes any benefit attributable to: (1) more general impacts on child mortality other than those attributable to vitamin A deficiency (2)improved efficiency of the education system, owing to better nourished children starting school earlier, learning more and lower frequency of grade repetition (Hoddinott & Quisumbing, Behrman et al., 2003), (3) reduced travel time and expensesof caretakers (to take children to SOH and other care providers), (4) caretakers' lost days of work, (5) reduced duration and severity of respiratory and diarrheal illnesses due to heightened access to care. These unquantified benefits, together with the conservative assumptions made incalculating those benefits that are here estimated, mean that the project i s considerably more desirable than indicated by the conservative, low-end estimates presentedinthis economic analysis. Results. The Nutrition and Social Protection Project's proposed AIN-C interventions will generatea cumulative net economic benefit of US$26.1 million, inpresent value terms, over the course of the 10-yearevaluative horizon. 16% of total benefits represent the valuation of the direct benefits of reduced SOHrecurrent cost savings and 84% representsindirect benefits of improved nutrition and children's lives saved. The internal rate of returnof the Nutrition and Social Protection Project i s 116%, which exceeds the 12% discount rate. In 24 other words, other possible alternative uses of the project's investments would obtain 12% versus 116% generated by investing inthe proposedinterventions. When alternative discount rates are employed, the project generateseven higher net benefits, reaching a maximum of US$33.8 million when usingan 8% discount rate. This project's cost benefit ratio i s 2.36, which implies US$2.36 in benefits for every dollar invested inthe project. These results provide ample evidenceto declare the project economically feasible, by virtue of its highreturn. The following section presents an analysis of alternative scenarios, in order to investigate the sensitivity of the rate of return to changesin some of the Project's critical assumptions. The fiscal impact of this component would be quite modest. Recurring project costs, to be assumedby SOHafter the Nutrition and Social Protection Project disbursementsare completed, represent an averageof 3% of the Secretariat's projected expenditures. The estimated annual costs represent less than 1.5% of the SOH'Sbudget and less than 2% of the current expenditures. As aproportionof GDP, project costs represent a relatively small amount that does not exceed0.2% of GDP, which, together with cost flow analyses, benefits andprofitability, make the Project not only viable, but an attractive option, from an economic perspective. YouthFirstEmploymentComponent The economic rationale for investing inyouth at-risk inHonduras i s based on two considerations: (a) improved employability and productivity of the beneficiaries generates bothprivate and social returns on investments, and (b) the labor market insertion of youth who neither work nor study will diminishthe probability of them engaging in anti-social and risky behaviors, which inturn will decrease future expenses for rehabilitationand treatment related to these behaviors. Direct benefits: Emplovabilitv and productivity. More than 400,000 adolescents aged 15-19 live inextreme poverty inHonduras, and under- as well as unemployment rates for youth aged 15-24 i s at least twice the national average. The private and social costs to youth unemployment are substantial, as potential economic output i s idle, and thus not enjoyed by the individual, hidher family, and society as a whole. Based on surveys invarious Caribbean countries, the forgone productivity due to an idle factor of production--youth unemployment- -ranges from zero to more than 7 percent of GDP. Earnings forgone are the direct economic costs of unemployment to the individual. Direct costs to the stateresult from the tax revenues forgone. Indirectcosts such as social exclusion and loss o f social capital, or engagementin illegal activities, further exclude the young person from society. Unemploymenti s also correlated with behaviors such as violence, substance abuse, and risky sexual behavior that impose costs on the individual and society. Results from impact evaluations of the direct benefits of programs similar to this in Argentina, Chile, Colombia, Costa Rica, Peru, Mexico and Uruguay indicate that access to a first employment will have a positiveimpact on the employment situation and/or earnings of the participating youth. InColombia, the employment rate of the graduates after the completion of the "Jovenes en Accia'n" program reached the average employment rate of all youth inthe same occupational stream (40%) and significantly exceeded that of the control population's (22%). Inaddition, the proportion of disadvantaged youth inthe formal sector increasedsignificantly, from 18 to 38 percent. The evaluation of Peru's Projoven program shows that the employment rate for the beneficiaries of the project was 6% higher than it was 25 for the control group, andthat the programbeneficiaries' incomes were 18% higher than the control group's. The evidence suggests that 18 months after the training's end, the program's effects were still substantial. Furthermore, a cost-benefit analysis of Peru's Projoven Program that gauged the program's social rate of return, found that the internal rate of return of this program i s between 13 and 36 percent. A conservative scenario would be 20 percent. Using adiscount rate of 5%, each of these scenarioswould require lessthan seven years to acquire apositive net present value. Indirect benefits: Savings on Costs of Crime and Violence. Youth gangs and the crime and violence they engender have becomeone o f the most serious problems facing Central America, and particularly Honduras. Deprived of opportunities for gainful employment and outlets for healthy expression, youth often turn to violence to express their identities and escapethe vicious circle of poverty. InHonduras, between 15,000 and 20,000 young people are members of gangs, and since the government in 2003 amendedapenal code to make mere membership of gangs a criminal offence, more than 1,000 young people have been jailed. Youth violence has substantial costs to youth, their families, society, and economic growth. The total cost of crime committed by youth cannot be accurately estimated becausemany of the crimes includeimmeasurable losses, such as those resultingfrom murder, sexual offenses, and drugtrafficking. Furthermore, criminal activity at a young age has long-term implications for a person's future criminal activity and his or her integration into society. Datafrom some Caribbeancountries indicates the range of costs ofjuvenile crime. Total estimated social costs of youth crime reach 0.04 percent of GDP inJamaica and 0.45 percent inSt. Lucia. The total private economic coststo citizens are estimatedto beequivalent to 11 percent of GDPinJamaica and 0.92 percent in St Lucia. According to an Inter-American Development Bank study on costs of violence insix Central American countries, violence against goods andpeople in the region accumulates to a destruction and transfer of resources of approximately 14.2 percent of the GDP. 2. Technical International experience shows that effective interventions for children and youth are the most powerful mechanismsto prevent risks that may cause irreversible damage, such as malnutrition and the lack of early stimulation, etc. Tackling malnutritiondirectly reduces child mortality and improves the likelihood of better lifetime earnings. Youth-focused programs improve health and reduce poverty. Interventions for youth also addressthe risk of transferring vulnerability and thus benefit future generations. As mentioned inthe World Bank's Childrenand Youth approach, targeting interventions to these groups represents the highest leverage point for investments to buildhuman capital and break the intergenerational transmission ofpoverty. Supporting a social protectionstrategy basedon targeted interventions for infants, young children and youth i s the most effective way to effectively link suchastrategy to poverty reduction andeconomic development. This isparticularly important inHonduras since about three-quarters of the poor population i s younger than 20 years of age. 26 The AIN-C model was first developed inHonduras. The antecedents to the program date from 1991, when the SOH beganimplementing an integrated child nutritionprogram. The specific, standardizedapproachand content of what came to be the known as AIN-C were developed with assistancefrom the USAID Basic Support for InstitutionalizingChild Survival/BASICS Project. After reviewinglessons learned and key practices ingrowth promotion (Griffiths, Dickin and Favin, 1996) from other countries, the Honduran program was further refined, and launched inlate 1996. Among the innovations were: (i) a mechanism for involving the community in the program by creating a team approach to improving community health. Insteadof leadership resting on one individual, a small group of volunteers i s chosen by the community and this group helps the community as a whole analyze child growth and create a healthier physical environment for young children to live and grow in. (ii)the supplanting of the traditional growth indicator ofany weight gain with the use ofadequate weight gain, and thereby establishing a means for more closely monitoring the dynamics of child health and enabling the identificationo f problems early-on, inorder to take preventive actions, rather than waiting untilamajorhealth problem developed. (iii) a well developed set of tools to aid workers indeveloping an action plan for each child basedon the child's growth, which includes counseling, home visits, and referral. (iv) a simple, highly-structured and well-documented, job-based trainingprogramfor community volunteers, predicated on the premise that the community volunteer i s the heart and soul of the program (BASICS 1999, page 6). The program i s effective in changing mothers' knowledge, attitudes and practice related to child nutrition, child rearing (more generally) and care seeking and inimproving the nutritional status of children (see Annex 15 for details). The program focuses on the nutrition status of children less than two years of age, which is essential, and should be included in every country's health priorities for a number of reasons. First, nutrition i s a necessary condition for improving health status. Children who are mildly underweight have a two-fold higher risk of death, and those who are moderately to severely malnourished have a 5 to 8- fold higher riskof deaththan those who are better nourished. Malnutritioni s an underlying cause of 53 percent of child deaths, worldwide (The Bellagio Group, 2003). Honduras' high rate of malnutrition may prevent it from achieving not only its nutrition-specific Millennium Development Goal (MDG), but also its MDGgoals of reducing infant and child mortality. The AIN-C model includes most of the relatively small number of interventions that the prestigious Bellagio Child Survival Study Group identified as having an acceptable scientifically-based level of evidence of effect (2003a-20030 (see Table below). Diarrhea Pneumonia PreventiveInterventions I Breastfeeding Complementaryfeeding X (AIN Water, sanitation, hygiene Vitamin A Zinc X X HibVaccine X I TreatmentInterventions I 27 Oral rehydrationtherapy Antibioticsfor pneumonia Antibioticsfor dysentery X Zinc X Total includedinAIN-C 4of8 3 o f 5 Second, nutritionprograms must target children less than 24 months of age becausethis i s when children are generally beingweaned and are at greatestrisk of becoming malnourished. Children that have suffered chronic malnutrition before they are 24 months of age are biologically unable to catch-up: regardless of what their food intake status is subsequently, they remain stuntedfor the remainder of their lifetime and their cognitive capabilities, their strength and stamina are permanently and incontrovertibly compromised. Nutrition programs, therefore, must adopt foremost aprevention strategy. Third, childhood nutritionis an important inputaffecting the quality of life and a critical determinant of human capital formation andeconomic development. Adequate nutrition is a necessary, but not sufficient, condition for human development: poorly nourished children suffer malaise, are less social, have concentration problems, achieve less cognitive learning, have low school attendancerates and highdrop-out and highrepetitionrates. As aresult, they are relatively poor students (other things equal), and are less likely to developjob-related skills or adequatesocial skills, and are more likely to have a lower income-earning potential and lower qualityjobs. Malnutrition, therefore, i s an important factor affecting the intergenerational transmission of poverty. However, malnutrition not only affects individual development and income, and the intergenerational transmission of poverty, it also affects society more generally. It requires additional expenditures inhealth to combat it directly, and reduces the efficiency of other expenditures inhealth (because it interacts synergistically with other infectious diseases to undermine health status), and it also effectively throttles human capital formation and economic development. Nutrition programs and nutritionpolicy should not be equated with food distribution. Simply distributing food will not addressthe root causes of the problem, and thus must be regarded as simply a palliative measure. Nutritional status i s the outcome of a complex web of causality. It stems from deficiencies inknowledge, attitude and practices about hygiene, nutrition, health and child development andchild-rearing practices (World Bank 2004a, 2004b). The AIN-C programaddresses all three of these considerations. The FirstEmplovment program i s an intervention model for youth-at-social-risk following the main principles of several training/employment programs for youth inLatin America, including, among others, Chile Joven, Colombia's Jo'venes en Accio'n, Argentina' s Proyecto Joven, and Uruguay's Projoven. These and other interventions have beenrigorously evaluated and they show encouraging results interms of mitigating the mainrisk poor youth are exposedto, includingearly school drop out, insufficient knowledge and skills, and unemployment. Recent evaluations inChile, Uruguay, and Colombia show that a direct impact of these interventions i s higher employability for the trainees. The design of the Honduras First Employment programfollows the maincharacteristics of these successful international best practices. Specifically, the following three aspects are important: (i) The First Employment program will be effective intargeting the most 28 vulnerable groups of youth inthe country: those with incomplete formal secondary education and the unemployed. Most of these youth have dropped out of school and lack enough experience and skills to compete inthe formal labor market. (ii) The FirstEmployment program seeks to correct the mismatch between demand and supply of labor by providing training adapted to reflect the productive sector's requirements. Thus, the trainingand experience provided by the program will respond to market needs. (iii) The First Employmentprogram addresses the challenge of coupling vocational training with provision of initial work experiences, thus dealing with the two main risks poor youth face: lack of work experience and lack of knowledge and skills. Inaddition, the FirstEmployment program has beenadjusted to the Honduran needsand context, but it i s grounded on the basic principles mentioned above. Perhapsthe most important feature of the program i s that it is a preventive intervention designedto reducethe likelihood of inactivity andits direct relationship with drugs, violence and gangs. Interms of project design, the main adjustmentsinclude: (i) involving alternative formal education interventions to target poor youth and the requirement that beneficiaries continue insuch programs to create a culture of continuing education for employment; and (ii) connecting graduates to active labor market services, thus improving the likelihoodthat beneficiaries will be fully inserted. 3. Fiduciary As mentioned above, the project will have three implementing agencies. Component 1will be implemented by the Office of the Vice Minister of the Presidency, in its role as the coordinator of social policy. Component 2 will be implemented by the Secretariat of Health as the normative agency for the country's nutritionpolicy and programs, and as the supervisor and agency incharge of the monitoring and evaluation of AIN-C. Component 3 will be implemented by the Secretariatof Labor and Social Security (SLSS), in accordance with the government's decision to approach the topic of social protection for youth through labor market insertion, and over which the SLSS holds the mandate. The project responds to a set of prioritiesincluded in the social protectionpillar of the PRSP, under the coordination of the Secretariat of the Presidency. Therefore, the SOP will be ultimatelyresponsible for the proper coordination and supervision of overall project implementation and will coordinate its implementation with the other two ministries. The institutional project implementation arrangements have been designedwithin each agency. Procurement(Annex 8): The Procurement Assessment reviewedthe organizational structure for implementing the project and the interaction between the implementing agencies. The mainfinding indicates that the proposed implementingagencies have varying levels of institutional capacity and experience working with the donor-financed projects. Furthermore, the assessment identifies an opportunity to harmonize the implementing arrangements with the IDB. The IDB i s launching two projects with the SOH and SLSS as implementing agencies. The content and objectives will be consistent with the content and objectives of this IDA-financed project. Thus, the two institutions can leverage their existing capacity and experience. The overall Procurement RiskAssessment: Average. The project implementation arrangementswithin the SOH and SLSS will be sharedwith the IDB-financedprojects. To addressthe staff capacity limitations, a financial managementand 29 disbursement workshop will be delivered by the World Bank's staff once all financial management and procurement specialists are hired. Financial Management(Annex 7). The implementing agencies have varying levels of institutional capacity and experience working with donor-financed projects. Inall cases, the existing administrative, budget andfinancial managementstructure will be usedto the maximum extent possible. Project implementation arrangements within the Ministries of Labor and Health will be sharedwith existing IDB-financedprojects. Accounting and managementinformationsystems will be acquired and installed by each implementing agency by project effectiveness. As mentioned above, a workshop will be delivered by World Bank staff once all financial managementand p