Document of The World Bank

Report No:ICR197

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-45030)

ON A LOAN

IN THE AMOUNT OF US$ 12.0 MILLION

TO THE

BOLIVARIAN REPUBLIC OF VENEZUELA

FOR A

PUBLIC EXPENDITURE MANAGEMENT PROJECT

April 30, 2007

Poverty Reduction and Economic Management Unit Bolivia, Ecuador, Peru and Venezuela Country Management Unit Latin America and the Caribbean Regional Office

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

(Exchange Rate Effective December 31, 2006)

Currency Unit = Bolivar (B) 1.00 = US$ 0.0465

US$ 1.00 = 2,150 (B)

FISCAL YEAR January 1 to December 31

ABBREVIATIONS AND ACRONYMS

ARTEMISA Electronic Public Debt Negotiation Platform (Plataforma para la Negociación

Electrónica de Títulos Públicos) BCV Venezuelan Central Bank (Banco Central de Venezuela) CAS Country Assistance Strategy CGR Comptroller General Office (Contraloría General de la República) GOV Government of Venezuela ICT Information and Communication Technology IDB Inter-American Development Bank IMF International Monetary Fund ISR Implementation Status Report LAC Latin America and the Caribbean Region LOAFSP Organic Law of Public Sector Financial Administration (Ley Orgánica de

Administración Financiera del Sector Público) M&E Monitoring and Evaluation MDB Multilateral Development Bank MOF Ministry of Finance MOP Memorandum of the President MPD Ministry of Planning and Development MTR Midterm Review NBF Not-Bank Financed NCB National Competitive Bidding ONAPRE National Budget Office (Oficina Nacional de Presupuesto) ONCOP National Accountancy Office (Oficina Nacional de Contabilidad) ONCP National Office of Public Credit (Oficina Nacional de Crédito Público) ONT National Office of Treasury (Oficina Nacional del Tesoro) OP Operational Manual PCU Project Coordination Unit PDVSA Venezuela Government Oil Company (Petróleos de Venezuela S.A.)

Vice President: Pamela Cox Country Director: Marcelo Giugale

Sector Manager: Nicholas Manning Program Team Leader: David F. Varela

ICR Team Leader: David F. Varela

PIP Project Implementation Plan PMR Project Management Report PSR Project Status Report QAG Quality Assurance Group QET Quality Enhancement Team SIADE Public Debt Administration Integrated System (Sistema Integrado de

Administración de la Deuda Pública) SIBOS Goods, Works and Services Integrated System (Sistema Integrado de Bienes,

Obras y Servicios) SIGADE System of Administration and Control of Debt (Sistema de Gestión y

Administración de la Deuda) SIGECOF Integrated Public Financial Management and Control System (Sistema Integrado

de Gestión y Control de las Finanzas Públicas) SIGEFIRRHH Human Resources Financial Management System (Sistema de Gerencia

Financiera de Recursos Humanos) SITP Public Employees Integrated System (Sistema Integrado de Empleados Públicos) SNIP National System of Public Investment (Sistema Nacional de Inversión Pública) SOE Statement of Expenditures SUCERTE Superintendence of Electronic Certification (Superintendencia de Certificación

Electrónica) TAL Technical Assistance Loan TOR Terms of Reference TTL Task Team Leader UAD Deconcentrated Administrative Units (Unidades Administrativas

Desconcentradas) UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Program USEPP Evaluation Unit of Public Policies (Unidad de Seguimiento y Evaluación de

Políticas Públicas)

VENEZUELA Public Expenditure Management Project

CONTENTS

Data Sheet A. Basic Information…………………………………………………………………………..i B. Key Dates…………………………………………………………………………………..i C. Ratings Summary…………………………………………………………………………..i D. Sector and Theme Codes…………………………………………………………………..ii E. Bank Staff………………………………………………………………………………….ii F. Results Framework Analysis………………………………………………………………ii G. Ratings of Project Performance in ISRs……………………………………………….…..v H. Restructuring ………………………………………………………………………….…..v I. Disbursement Graph…………………………………………………………………........vi

1. Project Context, Development Objectives and Design............................................... 12. Key Factors Affecting Implementation and Outcomes .............................................. 63. Assessment of Outcomes .......................................................................................... 124. Assessment of Risk to Development Outcome......................................................... 175. Assessment of Bank and Borrower Performance ..................................................... 176. Lessons Learned (both project-specific and of wide general application) ............... 207. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 22Annex 1. Project Costs and Financing.......................................................................... 23Annex 2. Outputs by components................................................................................ 24Annex 3. Economic and Financial Analysis ................................................................ 31Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 32Annex 5. Beneficiary Survey Results ........................................................................... 34Annex 6. Stakeholder Workshop Report and Results (if any)...................................... 34Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR .................... 35Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders....................... 3Annex 9. List of Supporting Documents ...................................................................... 4

MAP

90

A. Basic Information Country: Venezuela Project Name:

VE PUBLIC EXPENDITURE MANAGEMENT

Project ID: P057601 L/C/TF Number(s): IBRD-45030 ICR Date: 04/30/2007 ICR Type: Core ICR

Lending Instrument: FIL Borrower: REPUBLIC OF VENEZUELA

Original Total Commitment:

USD 20.0M Disbursed Amount: USD 12.2M

Environmental Category: C Implementing Agencies: Ministerio de Finanzas Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 11/11/1998 Effectiveness: 07/18/2000 07/18/2000 Appraisal: 05/16/1999 Restructuring(s): Approval: 06/29/1999 Mid-term Review: Closing: 06/30/2004 06/30/2006 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Highly Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Moderately Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Moderately Satisfactory

i

C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments (if any) Rating

Potential Problem Project at any time (Yes/No):

Yes Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Central government administration 100 100

Theme Code (Primary/Secondary) Debt management and fiscal sustainability Primary Primary Decentralization Secondary Secondary Law reform Secondary Primary Public expenditure, financial management and procurement

Primary Primary

E. Bank Staff

Positions At ICR At Approval Vice President: Pamela Cox Shahid Javed Burki Country Director: Marcelo Giugale Andres R. Solimano Sector Manager: Fernando Rojas Geoffrey Shepherd Project Team Leader: David F. Varela A. C. Martin Del Campo ICR Team Leader: David F. Varela ICR Primary Author: Sati Achath F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objective of the Project is to strengthen the Borrower's mechanisms of monitoring and control of public resources and to improve efficiency and accountability in the management of the Borrower's public finances. Revised Project Development Objectives (as approved by original approving authority) The Project Development Objectives were not revised.

ii

(a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Increased cost effectiveness of selected public agencies' operational programs.

Value quantitative or Qualitative)

Costly operational programs

Increased cost effectiveness as measured by national and subnational budget documents, and evaluation reports.

Increased cost effectiveness as measured by national and sub-national documents, evaluation reports.

Date achieved 07/18/2000 06/30/2005 06/30/2006 Comments (incl. % achievement)

Indicator 2 : Fiscal savings resulting from streamlined budgets in the main central and decentralized units.

Value quantitative or Qualitative)

Inconsistent budget allocations and unclear priorities

Fiscal savings achieved as measured by Government and evaluation reports.

Fiscal savings achieved as measured by Government and evaluation reports.

Date achieved 07/18/2000 06/30/2005 06/30/2006 Comments (incl. % achievement)

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : SIGECOF implemented in the deconcentrated administrative units.

Value (quantitative or Qualitative)

The are 576 deconcentrated units that were not electronically integrated to SIGECOF.

SIGECOF implemented in 160 deconcentrated units.

Implement SIGECOF in 321 deconcentratedunits.

SIGECOF implemented in 321 deconcentrated units.

Date achieved 07/18/2000 06/30/2005 06/30/2005 06/30/2006

Comments (incl. % achievement)

PAD established as original target values SIGECOF implementation in 160 deconcentrated units. During project execution SIGECOF was implemented in 321 deconcentrated units (56% of 576 existing deconcentrated units. Original goal surpassed 100%.

Indicator 2 : Integration of the existing public debt registry and control systems with the

iii

central accounting system SIGECOF and development of a uniform system of management and control of operations.

Value (quantitative or Qualitative)

Deficient registry system for controlling public debt.

The Government signed an agreement with UNCTAD, for a new version of SIGADE and the development of the informatics tool.

Implement an efficient and cutting edge financial administration system and strengthen the public credit system.

Uniform system in operation. Systematic support during the implementation of SIGADE and it integration with SIGECOF

Date achieved 07/18/2000 06/30/2005 06/30/2005 06/30/2006 Comments (incl. % achievement)

The project promoted and supported the acquisition and implementation of the public credit system which substantially contributed to the best administration of public debt by MOF.

Indicator 3 : Redesign of SIGECOF, incorporating modern technologies of integrated financial administration systems.

Value (quantitative or Qualitative)

0

New conceptual and functional designs, budgetary and economic classifiers, patrimonial account plans, single conversion matrix. New informatics tools for budget execution and accounting available.

Date achieved 07/18/2000 06/30/2006 Comments (incl. % achievement)

Indicator 4 : Strengthen the capacity of the central government to monitor and enforce financial controls of human resources.

Value (quantitative or Qualitative)

0

Implementation of new monitoring and control modules in 22 agencies of the central administration, the Industrial Bank of Venezuela, the Treasury Bank and the Bolivarian University (81% of the total).

iv

Date achieved 07/18/2000 06/30/2006 Comments (incl. % achievement)

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 04/04/2000 Satisfactory Satisfactory 0.00 2 06/29/2000 Satisfactory Satisfactory 0.00 3 12/19/2000 Satisfactory Satisfactory 1.47 4 02/14/2001 Satisfactory Unsatisfactory 1.47 5 06/28/2001 Satisfactory Unsatisfactory 2.25 6 12/21/2001 Satisfactory Unsatisfactory 2.87 7 02/21/2002 Satisfactory Satisfactory 3.14 8 06/27/2002 Satisfactory Satisfactory 3.35 9 11/26/2002 Satisfactory Satisfactory 5.30

10 12/19/2002 Satisfactory Satisfactory 5.30 11 06/25/2003 Satisfactory Unsatisfactory 5.74 12 12/16/2003 Satisfactory Satisfactory 6.49 13 06/14/2004 Satisfactory Satisfactory 6.85 14 12/20/2004 Satisfactory Satisfactory 8.17 15 05/18/2005 Satisfactory Satisfactory 9.14 16 06/22/2006 Satisfactory Satisfactory 12.09

H. Restructuring (if any) Not Applicable

v

I. Disbursement Profile

vi

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal (brief summary of country and sector background, rationale for Bank assistance)

A. Political

Overview. After the mid-1980s, the quality of democratic governance and public institutions deteriorated in Venezuela. The disappointing economic performance of the 1980s generated a realignment of electoral preferences in search of new alternatives. Two failed military coups in 1992, the impeachment and removal from office of President Pérez in 1993, the return to power of former President Caldera in 1994, and the electoral victory of outsider Hugo Chávez in 1998 were milestones in the collapse of the Constitutional regime established in 1958. New Constitutional Framework. President Chávez initiated his first term with a proposal to overhaul the country’s institutions. He promoted the drafting of a new Constitution that was ratified by a National Referendum in late 1999. The Constitution changed the basis of Venezuela’s political system and established new principles for the country’s economic and social development. (a) Political System. According to the Constitution, Venezuela is a Democratic and Social State of Law and Justice. The Constitution extended the President’s term in office from five to six years, introduced the possibility of immediate reelection, and provided various mechanisms for citizen participation (for example, recall referendum and local planning councils).

(b) Economic and Social Development. The Constitution establishes a system based on economic freedom and private initiative, with significant intervention of the State to assure social justice. Specific provisions deal with issues like: (a) the Venezuelan Central Bank (BCV) independence, (b) the establishment and operation of the Macroeconomic Stabilization Fund (FEM), and (c) the promotion of economic integration and development in the Latin America and the Caribbean Region (LCR). Natural resources remain in public ownership. The Constitution promotes respect for enhanced indigenous people’s rights, declaring Venezuela a multicultural and pluri-ethnic country. Recent Political Developments. The political crisis that included a failed coup in April 2002 and a two-month national strike in December 2002 was resolved in 2004 through a recall referendum which confirmed President Chávez. Sustained popular support and the withdrawal of the opposition candidates shortly before the 2004 and 2005 elections led to his coalition winning 21 out of 23 state governorships, a large majority of mayoralities and municipal councilor positions, and all the seats in the National Assembly. Finally, Mr. Chávez won the December 3, 2006 election by more than 62 percent of the votes. The President’s main campaign pledges were: (a) to pursue a constitutional amendment to eliminate presidential term limits (this would allow him to run again in 2012); (b) to enhance, deepen, and expand the “Bolivarian Revolution” to build “a 21st century socialism” in Venezuela. This includes institutionalizing the popular social programs (misiones), reducing bureaucracy, and fighting corruption; and (c) oppose U.S. hegemony and promote a “multi-polar” world. During his third inauguration in January 2007, Mr. Chávez announced his intention to “nationalize strategic sectors” including power and telecommunications.

1

B. Economic

Overview. The Venezuelan economy is exposed to considerable volatility related to the country’s terms of trade. The dependence on a volatile commodity (oil) has translated into high relative variance of most macroeconomic indicators. Previous attempts by Venezuelan authorities to reduce the impact of such variances through stabilization funds and reform programs have had limited impact; the rules applicable to stabilization funds have been continuously changed and the programs have lacked continuity and coordination. As a result of the 2002–03 political turmoil and the ensuing oil sector strike, economic growth contracted severely and unemployment and inflation rose significantly. Since the last quarter of 2003, the Venezuelan economy has experienced a strong expansionary cycle with 13 consecutive trimesters of positive growth rates—the longest cycle in the country’s history. The increase in the gross domestic product (GDP) came from higher consumption (both private and public) fueled by the oil sector windfall and credit boom. Fiscal Policy. The boom in oil prices and improved efficiency in tax collection and administration have increased government revenues, helping the fiscal accounts reach a surplus of 2.6 percent of GDP in 2005. However, the non-oil fiscal deficit reached 17.5 percent of GDP, and any major slide in oil prices could generate a serious fiscal imbalance. The current level of public spending, around 37 percent of GDP, is sustainable only if oil prices remain at high levels, and will be difficult to reduce if oil prices decline, because oil revenues supply about 45 percent of budget income. To manage the windfall revenues, several funds have been established outside the national budget, including the National Development Fund (FONDEN), which received $8.5 billion in 2005, or six percent of GDP. The State Oil Company (PDVSA) has become a direct financier of social expenditures. Monetary and Exchange Policy. Since the inception of exchange controls in 2003, the monetary aggregates have grown at rates exceeding 50 percent a year, a fact that, together with the establishment of a fixed exchange rate regime, has limited the ability of the BCV to conduct monetary policy. To restrain the impact of monetary growth on inflation, BCV has issued the equivalent of $16 billion in certificates of deposit (as of December 2006). As a result of this sterilization policy, the real exchange rate has not yet appreciated significantly despite the oil windfall. Public Debt. Venezuela’s total public debt stands just below 25 percent of GDP. Public external debt was $27.2 billion as of end-December 2006. The maturity structure of the external debt is relatively sound, with about 75 percent maturing in 2011 and beyond. Despite recent upgrades by credit rating agencies, Venezuela’s ratings remain below investment grade, due to concerns about the sustainability of public finances and political risks. The debt management strategy for 2006 was consistent with prudent debt management practices and no changes are expected for 2007. The first stage of this strategy—to lower indebtedness to 31.7 percent of GDP—was launched in March 2006 with the buyback of $4 billion in Brady bonds and prepayment of around $500 million owed to bilaterals and IBRD. The second stage, which started in May 2006, would tackle the internal debt’s structure, lengthening the maturity of instruments and shifting from a variable to a fixed rate. Venezuela has also invested in sovereign bonds of other LCR countries. Sector Background Public Expenditure Management Issues: Recurrent oil shocks and public debt have led to structural and chronic distortions in Venezuela's public sector. Venezuela's poor fiscal

2

performance has been partly a consequence of an antiquated public financial management system, inadequate human resources and personnel management policies, and a weak tax administration. Public finances have been characterized by structural deficiencies such as: (i) rigidities in the national budget; (ii) public resource cycles that increase the effect of external shocks; and (iii) an accumulation of public deficits over nearly three decades (1970-96). The problems presented by the management of public resources included: (i) significant deviations between the budget approved by Congress and the one executed because of a lack of a proper evaluation of expenditure results and due to horizontal transfers between subsections of deconcentrated units; (ii) overly-centralized procedures due to a high degree of co-management between the Executive and Congress; (iii) sharp declines in investment spending resulting from oil shocks (iv) lack of an effective internal control to support sound accounting practices;( iv) weak incentive mechanisms for promoting and enhancing human resources within the public sector; (vi) no system of control and management of the Nation's non-financial assets; and (vii) institutional arrangements between the executive, the sub-national governments, and Congress that inhibited the effective management of public resources. In addition, the management of public resources was also characterized by: (viii) a dispersion of payments and structural impediments to implementing a single-account approach; (ix) inability to know precisely the availability of funds in all budget executing agencies; (x) fiscal management based on formal budget approval instead of actual availability of funds; and (xi) numerous "cash advances" that led to the emission of government bonds to finance the cash flow. Rationale for Bank assistance: The project was consistent with the Country Assistance Strategy's (CAS) for Venezuela.1 The project was envisioned to contribute to the CAS goal of modernizing the public sector. In addition, the Bank's substantial experience in the Region would: (i) supply highly qualified technical advice, based on its worldwide experience in implementing financial management and other key public management systems; (ii) bring credibility and transparency to the reform effort; (iii) promote efficient and effective use of the resources supporting a broad modernization strategy (Sistema Integrado de Gestión y Control de las Finanzas Públicas –SIGECOF), as well as ensuring that specific initiatives fall within the framework of wider sector reforms, and were supported by appropriate economic and technical regulation; and (iv) provide needed financing at a time when it was required.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The objective of the project was to strengthen mechanisms of monitoring and control of public resources and to improve efficiency and accountability in the management of Venezuela’s public finances. Significant achievements in core strategic areas were expected: (i) integration of the existing public debt registry and control systems with the central accounting system, and development of a uniform system of management and control of operations; (ii) establishment of a general inventory of Government assets; (iii) implementation of human resources financial management and control systems; and (iv) designing a system of budgetary monitoring and evaluation.

1 Document number: 16471 VE; Date of latest full-fledged CAS discussion: May 6, 1997

3

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

The objective was not revised.

1.4 Main Beneficiaries, (original and revised, briefly describe the "primary target group" identified in the PAD and as captured in the PDO, as well as any other individuals and organizations expected to benefit from the project) The main beneficiaries of the project were: central government entities and decentralized public entities.

1.5 Original Components (as approved) Component 1 – Decentralization and Deconcentration of SIGECOF (Project Cost: US$7.1 million) This component would support:

• implementation of systems developed in the first stage of SIGECOF in 160 units that were responsible for budget execution in the central public administration

• development of a new management system for the National Treasury that involved the procedural modernization

• integration of the existing registry and control system for public debt with the central accounting SIGECOF

• development of a system of registry, budget, and accounting control of projects financed by multilateral banks to harmonize accounting information required by the Government of Venezuela (GOV)

• design and implementation of a public finance data warehouse for the Ministry of Finance (MOF)

• promotion and implementation of SIGECOF's strategy within decentralized and deconcentrated public administrations (e.g., sub-national governments, autonomous public enterprises, and institutes) adjusting to accommodate each entity's institutional capacity to participate, as required

Component 2 - Registry, Administration, and Control of National Non-financial Assets. (Project Cost: US$4.3million) This component would support a strategy that included the creation of policies and legal and regulatory framework for non-financial asset management, and the development and implementation of a registry, administration, and control system so as to ensure efficient and rational management of these assets, under the exclusive responsibility of MOF based on current legislation. Strategically, this component comprised four levels:

• At the normative level, new laws and procedures would be developed to establish criteria for asset management

• At the institutional level, an organizational restructuring of MOF would reposition the unit responsible for asset management and define its relationship to other GOV agencies

• At the managerial level, this new unit would be responsible for the implementation of the new normative framework.

4

At the operational level, the main tool would be a methodology to keep inventory records of the GOV’s real estate and to carry out a pilot inventory of MOF's real estate, to be replicated in other agencies. An information system for these assets would be developed in parallel. Component 3 - Human Resource Financial Management and Control. (Project Cost: US$2.7 million) This component would strengthen the capacity of: (i) GOV to monitor and enforce financial controls over human resources; and (ii) MOF to allocate adequate budgetary resources to meet its general objectives and program targets. The component would develop and implement a human resource financial management and control system in each of the units of GOV's central administration and consolidate them in MOF. It would also develop an information approach to produce each entity's payroll and maintain a current and historical roster of employees, and would integrate this data with central SIGECOF in MOF. This would improve the execution of personnel expenditures and provide an adequate information base for human resource expenditure policies. The project would finance: (i) the preparation by SIGECOF of the technical specifications for the required information. An interface to transfer this data would be developed; (ii) the elaboration of a set of regulations for the financial management of human resources; and (iii) the design and implementation of a local SIGECOF for human resources to support these regulations. Component 4 - Rationalization and Planning of Public Expenditure. (Project Cost: US$0.5 million) This component would support the development and application of performance indicators to correlate the outcomes of the budgetary execution process and physical progress with the goals previously established during the budget planning phase. Additionally, these indicators would contribute to the evaluation of the cost-effectiveness of public programs. They would also provide feedback for the elaboration of multi-year budgets based on a well-defined plan for targeting public expenditure priorities. The indicators would also reflect the environmental and social cost of public expenditures. Component 5 - Reform and Institutional Development. (Project Cost: US$0.8 million) This component would support the reform and institutional strengthening of MOF. Efforts would be made to improve the Ministry's internal organization and institutional capacity for the rationalization of public expenditure. The component would also support proposals for an efficient and rational management of public resources and public investment through a phased integration of the various levels of Government (both national and sub-national) to eliminate duplication of responsibilities and general inefficiencies. The component included studies for supporting reforms of the institutional framework related to public finance processes. Reforms would focus on the budget cycle, structural rigidities in the budget, the lack of a mid-term fiscal program and the improvement in intergovernmental relations.

5

Component 6 - Project Management. (Project Cost: US$4.4 million) This component supported a Project Coordination Unit (PCU) technical capacity-building. The PCU would coordinate the technical and administrative execution of the project by preparing progress reports required by the agencies participating in the project, supporting the administration of project funds, and assisting Bank supervision missions.

1.6 Revised Components The components were not revised.

1.7 Other significant changes (In design, scope and scale, implementation arrangements and schedule, and funding allocations) Project schedule: The closing date of the project was extended for the first time by one year from June 30, 2004 to June 30, 2005 in order to provide extra time for the implementation of the previously reoriented components. It was extended for the second time by another year to June 30, 2006 in order to complete key pending activities that GOV had identified as priorities. Scope and scale of the project: See section 2.2 Funding allocations: An amount of US$5.5 million of the loan was cancelled before the closing date because GOV determined it would not be possible to spend that amount within the revised Closing Date

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable) The Project Appraisal Document (PAD) aimed at strengthening financial public sector and supporting GOV during the implementation of systems and procedures to provide more efficiency and transparency for the management of public finances and to contribute to fight against corruption as substantial goals established by the CAS. During preparation, the project design took into account lessons learned from other public sector projects (especially from the development and implementation of SIGECOF's first stage). Likewise, the design considered the risk factors and appropriate measures were adopted to mitigate them. The project also provided an adequate participatory framework.

a) Lessons Learned from previous projects

• Incentives. Merely adopting a new set of formal rules is not sufficient to change an institutional culture and incentive structure based on informality. Public officials of participating government agencies and subnational governments were committed to using the SIGECOF strategy; otherwise, a project focused on MOF run the risk of being regarded as only serving this Ministry's special needs. Officials must "buy-in" to the program so they are willing not only to learn how to use the strategy but how to put it

6

into practice. To foster adherence to “new rules of the game”, participants should perceive the envisaged changes as a way to make their jobs simpler, yet more efficient and effective.

• Ownership. The Borrower's sense of commitment and ownership of the overall reform is

usually achieved through extensive dialogue with the authorities in all aspects of project design and implementation.

• Usefulness. With the infrastructure in place, large amounts of financial information will

be produced and the project's structured training would teach users how to make information productive in their management practices. Phased training would involve public officials incrementally, overcome potential reticence, and assist them in learning how to use the new tools. GOV began to use this training by acquainting managers and technicians with initial versions of the platform as well as with basic concepts of financial management.

• Consensus building. Creating a consensus about project implementation costs and

benefits is critical. For the achievement of this consensus, the project was presented to a wide audience of senior Executive Branch and congressional leaders, civil society, and key staff within the public administration.

• Public access to information. For the sake of consensus, increased transparency and

accountability, the project should make an effort to publicize the availability of information produced by the systems. Criteria should be established so as to determine levels of access of different groups to the information, including the legislature, other civil servants, the general public, and other public groups. Informing these groups about the availability of the information required the use of social communication campaigns and other informational techniques.

• PCU administrative capacity. In the case of lessons learned from other Venezuelan

operations, the technical capacity of the PCU as well as close supervision of project operations were essential to attain goals on time and with high quality. The project was expected to benefit from the executing unit of the previous project which was implementing SIGECOF satisfactorily.

b) Risks and their mitigation.

Risk Mitigating measure Lag in institutional adaptation to budget's evaluation outcomes

Develop workable institutional arrangements

Backlog in the approval of law amendments or decrees

The strategy counted with high level political support to keep draft law in the National Assembly

Unstable macroeconomic outlook The project was an integral part of the Government's agenda to improve financial governance

Uncertainty about Government's policy framework

Ongoing dialogue between GOV and the Bank was intended to mitigate this risk

Failure of agencies to participate, use or maintain the strategy

Engagement in a training/incentives structure and develop workable inter-agency

7

arrangements. Social communications to develop external constituencies for reform

Lack of Congressional commitment to reforms Organize seminars for National Assembly members to engage them in understanding the project's relevance

Progress of proposals largely determined by political factors

Ensure the commitment of all levels of GOV to the management and control of public finance as an strategic tool

Stakeholders not providing input into the process of implementation

Extensive training and direct technical assistance to the ministries were expected to help the implementation. Incentives to entities to adopt reforms in order to increase their influence over the design and execution of their own budgets

Management and staff of sector institutions fail to internalize changes generated by the new strategy

A comprehensive training program would help adopting the new financial management practices. GOV had identified the strategy as a way to "put the house in order." Counterpart teams in each executing agency would be trained to facilitate project implementation

c) Adequacy of participatory processes.

The primary beneficiaries which included centralized and decentralized public administration, National Congress, and other donors collaborated with the Bank in the preparation of the project. Other key stakeholders such as academic institutions were consulted during project preparation.

2.2 Implementation (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable) Project activities were implemented within the political, economic and institutional changes of Venezuela after 1999 which did not affect the accomplishment of the PDO but required adjustments to certain components:

i. GOV promoted the structural transformation of public sector by giving priority to the

role of the State in society as reflected in legislation (Ley Orgánica de la Administración Financiera del Sector Público – LOAFSP- (2000) , Ley Orgánica de la Administración Pública (2001), Ley Orgánica de Planificación (2001), Ley de Estatuto de la Función Pública (2002), Ley contra la Corrupción (2003), Ley Orgánica de la Contraloría General de la República y del Sistema Nacional de Control Fiscal (2001)), as well as in the creation of special purpose funds, social programs (Misiones), and new ministerial offices.

ii. This change process generated a high rotation of staff throughout the public

administration. For instance, from 2000 to 2006 MOF had five different Ministers and the project had three Directors. This generated a natural delay in the contracting processes and product delivery. Likewise, in the interim the project lost consultants with broad experience and professional qualification who could not be replaced.

8

iii. The previous project (IBRD-Ln. No. 3225) delivered SIGECOF’s information and communications technology (ITC) platform to the National Accountancy Office (ONCOP) to be implemented at the national level and key consultants became ONCOP staff. However, this application was not able to fulfill its function as it lacked of technical skills needed for the integration of financial management systems (budget, accounting, treasury, public credit). As a consequence, ONCOP was not able to produce financial statements since 2001 and the structure and content of budget classifiers and account plans was not conducive to the implementation of an integrated system of financial administration.

iv. This project had to redesign SIGECOF’s conceptual and functional models and

promote the building of a new platform at the national level as well as the design of new classifiers and account plans to meet the requirements of a modern financial administration. This situation delayed the results expected in terms of the implementation of SIGECOF at the decentralized levels.

The Bank conducted a Midterm Review (MTR) in 2002, and assessed the progress on project components and the prevailing implementation issues. Based on the recommendations of the MTR, the Loan Agreement was amended in order to: (i) enable the project to benefit from the advanced information technology that had become available after project approval; and (ii) slightly reorient the activities by narrowing the project scope to focus on the financial management module and capacity building of MOF in terms of de-concentrated agencies. This amendment also aimed to make the financial management system sustainable in other institutions and resources were provided to train the trainers which would help sustaining the roll-out in these institutions. The following factors affected project implementation: Factors outside government control or implementation agency

• ITC Constraints. The SIGECOF’s ITC platform delivered as a final product by previous project - was only operating for budget expenditures execution and payment orders. It did not meet basic requirements for the implementation of a modern integrated system of financial administration such as budget revenues execution and the relationship between the budgetary system with accounting systems, treasury and public credit.

• New Government priorities. There was a substantial change in Venezuelan public sector

during the first phase of project execution in terms of revised legislation (see section 2.2), creation of special purpose funds, social programs and new Ministries. Consequently, MOF with the Bank’s support, decided to implement a new strategy regarding project management with special focus on the redesign of SIGECOF at the national level for it to become a new modern integrated system of financial administration able to match the new legislation with technological progress following the precedent of successful initiatives in the region. As a result, the implementation of SIGECOF in other decentralized levels was no longer a priority because the strengthening of financial administration of the national level was paramount.

• Delay in project effectiveness. Originally, the project was to be approved just as the

previous project closed in June 1999. While this project was approved, the closing date of the previous project was extended by six months to December 1999, to enable GOV to use remaining balances, and then again from December 1999 to June 2000 to help

9

financial management activities related to recovery from natural disasters. GOV then decided to use the remaining funds before signing and activating the new operation. Consequently, 12 months passed between Board approval and project effectiveness, triggering a "project-at-risk" rating. The supervision of this project continued during this period (with missions in December 1999 and June 2000) but was reported in the Project Status Reports (PSRs) for the previous project and only vaguely cross-referenced in the PSRs for this project, generating the impression that the new project had not been supervised and that no appropriate action had been taken to resolve the delays in loan effectiveness.

• Transition in task teams. In mid to end-2000, a restructuring took place in the Bank’s

Latin America and the Caribbean (LAC) Region that affected the supervision of the project. The entire task team for the project turned over. The Country Department was abolished, the Venezuela program began to be managed from Mexico City, and sector management changed in August 2000. These changes complicated the transition of task teams and the maintenance of the project documentation. There was no formal handover to the new task team; briefings and project records were not transferred systematically. No overlapping missions took place. A mission by the new Country Director and Task Team Leader (TTL) in January 2001 and a full supervision mission in April 2001 returned supervision activities to regular operations. Communications systems between the Bank and the Borrower improved, and issues such as an overdue audit report were addressed. Procurement of essential goods and services started at an accelerated pace.

Factors subject to government control or implementation agency

• High Turnover of MOF authorities and project staff. During execution, the project had five different Ministers of Finance and four Project Managers. This high rotation of authorities meant sudden changes in policy direction and delays in the design and operation of key products. There was also some lack of ownership on the side of certain Ministers. The same happened in the Ministry of Planning and Development (MPD) and in some beneficiary ministries there was also a high rotation of counterpart personnel. These facts led to delays in the timely provision of counterpart funding which in turn contributed in slowing down procurement activities.

• Lags in procurement schedules. The overall slowdown in procurement was due mainly to

the high turnover of project staff. On the procurement of the ITC system, the invitation to submit proposals for the monitoring module was published by the PCU about 17 months after receiving the Bank’s no objection. This was because, after a change in project manager, the new team stopped the process until they found time to analyze the process background and justification. With this substantial delay, some of the firms included in the short list declined to submit proposals and the team of one of the two firms that submitted proposals varied.

• Deviations in procurement processes. There were also some deviations in procurement

procedures. Selection of individual consultants was not fully made in accordance with the Bank’s Guidelines that mandate comparison of qualifications of at least three candidates. Further, the procurement of ITC systems was initially consolidated in two processes. However, to accommodate a more systematic approach to implementation, the Borrower decided to procure the systems in three separate processes which required extra time.

10

Finally, the project Procurement Committee was replaced by the Bidding Committee of MOF at the end of 2005. This decision delayed the execution of the 2005-2006 Procurement Plan because of the lack of experience of the new committee with Bank Procurement Rules.

• Lag in disbursement schedules. During its first phase, the project had very low

disbursements (less than 25% until end 2003). However, as a result of project streamlining and strategic planning in 2004, disbursements improved considerably to reach 80% of the Loan balance (after cancellations) by the closing date. According to a national budget law, for year 2003 the project could not disburse more than US$1.2 million. This amount was not sufficient to finance the US$5.75 millions originally estimated for that year. PCU requested and obtained an additional US$4.5 million to finance the shortfall. Delays in the activation of the special account in BANDES also contributed in slowing down disbursements.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E design. Monitoring of project execution was to be undertaken by PCU. The Bank would also monitor project implementation through periodic supervision missions. PCU would provide the Bank with an annual work plan no later than June 30 of the preceding year starting in 1999. Annual reviews of the project would be carried out no later than July 31 of each year, starting in July 31, 2000. A MTR would be conducted by July 31, 2001 to assess progress in meeting agreed targets, review the impact of the implementation of SIGECOF and to identify required adjustment to project implementation plans. M&E implementation. Appropriate data was actually collected using standard collection methods developed by the project. The quality of data was rated satisfactory by the Bank supervision mission. M&E utilization. The data collected was used by GOV and the Bank to inform decision-making and resource allocation. The sustainability of the M&E arrangements is guaranteed by GOV decision to utilize and strengthen the existing M&E systems beyond the Closing Date.

2.4 Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as applicable)

There were no deviations or waivers from the Bank safeguards and fiduciary policies and procedures during the implementation of the project.

2.5 Post-completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable) Transition arrangements. Even though no follow-on project is currently envisioned, GOV has assumed full ownership of the project and ensured its future operation. Most of the key consultants hired under the project have remained as permanent MOF staff for follow-up activities financed within the GOV’s own resources. MOF is also interested in continuing to receive specialized technical assistance from the Bank for the strengthening of financial

11

administration instruments to give greater transparency and efficiency to the Venezuelan public sector. The Bank may contribute to sustaining benefit, by further monitoring of the project’s operation from Caracas country office as a way to maintain dialogue with MOF on a possible follow-on project.

Lessons incorporated in the arrangements for post-completion operation. Based on the lessons learned from the project, GOV has adopted the following measures for post-completion operation:

• To hire key project consultants as regular MOF staff • To maintain project structure as a part of the line structure of MOF

List of performance indicators. The following set of monitoring and evaluation indicators developed under the project will be used as part of the GOV’s regular payment systems operations:

• Increased cost effectiveness of selected public agencies' operational programs • Fiscal savings resulting from streamlined budgets in the main central and decentralized

units • SIGECOF implemented in deconcentrated administrative units • Integration of the existing public debt registry and control systems with the central

accounting system and development of a uniform system of management and control of financial operations

• Establishment of a performance indicators system to monitor the effectiveness of public management

Suggested priority and optimum timing of any future impact evaluation. An impact evaluation is recommended for 2009.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) The objective was clear and relevant to the country’s financial management needs. It helped GOV to design and implement a comprehensive and integrated strategy to manage and control public resources. This strategy enhanced the capacity and productivity levels of MOF, equipped MOF with the tools necessary to play the lead role in promoting efficient and responsive management of public resources. At both the national and sub-national levels, those agencies implementing the strategy also benefited from increased capacity and productivity. As mentioned in Section 6.1, the project was also consistent with the CAS for Venezuela. The project aimed to continue developing an integrated financial management strategy across government levels by extending the satisfactory experience of the financial management component of the Pre-investment and Institutional Development Loan (PIID) which had established the legal, institutional and ICT infrastructure basis to improve public financial management in MOF. The project aimed to help GOV improve its public finance administration and fiscal discipline by providing accurate information in the management of financial and non-financial public resources.

12

3.2 Achievement of Project Development Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2) Moderately Satisfactory. The project fulfilled its main objective in terms of : (a) strengthening financial administration in the Venezuelan public sector, working with the core units of MOF in the modernization of financial management; (b) developing tools in critical areas of Venezuelan financial management that can be applied over a long period of time; (c) providing technical answers to the various levels of GOV, given the new realities of the public sector, such as special funds, social programs and new sector ministries; and (d) incorporating the project within the organizational structure of MOF. However, as extra-budgetary public expenditure also increased significantly during project implementation, the overall achievement of the project development objective should be considered moderately satisfactory. 2

The following specific achievements show a direct correlation between the project’s outputs and outcomes:

• The project achieved an increased cost effectiveness ratio in beneficiary Ministries and other agencies at the national level in terms of managerial skills acquired and budget classifiers and account plans developed that guarantee a better computer-based registry and bring more transparent information to effectively support the decision making-process of public executives and allow fiscal controls on real-time operations. The project also financed the decentralization of SIGECOF to local entities and its full application to 23 central agencies.

• The project was instrumental in creating the legal, institutional and ICT infrastructure

bases to improve public finance management in MOF.

• The project dramatically modernized public finance methods and processes, linked central agencies and sub-national governments to an information network, and provided the technical capacity needed to analyze financial information and better allocate resources. In addition, national budget programming and execution improved, as more accurate information allowed decision-makers to plan for the use of public resources.

• The SIGECOF comprised four basic types of reforms: (i) normative, including legal and

policy reforms; (ii) institutional, including organizational culture changes; (iii) managerial, involving the modernization of methods and procedures of each management function; and (iv) instrumental, focusing on the development of related ICT systems and complementary tools. Within this framework, the project facilitated integration of GOV's core financial administration systems (budget, accounting, public debt, treasury, and internal control) together with personnel expenditure management, management of non-financial assets,

2 For instance, to manage the windfall revenues, several funds have been established outside the national budget—including FONDEN, which received $8.5 billion in 2005, or 6 percent of GDP. Similarly, a number of the Government’s social programs (Misiones) are being financed through the State Oil Company (PDVSA) technically a separate private corporation.

13

and results-based planning and evaluation of public expenditure. The objective of improved oversight of public resource management through timely and reliable financial and physical output information on which to base budgetary decision-making was reached.

Other major outcomes were the following:

Public Sector Management. The Venezuelan Public administration is now functioning with more transparent and timely information for decision-making processes. Fiscal controls by CGR and social control by the community have also been facilitated and will support the fight against corruption. The project was expected to have a major impact in the way public administration operated in Venezuela. A comprehensive strategy was developed to enhance GOV’s capacity for a more efficient, transparent, and accountable public administration. The adequate transfer of knowledge generated by project implementation would also improve the technical capacity and quality of public sector personnel. The results-based evaluation of public expenditure would improve the allocation of these resources producing more equitable and sustainable outcomes. The project outcome will directly support the sustainability and transparency of the reforms by funding a social communication campaign, designed to promote the availability to the public of information produced by the integrated financial system. Private Sector Development. The systematization of the National Assets inventory system designed by the project is providing the private sector with transparent and real time access to GOV’s database of estimated mid- and long-term purchases and specific phases of the bidding process (proposal, evaluation, award). This will allow the development of the private sector based on procurement activities with the country’s main economy agent. Anti-corruption impact: The project generated significant anti-corruption outcomes by promoting transparency in the allocation of public resources. For instance, the development of criteria for the management of non-financial assets and the implementation of a system for its registry and control provided a solid basis for increased accountability in the public sector.

3.3 Efficiency (Net Present Value/Economic Rate of Return, cost effectiveness, e.g., unit rate norms, least cost, and comparisons; and Financial Rate of Return) Net Present Value/Economic Rate of Return, Financial Rate of Return, and Cost Effective Analysis are not applicable. However, the indicators selected for project evaluation show that the impacts and outcomes were achieved efficiently and effectively.

3.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency) Rating: Moderately Satisfactory Based on the discussion given in Sections 3.1, 3.2 and 3.3, the overall outcome is rated as moderately satisfactory.

3.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above)

14

(a) Poverty Impacts, Gender Aspects, and Social Development

Poverty Impact. Even though the project was not directly targeted to poverty alleviation, it facilitated GOV to use resources more efficiently, thus enhancing the impact of public social policies. Also the project has contributed significantly to strengthen MOF, and established an adequate framework to increase the transparency and accountability of public revenues and expenses. Such framework would help improve overall governance environment with its known positive effect on development and poverty reduction. Transparency, accountability and governance quality are determining factors for the performance of resource-rich countries like Venezuela. However, the project’s overall impact on this side may be undermined by growing extra-budget funds. Gender Aspects. Starting in 2007, the National Budget and the decentralized entities’ budget will be gender sensitive. Each budget classifier developed under the project includes parameters to facilitate the incorporation of this new approach. Social Development. The tools developed by the project would allow GOV to track its social expenditures and the way income is allocated to social programs. For example, the new SIGECOF has defined parameters to guarantee de-concentration and decentralization of the financial administration. This would mean that the information can get to the levels where the services are provided (hospitals and schools among others) and where the communities participate, as the Constitution and the law mandate for the formulation of budgets and the social control of the public management. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) The project has contributed significantly to strengthen MOF, MPD and other ministries. More broadly, budget classifiers and accounts plan replaced outdated tools and became key elements of the long-term project impact for the institutional development of the Venezuelan public sector. The new instruments of financial administration have been designed with cutting-edge technology, thus their application should be sustainable over time. SIGECOF will be fully implemented within the national administration by 2007 and subsequently in other decentralized levels together with the System of Financial Management for Human Resources (SIGEFIRRHH) and the Integrated System of Goods, Works, and Services (SIBOS). MOF has also developed the capacity to lead reform process in central agencies and has tools for states and municipalities.

The institutional development of MOF will serve as the focal point of all public finance functions. It is supported by the development of internal information and communications systems, a Help Desk for users, video conferencing and e-learning facilities, and an integrated information database (data warehouse). Institutional readiness for the new ICT systems was prepared through reforms of budgetary processes and human resource capacity-building.

The sustainability of the institutional changes generated by the project is highly-likely because: a) Project structure was incorporated into MOF organizational structure, including most

consultants and administrative staff. Other consultants were incorporated into ONT, ONCOP and ONCP. MOF authorities, at various levels, were highly satisfied with the value added provided by this project and were committed to continue implementation and sustain achievements as well as to request technical support from the Bank after closing.

15

b) Budget classifiers and account plans prepared by this project with MOF and MPD were formally approved and implemented in the central administration and decentralized entities for the 2006 budget. The budget for 2007 will be prepared with the same tools thereby ensuring further project sustainability in the years ahead.

c) The integration of the General Matrix Conversion and the National System of Treasury

with SIGECOF by 2007 will allow the integrated operation of financial administration that was shaped by the project at the national level. Pursuant to ONCOP’s decision, the same implementation will be replicated within States, municipalities and other decentralized entities.

d) SIGEFIRRHH’s implementation is still in progress within the central administration and

its line ministries. The sustainability of this module is assured by its broad dissemination throughout the public administration.

e) A new assets legislation is being considered by the National Assembly. In the interim,

SIBOS started to carry out pilot implementations, was in high demand by the institutions, especially by autonomous services, and its integration with SIGECOF has been ensured.

f) Performance indicators developed by the project and ONAPRE are currently being tested.

Its effective use depends on the Executive and the National Assembly’s decisions to follow a results-based approach for performance of public institutions. The new budget approach will require government agencies to work towards the achievements evaluation indicators.

g) MPD and ONAPRE New Stage tools for budget formulation and SNIP, follow the

guidelines developed by the project and ensures its long-term sustainability.

h) ONCP will develop an electronic connection among SIGADE, ARTEMISA with SIGECOF in accordance with the conceptual design advanced by the project.

i) The data warehouse under implementation in MOF constitutes a substantial tool for the

decision making process throughout various administrative layers of MOF.

j) The human resources development component of the project has had a great impact on the personnel connected with public financial administration and it is being replicated long-distance, with software applications developed by the project.

k) SIGECOF information is processed in real time and from a single database, providing

effective check and balances for transparency purposes in the use of public funds, and the enforcement of fiscal control.

l) The strengthening of MOF and the application of modern tools, constitute a part of the e-

development of the Venezuelan public administration. The design of the new SIGECOF is based on financial information reaching the operational instances which provide the services, where the community can participate in the budget planning and exercise social controls in the use of public resources.

GOV has expressed interest in continued Bank assistance in specific areas of the modernization process of its financial administration.

16

(c) Other Unintended Outcomes and Impacts (positive or negative) The project’s products have provided the basis of a modern financial administration. They include the best technical resources available in the region, and meet the highest standards in terms of State efficiency, specifically greater transparency in public management, and anti-corruption efforts. The greater unexpected benefit from the project was that it fostered joint work among the central offices of MOF (ONAPRE, ONCOP, ONT, ONCP) against a natural tendency to work in isolation which generated inconsistencies, duplications and reduced efficiency in the administration of public finances. Improved communications and joint work between MOF and MPD were also unintended results.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) There was no Beneficiary Assessment on this project.

4. Assessment of Risk to Development Outcome

Rating: High

During its last two years the project became a leader of financial administration reforms by integrating the efforts of various institutions within and outside MOF. However, there is a high risk that after project completion, the reform process may lose some of its technical support and sector leadership, as a result of which further reforms could become slower. In order to counter this risk, leadership at the highest levels of MOF is critical and the fact that the Minister and his immediate advisors have been involved in the continuation of project-supported reforms suggests that leadership will be forthcoming.

5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues)

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase)

Rating: Satisfactory. The Bank's performance in the identification, preparation, and appraisal of the project was satisfactory. During preparation and appraisal, the Bank took into account the adequacy of project design, GOV priorities and balanced major relevant aspects, such as technical, financial, economic, and institutional, including procurement and financial management. The project was consistent with the GOV’s development priorities and the Bank’s CAS. In addition, major risk factors and lessons learned from other public sector projects were considered and incorporated into the project design. The PAD considered the first stage of implementation of SIGECOF completed, because rules and procedures had been finalized, the legal aspects implemented and the new financial

17

administration system developed. As a result, the new project would finance the second stage of the strategy as the implementation of SIGECOF into the Deconcentrated Administrative Units (UADs) at a national level and the third stage (reaching States, municipalities and decentralized entities). Nevertheless, in fact the first stage had not concluded, not only due to the legal and institutional changes that occurred later, but because the SIGECOF informatic applications had not been tested in real operations. As stated before, the new project had to assume that responsibility, as well as the impact of the changes produced by the new legal and institutional framework. Irrespective of the above constraints, quality at entry can be considered satisfactory. A not-fully conducive environment was the result of variables outside the control of the task team, mostly associated with a change in administration. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory A Quality of Supervision of Risky Project Review was carried out in December 2001, by a Quality Assurance Group (QAG) panel. The panel rated the overall supervision of the project as satisfactory and noted:

“The project has had few implementation problems, as a successor to an operation in which the new public sector financial management system was successfully introduced. The delay in effectiveness had no material bearing on implementation of the program, which continues under this operation. The Bank's response to the Government's decision to delay loan signing and effectiveness was reasonable and did not adversely affect the achievement of the development objectives. On the contrary, the program progressed well and working relations with the client were close and collaborative. The supervision effort was broadly satisfactory, with two shortcomings: the quality of project reporting, and the management of the staffing transition in the fall of 2000. The major problems were internal to the Bank, which were not dealt with quickly or effectively, in the Panel's judgment. The single greatest problem in supervision of this project was the unsatisfactory transition between task teams late in 2000...”

The ICR team agrees with the QAG findings and rating. The Bank's performance during the implementation of the project was satisfactory. Sufficient budget and staff resources were allocated, and the project was closely supervised and monitored from the field during the last year. The task team prepared Aide-Memoires regularly, and discussed and resolved with GOV and PCU project implementation issues in a timely manner. The Implementation Status Reports (ISRs) realistically rated the performance of the project both in terms of achievement of development objectives and project implementation. Fiduciary aspects were properly dealt with by the task team. Consultants based in Caracas were assigned some aspects of supervision and proved extremely helpful as they became closely involved in the day-to-day operations and provided the PCU with timely guidance and support.

18

The Bank’s procurement specialists worked with PCU staff to explain the rules and procedures to be applied during project implementation, with regard to procurement of goods and works, and selection of consultants, based on the Loan and Project Agreement. The overall quality of procurement documentation and processes remained satisfactory, and compliance with agreed procurement schedules remained high, as evidenced in the latest ex-post review conducted in August 2006. The Bank was slow to respond to some changes in the GOV priorities in particular during the 2000 internal transition. It could also have taken a more proactive lead in the areas of transparency and accountability, as the tools designed by the project were ideal to that end. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory. Based on the Bank performance during lending and supervision phases as discussed in Section 5.1, overall Bank performance is rated as Satisfactory.

5.2 Borrower Performance

(a) Government Performance Rating: Satisfactory. GOV maintained its commitment during major part of implementation, in spite of the uncertainties associated with the political crisis of 2002-2004. The strength of this commitment to improve financial management was shown by: (i) the rapid and satisfactory implementation of SIGECOF I; (ii) the proposed plan of integrating SIGECOF II (deconcentration) and III (decentralization) in one phase in order to accelerate the assistance and implementation of the strategy at the sub-national level and within autonomous entities; (iii) the enactment of Presidential Decree No. 570 (02-23-05), which established the SIGECOF system as the main tool for implementing the public financial management reform; (iv) submission to Congress of the SIGECOF draft law on financial management prepared by the project; and (v) an explicit request from the Government to the Bank to expedite the implementation of the proposed loan. MOF undertook the reforms to improve the management and control of public finances, of which SIGECOF was the centerpiece. The second stage, supported by the project, was programmed to broaden the coverage, and transform and integrate the system of financial management at the central, subnational, decentralized and deconcentrated levels. This required strong institutional capacity within the central administration, MOF and PCU, as well as commitment in the regional governments and municipalities, and the autonomous agencies. In addition, the system users were involved in the definition of the products and received training, with the valuable byproduct of professional development and inter-institutional coordination in their respective areas. A number of GOV officials were assigned to work on this project. The Minister and Vice Minister were themselves involved in implementation. MOF had a strong team which had a good understanding of the Bank policies and procedures. Substantial counterpart resources were allocated to sustain the program. Frequent turnover at the Minister’s level may have occasioned some delays as each Minister wished to instill a new approach to ongoing reforms. Overall, the project retained strong high-level support and could accomplish most of its objectives.

19

(b) Implementing Agency or Agencies Performance Rating: Ministerio de Finanzas Moderately Satisfactory.

Implementing Agency Performance PCU The performance of PCU was moderately satisfactory. The

PCU was responsible for overseeing the implementation of project component and subcomponents and establishing the links for further coordination with other agencies (e.g. OCP, OCEPRE and MPD), as needed, for the effective delivery of component outputs. The previous experience of the members of PCU proved highly valuable to the project. For most of the implementation, the PCU was run by personnel of high technical capacity and motivation, with a successful record from the past implementation of SIGECOF I. PCU had a Venezuelan project director and professionals assigned to oversee central project activities. Each agency implementing SIGECOF had management teams to oversee its implementation. PCU provided more direct support to teams in smaller agencies and to weaker sub-national governments. In the beginning of project implementation, the PCU had difficulties to meet the Bank’s financial management and procurement standards. Towards the end of implementation the PCU had acquired the capacity to manage the project, and was particularly effective during the extensions of the Closing Date. Transition to regular operations will be facilitated by the permanent hiring of most of PCU staff by MOF.

(c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory In light of the Government and PCU performance as discussed in Section 5.1, the overall performance of the Borrower is rated moderately satisfactory.

6. Lessons Learned (both project-specific and of wide general application) Positive Lessons

• The implementation of financial administration reform projects benefit from the support from high-level political actors within Ministries of Finance. The reform of public structures around sensible issues as transparency and accountability, should also receive technical assistance from international and national experts. These projects should be able to implement sustainable reforms that cannot easily be reverted, as they become embedded in permanent legislation. (general applicability)

20

• In spite of difficult political and economic circumstances, these projects have high

chances of survival because of the strong interest of the government to obtain and utilize on reliable information. Being a strictly technical matter, this is an area that can be isolated from political crises.

• Flexibility during design and implementation is essential to better reflect variance in the

government priorities and needs; it will allow the project to respond to these changes. Flexibility is all the more important for a highly technical project such as this, because of rapid changes in ICT technology which could not be envisioned during project preparation. A simple design with an incremental approach is of the essence. (general applicability)

• Building adequate capacity in the Ministry of Finance is a pre-requisite for rolling-out

these projects and promoting changes in other institutions. It is the basis for an incremental approach that supports rapid delivery and subsequent demonstration effects that help to pursue reforms in weaker agencies.

• It is critical to build into the project design a mechanism for ownership. The role of

participating institutions, and incentives for change should be clearly defined and laid out. The benefits for the institutions, its officials and its users should be clear right from inception. (general applicability).

• Time-bound action plans and legal remedies are basic tools during a restructuring process.

When a project restructuring is needed, the Bank should agree with the Government on a time-bound action plan, with specific benchmarks and milestones, in order to avoid unproductive discussions.

• Proactivity is required at all stages of project design and implementation. Whenever

changes occur at the level of a minister or vice minister of the executing agency, the Task Team should take the initiative to approach the new authorities, clarify any doubts that they might have about the project, and make special efforts to involve and commit them to the process.

Negative Lessons

• Wherever country, sector and project leadership change, transitions have to be managed smoothly, sensitively, and pro-actively, and with the ultimate objective of providing uninterrupted services to the client. (general applicability)

• Bank management should ensure the quality of documentation of Bank operations and

the effective transfer of knowledge and the records from one task team to another. Abrupt transitions may have a negative impact in the quality of supervision (general applicability)

• Political changes have considerable impact on project design and implementation. The

Bank should be more sensitive to the political changes taking place in a country (such as a new government, or ministerial changes in an implementing institution, in order to analyze the implications, in particular when implementation has not yet started.

21

• Project approval or signing around the time of a Presidential election or inauguration may be counterproductive even for technically sound operations. In case a change in the policy approach is likely, the Bank should assess the risk that the new Administration may become suspicious of Bank’s agreements with the prior Administration; this risk is even higher when the incoming Government has publicly announced a radical departure from the economic and social policies of the previous one. Project approval or signing around that time may delay or compromise implementation.

• Frequent or sudden changes in Task Manager may also be counterproductive. While the

continuity of task manager may assist in the generation of sound technical proposals at the design stage, the frequent changes at the time of supervision may erode the quality of the constant dialogue and follow up required for project implementation to proceed smoothly.

• Participation and consultation devices are required at all stages of the project cycle.

Participation and consultation should not be exhausted during preparation. For State reform projects, it is essential to establish consultation and participation mechanisms with stakeholders external to the implementing agency, in order to stimulate the internal decision-making process.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies See Annex 7 (b) Cofinanciers NA (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) NA

22

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in US$ million equivalent) (Total rows and percentage column will be calculated by the system)

Components Appraisal Estimate (US$ million)

Actual /Latest Estimate (US$ million)

Percentage of Appraisal

Deconcentration and Decentralization of SIGECOF 7.1 3,68 51,90

Registry, Administration, and Control of National Non-financial Assets.

4.5 0,77 17,13

Human Resources Financial Management and Control. 2.9 1,83 62,98

Rationalization and Planning of Public Expenditure. 0.8 0,3 37,20

Reform and Institutional Development 0.8 1,93 241,08

Project Management 4.4 3,60 90,07 Total Baseline Cost

(US$ million) 23.8 12,11 50,88

Front-end fee 0.2 0,18 97,51 Physical Contingencies Price Contingencies

Total Project Costs 24.0 17,51 72,95 Project Preparation Facility (PPF)

Front-end fee (IBRD only) Total Financing Required 24.0 17,51 72,95 (b) Co-financing (The appraisal estimate will be pre-populated from the Financing data in SAP/AUS; Percentage of Appraisal column will be calculated by the system)

Source of Funds Type of Financing

Appraisal Estimate

(US$ million)

Actual/Latest Estimate

(US$ million)

Percentage of Appraisal

[Government] 4.0 5,22 130,50 [IBRD/IDA] 20.0 12,29 61,43 [Donor A] [WB-

administered TF]

[Donor B] [Parallel financing]

24.0 17,51 72,95

23

Annex 2. Outputs by components Component 1: Decentralization and Dispersion of SIGEGOF Responsibilities Redesign of SIGECOF The authorities of the National Budget Office (ONAPRE) are satisfied with the project contribution to the achievement of MOF objectives of strengthening and modernizing the public budget system. One of the main Project achievements was in the process of formulation of the National Budget and the Decentralization Entities Budget. The project supported the establishment of a new project-based budget methodology, and the design of a new budget classification system. The previous classifiers, which were in use for 20 years, were substituted by a new system that ensures the operation of an integrated system of financial management (budget, accounting, treasury, public credit) and guarantees its applicability to the entire public budget (central administration, states and municipalities, decentralized entities and joint-ventures). To create this new system, these classifiers were developed through the joint work of MOF, MPD, and other institutions (like SENIAT, insurance companies, sectoral ministries). The 2007 budget was formulated under the same methodology, its consistency and effectiveness demonstrated after a year of testing, now known as the “New Stage” tool, shared by ONAPRE and MPD. It is now a robust instrument to follow-up investment projects, and it has taken many elements from the National System of Public Investment (Sistema Nacional de Inversión Pública - SNIP), an application that the project had developed for MPD. As provided by the LOAFSP, the annual budgets will be based on a tri-annual budget framework. With the establishment of project-based budgeting systems, the PAD expectations with respect to the integration of public investment plans with the annual budget were achieved. The project also contributed to: a) the design and development, together with ONCOP, of the new Accounts Plan that is integrated with the budgetary classifiers and guarantees its application in all the non-financial public sector. Application in the states and municipalities will occur after amendments are made to the legal rules and procedures; b) design the New Model of Financial Administration of the Venezuelan Public Sector and the Macro-Functional Model of e-SIGECOF which now should be adapted to the system of project-based budgeting; (c) the development of the Unique Matrix of Conversion of the Integrated System of Financial Management and its informational management, which will convert SIGECOF into one of the most modern systems of financial administration in the Region; and (d) the support of ONCOP in the development of the application of the new SIGECOF, based on the model of financial administration. The SIGECOF applications represent a significant improvement in overall financial management. They operate based on a single database, eliminating the previous scheme of replicating information that generated many inconsistencies in the reports of budget execution. Budget execution is conducted in various stages (commitment, accrual and payment) which make the system much more efficient. According to ONCOP by June 2006 nearly 60% of the national budget had been executed, compared to 40% execution by the same date for the previous year. The efficient operation of the new SIGECOF relies on a help-desk that provides services to distant users, operating in a similar form to a banking call center. The project equipped ONCOP with the ICT infrastructure for the help-desk system and signed a long-term contract with the software provider. Currently, the help-desk is operating under ONCOP with 25 employees and

24

will reach 50 when it provides its maximum level of service. The new SIGECOF will be integrated electronically with the SIGEFIRRHH and SIBOS by early 2007. The applications of the new SIGECOF contain the module for expenditure execution. The module for revenue execution by ONT was expected to enter into operation by late 2006, and will be subsequently extended to the entire Central Government. The operation of the new SIGECOF in the Public Ministry has been quite successful. Gathering data from 30 administrative units at the national level. SIGECOF provided better operational response and generating a number of reports of spending execution. The institution executed more than 50% of its budget in June 2006, compared to 30% by the same month in fiscal year 2005. For the implementation of SIGECOF, the Project provided the beneficiary institutions with a total of 1,709 ICT equipment, strengthening ONCOP with 146 units. It also conducted eight workshops on the Organic Law of Financial Administration for the Public Sector (LOAFSP), training 399 public employees over 56 hours. These efforts complemented the technical assistance provided under the project in order to complete the applications of the new SIGECOF. At the same time, the ICT development was accompanied by the necessary administrative re-engineering (simplification of processes, electronic signature) to ensure greater impact. Implementation of SIGECOF in 160 Deconcentrated Administrative Units (UADs) The target to implement SIGECOF in 160 UAD UADs was easily reached, since at the close of fiscal year 2005, 321 of 576 existing UAD UADs were connected directly. For fiscal year 2006, with the change in budgeting techniques, the number UAD UADs has reached 1,360 and will continue to grow as each Ministry establishes new UAD UADs to exercise full control of its new resources. Budget executing units wish to implement SIGECOF even after the project closure, thereby generating additional pressures on the GOV’s own resources to continue with Project reforms. Development of a new system of Administration of the National Treasury The project supported the modernization of the treasury system through the participation of ONT in the development of tools to: (i) consolidate and operate the Single Account; (ii) filtering the database for the Treasury; (iii) establishing the module of Control of Banking Accounts of the public sector and registration of financial instruments; consolidating the payment system through connectivity between the ONT and the Venezuelan Central Bank (BCV) and commercial banks; (iv) establishing the module of non-budgetary payments for ONCP, the module of payments for external debt, the system of financial investment and the module of internal revenues, which will be integrated, in electronic form, with SENIAT and the banking system. It is expected that there will be greater integration with other systems of financial administration, but even if ONCOP does not make further progress, the Treasury will continue the development of systems consistent with its own needs and priorities. With the assistance of a team of young, motivated professionals in various disciplines, in just a few years ONT has achieved a high level of modernization and adaptation to the growing requirements of GOV for new tools in the administration of public funds. ONT has also benefited from the data warehouse developed by the project, applying it gradually to the various modules of

25

the system. Integration between the registry and control of the public debt and SIGECOF The ONCP has already contracted with the UNCTAD (United Nations Conference on Trade and Development) the establishment of the 5.3 version of the System of Administration and Control of Debt (SIGADE). In addition, they have worked with UNCTAD in the design of information applications that will guarantee an automatic link between the administration tools of public debt and SIGECOF, for which ONCP is developing a table of information requirements. In addition, ONCP has put into effect the Platform of Electronic Negotiation of Public Titles (ARTEMISA), to facilitate the buying and selling of internal debt in the national market. In July 2005 the pilot tests began, with the support of engineers from the Ministry of Science and Technology. That application may be integrated with SIGADE and SIGECOF for its optimal utilization. The integrated applications could be available by 2007, substantively increasing the efficiency of SIGECOF and the integration of the public credit system, treasury, and accounting. Although the goals established by PAD – integration among the public debt control and SIGECOF- were not fully achieved they are still achievable by ONCOP. Delays were due to the continuous turnover of authorities and staff of ONCP and the lack of a full time specialized consultant for component implementation. The ONCP has advanced in the systemization of its administrative internal processes, and by June 2006 begun implementing project “Alejandría” project of file digitalization and electronic processing of public debt transactions. Development of a system for the registry, control, budget and accounting of projects financed by multilateral financial institutions The Project made efforts to find the best tool to administer and control projects financed by international institutions. It conducted six pilot projects and searched an international firm specialized in this technology, arriving at the point of selecting the company and obtaining the Bank’s no objection. However, in the context of a restructuring of the institution, the authorities of ONCP did not prioritize this issue and finally decided to develop their own software. This software focused exclusively on the requirements of ONCP for following-up loan disbursements, advances and payments, with the intention of integrating them with SIGADE. This was a different focus from the original project design which considered developing a tool for administering projects and complying with the integration requirements of SIGECOF while providing information to MPD, ONCP, and financing organizations. Design and implementation of a data-warehouse for MOF The establishment of the data-warehouse was successful, with the ONT’s Single Account and the various system modules of the Treasury gradually incorporated into the system. Similarly, the data warehouse was used by the Financial Coordination of the State Office (CFE) of MOF, which obtains information from 23 organizations of the public financial sector to support decision-making and control processes. For example, this tool allowed identifying individuals that request the same benefits from different organizations. The same progress was reached with the Directorate of Statistics of MOF, ONCOP, ONCP, ONAPRE, and other offices of MOF.

26

This sub-component developed an intelligent data storage system for research purposes with tools for modeling, scenarios, simulations, and forecasts. The project acquired the required software, installed servers and tested the software with ONT, CFE, and ONCP, and trained 17 officials for a total of 24 hours training, designed three-dimensional data spaces and created a data-mark in beneficiary-agencies. Promotion and implementation of SIGECOF in the decentralized public administration SIGECOF in States and Municipalities The project developed a conceptual model for States and municipalities, trained staff of 18 States and 10 municipalities on that model, and the entered into cooperation agreements with 10 States and 5 Municipalities. Facing the redesign of SIGECOF, the project contracted a company that designed a local SIGECOF consistent with the new approach. This strategy was designed to facilitate incorporation of SIGECOF at the local level so that the laws that affect financial administration were enforced by States and Municipalities as well. The PAD expected the participation of 80 entities (states, municipalities, and autonomous agencies) in the implementation of SIGECOF’s strategy during the years 2003 and 2004. These goals were not achieved due to SIGECOF’s redesign and implementation at the national level. The project proposed a parallel track strategy but it was rejected by ONCOP authorities. Overall Project progress regarding the implementation of new technologies for financial administration by states and municipalities was not satisfactory because there was no political support from local level. Project achievements were satisfactory only with respect to the development of new methodologies of financial administration for States and Municipalities. For this model to be implemented, however, strong political support was required but not present during project execution. A working group was established to exchange to exchange information with nearly 25 mayor offices. It prepared norms for establishing SIGECOF at the local level as the Municipal Code authorizes ONCOP to determine accounting systems in the municipalities. This system would have close relationship with the National Contracting System which is the responsibility of the Ministry of Light Industries that manages the National Registry of State Contractors. The project trained 1,672 officials from States and Municipalities, through 31 events, for a total of 439 training hours. SIGECOF in the decentralized entities The project advanced the conceptual design of SIGECOF for decentralized entities by developing operational manuals and a tailor-made system of budget formulation and execution including modifications, advances and administrative allocations. It established 11 treasury processes in decentralized entities and developed manuals for budget execution, as well as norms and instructives for the preparation of financial statements of such entities. In the subsequent phase, the project concentrated on the redesign of SIGECOF, and the priority was to develop tools for the national administration for the not decentralized entities. Therefore, it was not possible to achieve the goals set forth in the PAD.

27

Nevertheless, following the 2006 Budget, the system of budget classifiers and accounting plans designed by the project has being applied to the decentralized entities. During the project period, 245 officials were trained in the decentralized agencies through 6 events for a total of 16 training hours. Component No. 2: Registry, Administration and Control of National Assets The National Assets System includes procurement and administration modules for movable and unmovable assets, and civil works. The project prepared the manuals for the registration and execution of works, the management of assets, the registry of materials and supplies, and a catalogue of goods and services. The data processing tool for the Integrated System of Goods, Works and Services (SIBOS) has been installed in five pilot institutions (Ministries of Finance, Education, Foreign Affairs, Infrastructure and in the Judiciary Executive Directorate). This application has been tested, and civil servants of the pilot institutions have been trained. Its integration with the new SIGECOF will be considered at a later stage. The project also made progress in the national assets inventory system and a consultant prepared its methodology, rules, and procedures. In this regard, the project achieved the goals established in the PAD, since the Draft National Assets Act is about to be approved by the authorities and the National Assembly while the establishment of SIBOS in MOF and four other institutions is in the testing stage. The methodology for the inventory of the National Assets is ready and is awaiting the decision to proceed with implementation, through the creation of an Office of National Assets in MOF, as provided by National Assets Act. The project trained 139 public officials, in 8 events for a total of 100 training hours. Component No. 3: Administration and Financial Control of Human Resources This component included two systems: The System of Financial Management of Human Resources (SIGEFIRRHH) comprises processes to record, monitor and control labor benefits that are awarded to GOV employees; and the module of planning and development, that allows for the formulation of staff plans. This system is integrated with SIGECOF. The Integrated System of Public Employees (SITP) was designed for MPD so that it can administer and process all the information of public administration employees, and comprises three modules: (A) the staff module, which traces the relationship between the employees and the public administration from appointment to retirement; (B) the staff planning module which allows MPD to evaluate, approve, and control the application of public employee policies through the staff plans of other public organizations; and (C) the integration module with SIGEFIRRHH. MPD has evaluated the certification processes of this application and has already reviewed 67% of its 49 steps. The system was presented to 1,028 officials and 1747 public officials were trained for a total of 1,440 training hours. The system was built based on GOV’s directions regarding the use of free software which use the same communication tools of ONCOP (a web server). These tools are designed to allow Ministries to manage staff in their own decentralized entities, in the same way MPD does with each ministry. SIGEFIRRHH was presented to ONAPRE which positively evaluated the system and incorporated it into the 2007 Budget. The system gave a rapid response to ONAPRE which had been instructed to program the 2007 Budget under an inputs and outputs system.

28

The achievement of PAD’s goals is satisfactory because allowed to integrate SIGEFIRRHH with the 2007 budget. The Filing Module includes 910.476 workers in its database. The staff module records 410.618 workers and 120 payrolls in parallel. Component No. 4: Rationalization and Planning of Public Spending The project completed various activities, such as the workshop on a “Multi-year Budget Proposal” supported by the Office of Planning and Macroeconomic Analysis of MOF and experts in fiscal discipline from the International Monetary Fund (IMF), and the development of a pilot project on technical norms for registration, monitoring, and evaluation of public expenditures. Performance evaluation has been taken seriously by Government. The National Assembly is demanding that Ministries be accountable for resource management and are demanding use result-based indicators, On the other hand, no less than 17 legal norms require performance evaluation, particularly the laws against corruption. The MPD, in the area of short term planning, is implementing a follow-up system with specific performance indicators. In this area, the Ministry of Infrastructure (MINFRA) is one of the most advanced. A specialized unit was created to conduct indicator follow-ups within the Ministry, as well as its dependent entities. Internal information is processed monthly, every three months sent to MPD, and yearly for the annual report of the Ministry. This follow-up system provides valuable information to the mobile cabinets that the President of the Republic uses to understand regional needs and assess the impact of the Government programs. The Bank has suggested that these indicators be analyzed by other public agencies that perform similar functions (for example, public investment in infrastructure), for the purpose of developing standardized information at the national level. It also suggested comparing the indicators with international standards, in order to expand the comparative analysis with measures produced by similar regional institutions. ONAPRE acknowledged Project support for the organization and maintenance of this system and expect to continue working with it throughout the public administration. The Project supported 37 courses and workshops for a total of 636 teaching hours, 918 officials were trained in the new performance evaluation methods, the utilization of the new budgeting structures and the use of performance indicators. PAD goals were achieved, as the implementation of the project budgeting method started in 2006. Furthermore, the implementation of the performance indicators in about 600 projects, of which more than 200 are in progress, not only significantly surpasses the 60 programs estimated in the PAD but facilitates the implementation of a general budgeting system for results-based evaluation as well as the integration of public investment plans into the annual budget as specifically required by the PAD. Component No. 5: Reform and Institutional Development Reform and strengthening of MOF The project contributed MOF by: (a) working in the design and implementation of key tools of financial administration (SIGECOF, data-warehouse), the integrated systems (SIGEFIRRHH, SIBOS, SIGADE) and integration with other public management systems (SNIP, SENIAT, and

29

banking system); (b) drafting of the legal and regulatory framework; and (c) providing MOF with the ITC equipment and training required. The Project contributed to the institutional strengthening of MOF and other public institutions by providing a total of 545 computer and telecommunications equipment. Legal area The legal area carried out several activities to support MOF, working in coordination with outside consultants on: (a) the draft of General Regulations of LOAFSP; (b) the organization of internal control in the national public administration; (c) the regulations of the budget, accounting, treasury, and public credit systems; and (d) the draft National Assets Act. Training and change management The project financed training for 7,635 public officials, through 172 events. Inside the training system, the project developed a process of internal training with counterpart resources, through eight extra events, in which 139 consultants participated for a total of 100 training hours. Follow-up and evaluation of Public Policies Under the project, the process of technical-financial support was maintained for the strengthening of the Follow-up and Evaluation Unit of Public Policies (USEPP), a unit of MOF. SNIP The project developed this tool for MPD in 2003. It comprised the methodology and applications for investment projects. The project also provided the ICT equipment for implementing the system. Initially, SNIP works only with the projects included in the Special Indebtedness Act which accompanies the Annual Budget. The New Stage application developed in 2005 also captures information required for the management of “mobile cabinets”, a key government decision-making tool that will benefit from SNIP. The General Directorate of Planning and Investment of MPD hopes to continue with SNIP, to process the entire project cycle and provide prompt responses information requests for decision-making by MPD authorities. Information and telecommunications infrastructure The project equipped MOF and other organizations involved in the financial administration reform with the hardware and software tools required by new technologies. After project closing, the line offices of MOF will be in charge of the ICT infrastructure. The Project also developed integration of the channel of the information systems of MOF, fundamental element for optimal operation of SIGECOF. For this reason, the bidding process for “Supplying cabling and active components for MOF data center” was cancelled and the background information was sent to the Informatics Office of this Ministry activity and this Office also took over the “Supply of IP Telephony for MOF” preferred to use individual switchboards. In the Bank’s opinion, these switchboards were old-fashioned technology, which would not support the levels of communicational efficiency required by the help-desks installed in ONCOP.

30

The project informatics area provided support to the users of the new system (SNIP, SIBOS, SIGEFIRRHH, ONT systems, data warehouse). In the case of inter-connected systems, work was done through a community of users, establishing technical committees who define strategies and work plans. Electronic signature for SIGECOF did not make full progress, but a company was contracted to implement it partially in integrated systems, such as SIGEFIRRHH and SIBOS. The implementation process for the financial administration systems required a substantial amount of resources, and should include other Government technology programs, such as the "digital city-halls”. A back-up facility outside MOF installations, is also critical to ensure that the recording of SIGECOF transactions is not interrupted by physical accidents in the informatics infrastructure, as currently only one data base is operating, located in the MOF installations. The Bank considers the hardware and software equipment provided fully satisfactory, with for the purposes of fulfilling Project objectives; nevertheless the Project could have been more effective in the formulation of terms of reference, and in the acquisition of some of the ICT equipment whose supply could not be completed during the life of the Project.

Annex 3. Economic and Financial Analysis N.A.

31

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending

Antonio Martin del Campo Principal Public Sector Management Spec. LCSPS Team Leader

Monica Fidel Operations Officer LCSPS Institutional

Reform/Human Resource Specialist

Livio Pino Financial Management Spec. LCSFM Financial Management Specialist

Efraim Jimenez Lead Procurement Specialist LCSPT Procurement Assessment Specialist

Eduardo Wallentin Manager CLASC Institutional Reform Specialist

Walter Vergara Lead Chemical Engineer LCSES Environmental

Assessment Review Coordinator

Maricarmen Minoso Operations Analyst LCSPS Fiduciary/Planning and

Evaluation Systems Specialist

Rosa Elba Perez Hernandez Consultant Lead Operational AnalystLuis Felipe Lopez Consultant Research

Supervision/ICR Antonio Martin del Campo Public Sector Management Spec. LCSPS Team Leader

Waleed Malik Lead Public Sector Management Spec. LCSPS Task Manager

Maricarmen Minoso Operations Analyst LCSPS Fiduciary/Planning and

Evaluation Systems Specialist

David Varela Country Manager LCCVE Team Leader Ana Pereda Consultant LCSPS Specialist Angel Cardenas Consultant LCCVE Sector Specialist

Osvaldo N. Albano Consultant LCSPS Sr. Public Sector Management Specialist

Patricia Mc Kenzie Sr Financial Management Spec. OPCFM

Financial Sector, Regulation, Quality Assurance and Risk

Management Juan Pablo Molina Consultant LCSPS Operational Analyst Javier Madalengoitia Consultant LCSPS Operations Analyst Nina-Christina Ohman E T Consultant LCSPS Operations Analyst Marcelo Amador Osorio Consultant LCSPT Specialist

Roberto O. Panzardi Sr. Public Sector Mgmt. Spec. LCSPS Public Sector Management

Pedro Alejandro Ravelo Luciani Consultant LCCVE Operational Analyst Claudio Sandoval Consultant LCSPS Specialist

32

Sharon D. Spriggs Program Assistant LCSPS Program Assistant

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks USD Thousands (including

travel and consultant costs)Lending

FY99 82.23 FY00 3.37 FY01 0.64 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00

Total: 86.24 Supervision/ICR

FY99 8.81 FY00 13 68.96 FY01 16 87.55 FY02 15 88.22 FY03 9 99.76 FY04 7 119.56 FY05 9 42.86 FY06 9 75.76 FY07 1 28.10

Total: 79 619.58

33

Annex 5. Beneficiary Survey Results N.A.

Annex 6. Stakeholder Workshop Report and Results (if any) (including assumptions in the analysis) N.A.

34

Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR

Main factors influencing implementation and results: Supervision and design, implementation and use of the evaluation

• Scarce technical-professional resources with sufficient expertise for this type of project.

• Lack of legislation on public administration which could facilitate the design and implementation of modernization initiatives with features similar to those of the Project.

• Highly decentralized financial management in State entities. • Manual and automated systems not linked with one another.

Based on these factors, a Presidential Decree was issued to initiate a State Financial Management Modernization Program; its most relevant aspects are described below:

a. Develop and implement an Integrated Public Finance Management and Control System (SIGECOF).

b. Strengthen the Public Expenditure and Internal Audit Control duties within public entities through the establishment of a governing body responsible for control and internal audit issues within the Executive Branch.

c. Simplify and automate the financial management processes regulated by the National Comptroller’s Office, the Presidential Coordination and Central Planning Office (CORDIPLAN), the Central Budget Office (OCEPRE), the National Treasury, and the Ministry of Finance’s Public Finance, Administrative Accounting and Inspection, and Oversight Divisions.

d. Redefine and reorganize the State financial management governing bodies to improve their effectiveness, efficiency, and coherence.

The most relevant factors that impacted the implementations of the various Project components were: Structural and institutional changes within the Public Administration resulting from the Government’s new socioeconomic policy. The low technical capacity of the personnel assigned to manage integrated systems, which required that intense training programs be implemented within public sector institutions. The lack of equipment that complied with the program’s required technological specifications; in order to tackle this, an extensive procurement and distribution program was established at the different levels of the Public Administration. The natural resistance to change within the system-user entities; in this case, specialists were hired to deliver courses and carry out events aimed at raising the awareness and building the trust of the new users in the benefits offered by the modernization program. Throughout its implementation, the Project achieved a series of results that have positively impacted financial management, as the physical and financial resource allocation and implementation processes have been streamlined and are now simpler, more transparent and timely; in particular, those related to the preparation and implementation of prioritized programs

35

and projects, specially those in the social sector designed to overcome deficits in health, education, nutrition, and, in general, reduce poverty and extreme poverty. The results achieved have been evaluated using the data and information generated by the processes and operational tools in the financial management systems in the context of the modernization program, in particular the following key products:

1. Conceptual Model of the Integrated Public Finance Management and Control System (SIGECOF) developed in September, 1997, and updated in November, 2002.

2. The Public Sector Financial Management Bill and the support provided throughout its approval process; it was published in the Official Gazette of the Bolivarian Republic of Venezuela N° 37.029 on September 5, 2000.

3. The purchase and setting up of the first version of the Integrated System of Debt Administration and Control (SIGADE) delivered to the Public Credit National Office.

4. Accounting System Applicable to all national level entities which was approved by the National Comptroller’s Office, regulated by the National Superintendency of Public Accounting and Internal Control (SUNACIC), and set up in 2000 to become effective as of January 1, 2001. The following transaction registration manuals and the related annexes are included in the System: N°1 Chart and Operationalization of Accounts, N°2 Accounting Entry Models, and N°3.

5. Financial Statements and Income and Expenses Budget Matrix. 6. The creation of SUNACIC, which enabled the strengthening of the control and

internal audit duties. This was accomplished through the streamlining and automation of the financial management processes regulated by the General Comptroller’s Office, and the national planning and financial management systems governing bodies.

7. SIGECOF was also designed to assemble the budgetary, treasury, accounting, and public credit systems regulated by LOAFSP, as well as the tax, and goods management systems, regulated by special laws.

The SIGECOF information system was developed and implemented to manage all spending stages (pre-commitment, commitment, and payment) until the payment order is processed; this can only be done once ONAPRE prepares and establishes the corresponding budgetary interface through the SICOP formulation tool (currently, SIFPRE). This System was initially transferred to SUNACIC, which installed it in national level entities with the project’s assistance. The use of this tool was discontinued by the end of 2005 due to changes in the budgetary structure as budgets were no longer based on programs but on projects. As a result, the National Accountancy Office (ONCOP), which assumed SUNACIC’s accounting functions, developed another tool based on the same principles of the initial SIGECOF and adjusted it to the new budget-per-project structure.

8. Provision of equipment, applications, and technical assistance to national level entities for the installation and automated operation of SIGECOF in central and decentralized administrative entities.

9. Design of the SIGECOF’s Conceptual Model for: • Non-Corporate Decentralized entities • States • Municipalities

36

10. The Conceptual Framework of the Integrated Human Resource Financial Management System (SIGEFIRRHH); the development and application of this information tool and the distribution of related computer equipment, as required by public administration bodies and entities.

11. New Venezuelan Public Sector Financial Management Model (August, 2004) and the related SIGECOF Macro Functional Model (November, 2004).

12. Draft National Assets Bill, which is currently being considered by the competent entities, as part of its validation process, to be submitted later to the National Assembly for approval.

13. Design and development of the Goods, Works and Services Integrated System (SIBOS) and the methodology proposed to perform the inventory.

14. Assistance to ONAPRE in the revision of the programmatic budgetary structures of the national level entities.

15. Conceptual model for the follow-up and evaluation of budgetary expenses, a guide on how to build indicators, and a first draft Manual of the Expense Budget Follow-Up and Evaluation Registration System. It is currently being updated.

16. Assistance provided to the Public Administration entities to construct project-specific performance indicators in order to strengthen their evaluation systems.

17. Purchase and implementation of an information system tool to prepare, manage, and follow-up on online training courses, and the development of three such courses.

18. Integrated Classification System and redesigning of account plans, jointly with the Ministry of Finance’s governing bodies, and the preparation of a Single Conversion Matrix, based on which an application to monitor performance was developed.

19. Training of the personnel of governing bodies and other entities on public sector financial management systems and processes.

20. Technical and financial support to strengthen the Ministry of Finance and its governing bodies, including: ONCOP’s Customer Service Center, Datawarehouse, distribution of videoconference and other computer equipment.

Status after Project closing, operations continuity, and future needs in terms of the reforms and institutional capacity required to continue and advance finance modernization. Despite the results achieved, there are still pending objectives and goals; considering that public finance modernization must be a continuous process, the new approach adopted by the project will place emphasis on adjusting Venezuela’s public sector financial management to meet requirements based on:

1. Continuing to strengthen the Ministry of Finance as the public sector financial management governing body, and the director and supervisor of the implementation and maintenance of the financial management systems as well as of the ministries and entities responsible for budget execution.

2. Complying with article 186 of the LOAFSP, as to continue assisting the governing bodies in improving their management capacity, contribute to the harmonization of the State’s financial management legal framework, prioritize the implementation of its subordinate systems and internal controls, and carry out training programs for the personnel working under the Law and specialization programs for consultants.

3. Preparing the legal and regulatory provisions required by the merging of medium-term planning and the annual budget, and continuing the search for greater efficiency and transparency in the use of funds, quality enhancement in public spending, as well as citizen participation throughout the different stages of the budget process.

37

4. Improving information and telecommunication technology to assist public service providers in the processing of information and in increasing their relationship with the financial management governing bodies.

5. Continuing to adjust SIGECOF to the new legal and regulatory requirements and keeping up with the technical progress of integrated financial management systems.

6. Expanding financial management modernization to decentralized entities, States, and municipalities, where public resources are being transferred gradually in concordance with the Government’s functional and territorial decentralization strategy.

7. Addressing the financial management demands posed by the new organizational structures that are being established in the public administration, as criteria for the allocation of public resources, for instance, as is the case of the Community Councils.

8. Contributing to the strengthening of the internal and external control systems related to public financial management.

9. Continuing implementing the joint public management systems, such as SIGEFIRRRHH and SIBOS, in the State Public Administration entities, and expanding their use to functionally and territorially decentralized entities.

Finally, long-term modernization must consider the intrinsic dynamics of public finance, the policy changes, and economic, organizational, and administrative decisions; the Government must keep all these key elements in mind when fostering and implementing processes to improve resource administration. Along these lines, the Project proposed to address the following action areas:

a) Normative framework, including legal reforms; b) Institutional aspects, including organizational changes and bureaucratic culture; c) Management administration, focusing mostly on improving the methods and

simplifying the procedures of management tasks; and d) Instrumental requirements, preparing proposals for the development of

information systems and complementary tools.

38

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders (if any) N.A.

39

Annex 9. List of Supporting Documents (In the Portal, each document can be linked to a file in IRIS or attach a new document) A. Project Implementation Plan

• Project Implementation Plan B. Bank Staff Assessments

• Financial Management Assessment (Livio Pino, April 1999)

• Institutional Assessment (William Mayville, May 1999)

• Social and Environmental Clearance, (Walter Vergara, May 1999) C. Other

• SIGECOF Draft Law (July 1997)

• Conceptual Design of SIGECOF Phase I (September 1997)

• Progress Report of SIGECOF Project (to October 1998)

• "Reestructuracion del Ministerio de Hacienda", Andersen Consulting 96/97

• "Programa de Reforma Fiscal" Tomo I y II, Maxim Ross y Asociados, Julio 1996.

• Project Appraisal Document for the Republic of Venezuela: Public Expenditure Reform Project dated June 1999 (Report No: 19363-VE)

• Aide Memoires, Back-to-Office Reports, and Project Status Reports

• Project Progress Reports

• Borrower's Evaluation Report dated December 2006

*including electronic files

40