Social Sector Program in Thailand

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ASIAN DEVELOPMENT BANKOperations Evaluation Department

PROJECT PERFORMANCE AUDIT REPORT

FOR

THAILAND

In this electronic file, the report is followed by the Management response.


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Program Performance Audit Report

PPA: THA 31606

(Final)

Social Sector Program(Loan 1611-THA)in Thailand

April 2005

Operations Evaluation Department

valuation Study


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CURRENCY EQUIVALENTS

Currency Unit baht (B)

At Appraisal At Program Completion At Operations Evaluation11 February 1998 31 October 2002 1 September 2004

B1.00 = $0.0222 $0.02275 $0.02403

$1.00 = B44.95 B43.95 B41.61

ABBREVIATIONS

ADB Asian Development BankBOB Bureau of the BudgetCALOW Center for Assistance to Laid-Off WorkersCOS country operational strategyDMC developing member countryEA executing agencyICL Income Contingent LoanIMF International Monetary Fund

MMR maternal mortality rateMOE Ministry of EducationMOF Ministry of FinanceMOPH Ministry of Public HealthMOL Ministry of LaborMOLSW Ministry of Labor and Social WelfareNEA National Education ActNESDB National Economic and Social Development BoardNGO nongovernment organizationOEM Operations Evaluation MissionONESQA Office for National Education Standards and Quality AssessmentPCMC Program Coordinating and Monitoring Committee

PCR program completion reportPPAR program performance audit reportSDF Skills Development FundSPL special program loanSSP Social Sector ProgramTA technical assistanceUNESCO United Nations Educational, Scientific and Cultural Organization

NOTES

(i) The fiscal year (FY) of the Government ends on 30 September.FY before a calendar year denotes the year in which the fiscal

year ends, e.g., FY1998 ends on 30 September 1998.

(ii) In this report, "$" refers to US dollars.

Director General, Operations Evaluation Department : Bruce MurrayEvaluation Team Leader : Susan D. Tamondong

Operations Evaluation Department, PE-661


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CONTENTS

PageBASIC DATA iiiEXECUTIVE SUMMARY vMAP xi

I. BACKGROUND 1

A. Rationale 1B. Formulation 2C. Objectives and Scope of the Program and Technical Assistance 3D. Cost, Financing, and Executing Arrangements 4E. Implementation 4F. Completion and Self-Evaluation 5G. Operations Evaluation 5

II. PLANNING AND IMPLEMENTATION PERFORMANCE 6A. Formulation and Design 6B. Achievement of Outputs 8C. Cost and Scheduling of the Program 8

D. Organization and Management 8III. ACHIEVEMENT OF PROGRAM PURPOSE 9

A. Operational Performance 9B. Performance of the Operating Entity 14C. Performance of Technical Assistance 14

IV. PROGRAM OUTCOMES 15A. Achievement of Development Impacts 15B. Policy Reform Measures 18C. Socioeconomic Impact 19D. Environmental Impact 19

V. OVERALL ASSESSMENT 20

A. Relevance 20B. Efficacy 20C. Efficiency 20D. Sustainability 20E. Institutional Development and Other Impacts 20F. Overall Program Rating 21G. Assessment of ADB and Borrower Performance 21

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 22A. Key Issues for the Future 22B. Lessons Identified 23C. Recommendations and Follow-Up Actions 24

S. D. Tamondong, evaluation specialist (team leader), was responsible for the preparation of this report. A. Anabo,senior evaluation officer, and Iris de Guzman, senior evaluation assistant, supported the study in Manila. A localstudy team in Bangkok, Asia Policy Research, with David Oldfield, and part-time consultant, Amara Pongsapich,participated in the Operations Evaluation Mission.

The guidelines formally adopted by the Operations Evaluation Department (OED) on avoiding conflict of interest in itsindependent evaluations were observed in the preparation of this report. To the knowledge of the management ofOED, there were no conflicts of interest of the persons preparing, reviewing, or approving this report.


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PageAPPENDIXES1. Social Sector Program Framework 252. Summary of Social Sector Program Activities and Actual Project Costs 263. Status of Compliance with Policy Conditions 30

4. Status of Compliance with Loan Covenants 365. Performance of Related Technical Assistance 396. Program Implementation Structure 437. Tables and Figures 448. Vocational Education in Thailand Since the Crisis 489. University Autonomy: King Mongkuts University of Technology (Thonburi) 5010. Ban Phraeo Hospitals Autonomy Experience 5211. Estimated Cost of Reforms Under Social Sector Program 5412. Socioeconomic Indicators 55

SUPPLEMENTARY APPENDIXES (available on request)1. Social Sector ProgramImpacts on Vulnerable Groups

2. Education Indicators3. Labor and Social Welfare Program4. Health Indicators

Attachment: Management Response on the Social Sector Program in Thailand(Loan 1611-THA)


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BASIC DATA

Social Sector Program (Loan 1611-THA)

Program Preparation and Institution BuildingTA No. TA Project Name Type Person-Months Amount Approval Date2920 Social Impact Analysis of

the Economic Crisis

ADTA 3 $50,000 26 Nov 1997

2995 Capacity Building forSocial Sector Reform

ADTA 47 $700,000 12 Mar 1998

2996 Education Managementand Financing Study

ADTA 45 $700,000 12 Mar 1998

2997 Health Management andFinancing Study

ADTA 46 $700,000 12 Mar 1998

Key Program Data ($ million)As per ADB Loan

Documents ActualTotal Program CostADB Loan Amount/Utilization

500.00500.00

500.00500.00

ADB Loan Amount/Cancellation

0.00

Key Dates Expected ActualManagement Review Meeting 7 Nov 1997Appraisal 1216 Jan 1998Loan Negotiations 45 Feb 1998Board Approval 12 Mar 1998Loan Agreement 13 Mar 1998Loan Effectiveness 11 Jun 1998 17 Mar 1998First Tranche Release 11 Jun 1998 17 Mar 1998Second Tranche Release Jun 1999 28 Oct 1999Loan Closing 31 Mar 2000 31 Mar 2000

Program Completion Sep 2001 Sep 2001Months (effectiveness to completion) 40 42

Borrower Government of Thailand

Executing Agency Ministry of Finance

ADB = Asian Development Bank, ADTA = advisory technical assistance, TA = technical assistance.1

On 10 October 1997, ADB management approved the upgrading of the Reconnaissance Mission (1130September 1997) to a Fact-Finding Mission.

2The Operations Evaluation Mission comprised S. D. Tamondong (evaluation specialist and mission leader), areform specialist (staff consultant), a part-time social sector adviser (consultant), and a local research assistant.

Mission DataType of Mission No. of Missions Person-DaysReconnaissance1 1 143Appraisal 1 30Inception 1 25Program AdministrationConsultation 1 2Review 4 76Program Completion 1 15Operations Evaluation2 1 84


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EXECUTIVE SUMMARY

The $500 million Social Sector Program (SSP), which the Asian Development Bank(ADB) approved in March 1998, was part of the International Monetary Fund (IMF)-led rescuepackage that aimed to help Thailand manage the impact of the 1997 financial crisis. TheMinistry of Finance (MOF) was the Executing Agency, with the National Economic and Social

Development Board (NESDB) serving as technical secretariat for implementation, monitoring,and coordination. The Ministry of Labor and Social Welfare (MOLSW), Ministry of Education(MOE), and Ministry of Public Health (MOPH) were the main implementing agencies.

SSPs three main objectives were to (i) help mitigate the short-term adverse impacts ofthe crisis on Thai society, particularly on the most vulnerable groups; (ii) initiate structural reformsto enhance the competitiveness of the Thai economy through the development of humanresources; and (iii) reduce inefficiencies in the provision of social services. The first objective wasmet, while the other two were only partly achieved. The loan was released in two tranches:$300 million upon loan effectiveness, and $200 million on 28 October 1999 upon theGovernments fulfillment of the requirements for institutional and policy actions for programimplementation. ADB provided three technical assistance (TA) grants of $700,000 each to

support the policy reforms needed to improve efficiency in the labor, education, and healthsectors. The loan, which was disbursed fully, closed on 31 March 2000. The Program wascompleted in September 2001, and the loan was prepaid on 30 September 2002.

SSPs policy matrix contained 30 conditions, broadly categorized into the labor,education, and health sectors. The policies and reforms required were consistent withThailands Eighth National Economic and Social Development Plan and its 1997 Constitution.While the first tranche was released on the day of loan effectiveness, the second tranche wasdelayed by 4 months until the Government took the necessary policy actions.

Five broad policy priorities supported by the SSP in the education sector aimed to(i) reduce the incidence of school dropouts, (ii) improve the quality of priority education

programs, (iii) rationalize MOEs staff size, (iv) decentralize to make all levels of education moreresponsive to societal and community needs, and (v) promote the private sectors provision ofeducation. However, the achievements were less than expected. Progress in achieving thepolicy objectives in the education sector was disappointing. Despite efforts to reduce dropouts,the transition rate to upper secondary school has fluctuated and remains below the precrisislevel; and the completion rates have not improved demonstrably. The national average testscores for the past 5 years are below the expected levels, and the quality inspection body hasnot met its assessment targets. Staff have not been rationalized and reallocated to rural areasto a significant degree. Decentralization has not materialized, despite several policy actionsdesigned to facilitate it. However, progress was made in developing the enabling framework forprivate education. The Government amended the B20-billion Human Resources DevelopmentFund to make it more accessible to private schools that wished to draw on the funds and build

new structures. A policy to prevent overcrowding at all levels of education in private schoolsalso was adopted. Reforms have allowed private schools to establish their own fee structure,avail of tax incentives, and adopt a registration and accreditation system similar to that of publicschools.

In May 1999, the cabinet approved the Ministry of University Affairs autonomy masterplan, which was designed to make all universities autonomous by 2002. However, this plan wasabandoned due to strong resistance from the faculty and staff of the universities, lack ofunderstanding about the plan, and concerns about job security. Universities were to be made


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autonomous, granted control over their non-salary current budget, and establish a performance-based monitoring system. At the Operations Evaluation Mission (OEM), only King MongkutsUniversity of Technology had gained autonomy. Four of 11 other universities that submittedautonomy plans are awaiting parliamentary approval. The remaining 10 public universities havenot submitted autonomy plans.

SSPs main contribution in the education sector was to accelerate the introduction ofreforms that were under Government consideration before the financial crisis. However, thechange in Thailands political leadership and the resulting changes in the Governmentspriorities in the education sector undermined the continuity and the sustained, efficientimplementation of policies that the Program was designed to support. Many of the action plansin SSP were revised or canceled after the change of Government in 2001, which was followedby a series of new appointments to senior positions in MOE.

In the health sector, policy priorities supported by the SSP included (i) protecting thepoor; (ii) shifting the budget focus towards programs for women, children, and HIV/AIDS;(iii) improving health care service delivery in rural areas; and (iv) enhancing efficiency in healthcare delivery by restructuring hospitals into corporations. Achievements in these areas were

less than anticipated. To protect the poor, the budget and coverage of two health careschemesthe Public Assistance Scheme and the Voluntary Health Cardwere expandedunder SSP. However, the two programs were replaced by the new Governments B30healthpolicy, which allows all Thai citizens, to avail of medical services, including operation, for onlyB30 maximum payment per hospital visit. The increase in the immunization budget did notimprove coverage rates for women and children consistently, while the budget for HIV/AIDSprevention program was cut. In May 1999, the cabinet approved the action plan for redeployingmore health personnel to rural areas. However, the plan was not implemented. Finally, SSPsrequirement to restructure hospitals into corporations to increase the efficiency of health caredelivery was not implemented. At the OEM, only one (the Ban Phraeo Hospital) of 919 publichospitals in Thailand had become autonomous since October 2000.

For labor and social welfare, SSP policy actions included (i) support to laid-off workers;(ii) employment of vulnerable groups; (iii) pro-poor resource allocation; (iv) incentives to theprivate sector; and (v) improved competitiveness of the labor force. The achievements were lessthan expected. To address laid-off workers and employment of vulnerable groups, theGovernment established Centers for Assistance to Laid-Off Workers (CALOWs). However,when the direct impact of the Asian financial crisis eased in 2001, CALOWs were abolished.They were absorbed by career and employment centers in provincial capitals, serving allunemployed people regardless of income. SSP provided assistance to vulnerable groups andlaid-off workers in a timely manner. Social security coverage was extended by 12 months,double the 6-month extension required by the SSP. However, the OEM could not locate anyrecords on how many people received full-time or temporary employment under the Program.The Government reported that many of the urban unemployed returned to the provinces and

were supported by their families. While the proportion of ministerial budgets for poorer provinceshas increased due to pro-poor targeting, disparities between urban and rural areas have notimproved significantly. However, incentives for the private sector did improve. Privatecompanies were offered tax deductions for sending their workers for training sponsored by theMinistry of Labor. The rationalization of minimum wage did not affect labor competitiveness, asemployers and employees agreed to a flexible arrangement (i.e., reduced working hours orsocial benefits to prevent layoffs).


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The Labor Policy Action Plan that was prepared was expected to enhance the efficiencyof labor markets, and improve labor relations and competitiveness. However, the plan was notimplemented as MOLSW was dissolved in 2001. To address the issue of competitiveness, thenew Government launched a new action plan in March 2003 to make Thailands labor forcemore competitive in a knowledge-based economy. Twelve industries were identified that wouldrequire certain skills in the next decade. Partnerships with schools were established to teach the

required skills in their curriculum. This positive development was not related to SSP.

Three TAs, totaling $2.1 million, were designed to support policy reforms in SSP. TheOEM rated the TAs for capacity building for social sector reform and education management assuccessful. The third TA for health management was rated as unsuccessful. The outputs of thethree TAs were technically sound, and influenced the restructuring of the Government andreformulating new policies in the social sectors. However, the TA reports were not widelydisseminated, confined mainly to a few senior government officials. The capacity building TAembodied effective management and implementation processes, which NESDB used informulating the Ninth National Plan. The TA on education management influenced the draftingof legal instruments for decentralizing education. However, its impact was confined to theImplementing Agency, the Office of the National Education Commission. The direct application

of the recommendations from the health management TA failed to achieve tangible results.

Overall, SSP was rated partly successful. Its implicit objective to provide budget supportduring the financial crisis was met. It was important for ADB, the premier development institutionin the region, to act in coordination with the international donor community, particularly IMF andthe World Bank, and provide urgently needed financial support during the Asian financial crisis.However, few policy objectives were achieved, and many were not robust enough to withstand achange in Government. Although the short-term adverse impacts of the financial crisis werepartially mitigated, SSP did not have a significant impact on the longer-term policy framework toguide the development of the social sectors. Specific action plans required by SSP weresubmitted on time, but were not implemented after the release of the second tranche of theloan. The program completion report did not assess the likely impact of the new Government on

the sustainability of reforms supported by the Program.

While the design of SSP was relevant and timely, it lacked specific indicators to defineand monitor expected outcomes. For example, SSP lacked indicators for the expectedquantitative and qualitative improvements in math, science, and language. Although budgetaryindicators were included, increased budgets did not improve student performance qualitatively.In the health sector, the key performance indicator was the ratio of health staff per population.While this is an important input indicator, it does not measure the desired outcome (i.e., betterquality health services for people). No clear monitoring framework was built in the SSP. ADBfunded a consultant in NESDB to monitor SSP implementation for 1 year. However, noinstitutional follow-up occurred after the consulting contract was over. In labor, employmentservice centers, which provide assistance to all people regardless of gender and economic

status, absorbed CALOWs. Monitoring records could not be located to determine the extent ofassistance provided to laid-off workers and vulnerable groups targeted by SSP.

As the policies that SSP required were already part of the government agenda beforethe loan, agreement on the conditions was immediate. The OEM found that the 11 projectsfunded by the first tranche of the loan were not designed specifically for SSP. Rather, they wereexisting proposals that had not been implemented by the line ministries due to budget cuts.When MOF and NESDB asked for project proposals, these proposals were revitalized.Implementation of the action plans stopped when a new Government took office in 2001. With


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the appointment of new leadership in various ministries, many of the SSP projects and activitiesfaded out. The initiatives proposed by the new administration took priority, leading to thereplacement or early termination of projects under SSP. New social sector strategies andprograms were introduced. This experience highlights the difficulty of designing strategic policyinitiatives that are robust enough to withstand a change in government.

However, the key principles of reform in labor and social welfare are likely to besustained, despite the changes in the original plans. The new Government is committed tosustaining the levels of funding for key social sector programs. In education, for example,decentralization is supported, although most of the draft laws submitted to Parliament in 2001were revised. The new education policy exceeded SSPs policy targets for the reduction of MOEstaff, and created a new student loan scheme for higher education. In health, the new B30policy, which replaced SSPs Voluntary Health Card scheme, exceeded the target coverage.The new Government placed priority in improving efficiency and effectiveness in the labormarket and in the health and education sectors. While the strategic objectives were broadlyconsistent with the strategic thrust of the SSP, the new Government used policies and programsto achieve these strategic objectives that were different from those envisioned when the SSPwas formulated.

The socioeconomic impact of SSP was generally positive, with financial resourceshelping to mitigate rural poverty after 1999. At the peak of the financial crisis in 1999, more than20% of the rural population was classified as poor, compared with about 15% before the crisis.The poverty incidence dropped to 15% in 2001 and to 13% in 2002. This statistical pattern couldsuggest that the Governments efforts to reduce poverty after the crisis were successful. Thenewly re-elected Government recently announced that it would spend up to B1.5 trillion($39 billion) on national development and pledged to eradicate poverty in 6 years by focusing onraising overall living standards in deprived rural regions. The institutional development impact ofSSP was moderate. Although many of the policies were not carried out, the implementingagencies acknowledged that the Program expedited the reform process. For example, MOFappreciated the lessons learned in managing the first social sector program loan in the country.

MOPH acknowledged the experience gained under the per capita financing of the health sector,which influenced the formulation of the B30 policy. NESDB credited the Program for teachingskills related to poverty targeting.

One of the important lessons learned from SSP concerns the manner of ADBs responseto the challenges and tensions of a crisis, such as the Asian financial crisis. Liquidity supportwas needed, and ADB acted expeditiously to support the IMF-led rescue package. Standardprogram loans require a long-term reform agenda with carefully thought out and sequencedreforms that are fully owned by the Government. SSP accelerated the reform process that theGovernment had planned before the crisis. Formulating social sector policy reforms requires agood knowledge of the legislative system and political economy, as well as deep sectorexpertise that can be drawn upon during preparation. Adequate sector analysis, extensive

needs assessment, broad consultation, and a well-defined monitoring and evaluation systemare requirements for successful program loans. Clear links between national and localinstitutions have to be made, including well-defined functional and financial responsibilities. Thedesign of the program loan must incorporate specific targets and clear measures ofachievement during and after implementation. A systematic monitoring and evaluation systemover an agreed period also must be included. Properly formulating a complex program loantakes time, effort, expertise, and intense discussions with the Government and otherstakeholders. Due to the urgently needed budget support and the balance of payments crises ofinternational dimensions, program preparation was cut short for the SSP. In OEMs opinion, this


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was appropriate, given the circumstances prevailing at the time. Processing larger TAs thatcould have deepened ADBs sector knowledge and enhanced the ongoing policy dialoguewould have taken too much time. As an institution, ADB has learned that standard programloans are not necessarily the best lending modality to respond to situations such as the Asianfinancial crisis. Stabilizing currency and capital markets, and the financial sector, as well asmitigating social impacts during a financial crisis require immediate support. Long-term

structural reforms need to be addressed in separate, subsequent interventions. In October2003, ADB adopted the special program loan (SPL) lending modality to assist ordinary capitalresources-eligible developing member countries (DMCs) or graduated DMCs that are affectedby extraordinary and unexpected crises, principally as a feature of globalized capital markets.Large SPLs can be provided as part of an international rescue effort in cooperation withdevelopment partners, including IMF and the World Bank. For such operations, ADB would notimpose additional policy conditionalities related to particular sectors. Had SPLs been availableat the time, an SPL would have been a more appropriate lending modality to support Thailandduring the Asian financial crisis.

Bruce MurrayDirector GeneralOperations Evaluation Department


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I. BACKGROUND

A. Rationale

1. After 10 years of rapid economic growth1 that epitomized the Asian economic miracle,

Thailands growth abruptly halted in mid-1997 with the onset of the Asian financial crisis. Theunanticipated Asian crisis had a major impact on global capital flows. Before the crisis, Thailandwas viewed as a model of sound economic management. The Government had adoptedprudent fiscal policies and outward looking economic policies. However, the Asian financialcrisis caused a liquidity crisis in Thailand. In the severe recession that followed, gross domesticproduct contracted by 1% in 1997 and 9.4% in 1998. The value of the baht weakeneddramatically against the dollar, investment declined precipitously, the stock market collapsed,many financial institutions became insolvent, businesses could not repay their loans, and thefiscal deficit increased.

2. Many people, particularly the poor, suffered because of the Asian financial crisis. Theadverse social consequences included an increase in poverty. Layoffs pushed unemployment

higher. Fiscal pressures resulted in rising costs of medical care, cuts in governmentexpenditures on social services, medical services, and poverty programs, and higher dropoutrates in the education system. Between 1990 and 1996, the incidence of poverty fell from 27.2%of the population to 11.4%,2 with more than 1 million people lifted out of poverty each year. Theabsolute number of poor during this period dropped from 15.3 million in 1990 to less than7 million in 1996, thus meeting the Millennium Development Goal for poverty reduction. With theonset of the Asian financial crisis in 1997, more than 2 million people fell back into poverty. Thepoverty incidence increased from 11.4% of the population in 1996 (6.8 million people) to 14.2%in 2000 (almost 9 million people).

3. Responding to the immediate imperative to address the financial crisis and mitigate theadverse social costs, the Asian Development Bank (ADB) pledged $1.2 billion3 to assist

Thailand in 19971999. The pledge was part of the $17.2 billion International Monetary Fund(IMF)-led external assistance package for Thailand. The World Bank and the Government ofJapan also played major roles in supporting assistance packages. The Government, businesscommunity, funding institutions, and press focused on the immediate problems brought about bythe crisis, and the need to restore macroeconomic stability. However, systematic inefficienciesand policy changes also had to be addressed to improve the provision of social services under apolicy of fiscal austerity.

1During the 1990s, Thailands economy grew at 89% annually, inflation was less than 6%, and exports grew at an

average annual rate of 15%. (ADB. 1998. Report and Recommendation of the President to the Board of Directorson a Proposed Loan and Technical Assistance Grants to the Kingdom of Thailand for the Social Sector Program. Manila. p. 2.)

2Office of the National Economic and Social Development Board and United Nations Country Team in Thailand.2004. Thailand Millennium Development Goals Report 2004. Bangkok.

3Of this total, $800 million was to be provided through two program loans: one for the financial sector and the otherfor the social sector. Loan 1600-THA (ADB. 1997. Report and Recommendation of the President to the Board ofDirectors on a Proposed Loan to the Kingdom of Thailand for the Financial Markets Reform Program. Manila), for$300 million, was approved on December 1997 and disbursed immediately. Loan 1611-THA (ADB. 1998. Reportand Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Thailandfor the Social Sector Program. Manila) for $500 million was the second loan.


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B. Formulation

4. The Social Sector Program (SSP) was designed and formulated expeditiously to helpthe Government of Thailand mitigate the immediate negative social impacts of the financialcrisis on the poor and vulnerable groups and to lay the basis for strengthening the social sectorsin the longer run. The Program was based on small-scale technical assistance (TA), 4 which

provided a framework for the Government to review and adjust the implementation of its socialsector activities during the remaining period of Thailands Eighth National Economic and SocialDevelopment Plan (19972001).5 The targets, scope, and the implementation of this planneeded to be reassessed and preparation work begun for the Ninth Plan.

5. After a meeting of funding agencies in Tokyo in August 1997, ADB sent a follow-upmission to Bangkok to discuss the scope and role of its assistance in the financial and socialsectors. Agreement with the Government was reached with the SSP loan proposal during thevisit of ADB mission. The Fact-Finding Mission was fielded in September 1997, followed by thePre-Appraisal Mission in October 1997, and the Appraisal Mission in January 1998. During thepreparation of the SSP loan, ADB consulted with the Government, other funding anddevelopment agencies, nongovernment organizations (NGOs), and people affected by the

crisis. Sector studies6 by ADB, as well as by other agencies,7 provided the background forprogram preparation.8 These studies were not exhaustive but during this unexpected crises ofglobal proportions there was no time to do more to formulate a carefully thought out reformagenda that was supported by more up to date analytical studies and carefully discussed withthe Government and other stakeholders over an extended period of time. ADB, the internationalfunding community, and governments from the Association of South East Asian Nations wereunder intense pressure to take immediate action to stabilize currency and capital markets tocontain the Asian contagion.

6. ADB had some knowledge on the social sectors from previous operations in Asia,though this was the first in Thailand. A $500 million proposal was developed to help theGovernment respond to the financial crisis and carry out policy reforms in SSP. Initially, ADB

proposed $300 million for the loan. However, the Ministry of Finance (MOF) requested anadditional $200 million as budget support. More than B300 billion9 of state funds were needed to

4TA 2920-THA (ADB. 1997. Technical Assistance to the Kingdom of Thailand for the Social Impact Analysis of theEconomic Crisis. Manila), for $50,000, was approved in November 1997, with government financing of localcurrency cost equivalent to $10,000, to provide an overview and highlight key issues facing the social sectors(labor, education, and health) and recommend policy directions for the Government.

5ADB. 1998. Report and Recommendation of the President to the Board of Directors on a Proposed Loan andTechnical Assistance Grants to the Kingdom of Thailand for the Social Sector Program. Manila.

6These studies include TA 2082-THA(ADB. 1994. Technical Assistance to the Kingdom of Thailand for the SkillsDevelopment Project. Manila), for $484,000, approved in April 1994; TA 2104-THA (ADB. 1994. TechnicalAssistance to the Kingdom of Thailand for the Higher Education Development Project. Manila), for $400,000,approved in June 1994; TA 2537 (ADB. 1996. Technical Assistance to the Kingdom of Thailand for theNonformalSecondary Education Project. Manila), for $400,000, approved in February 1996; TA 2523-THA (ADB. 1996.

Technical Assistance to the Kingdom of Thailand for the Coordination and Private Sector Participation in SkillsDevelopment Project. Manila), for $467,000, approved in January 1996.

7The World Bank, United Nations Development Programme, Canadian International Development Agency, DanishInternational Development Assistance, International Labour Organization, German Agency for TechnicalCooperation, and Overseas Economic Cooperation Fund provided grants to Thailand for relevant studies in thesocial sectors from 1991. A listing of these studies can be found in ADB. 1998. Report and Recommendation of thePresident to the Board of Directors on a Proposed Loan to the Kingdom of Thailand for the Social Sector Program.Manila (Appendix 4, p. 2).

8The 1997 policy and the revised 2003 policy on program lending (Operations ManualSection [OM] D4/BP) requirecomprehensive sector analysis before program lending.

9Equivalent to about $9,463 million based on the 1997 exchange rate of $1=B31.70.


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recapitalize domestic banks and finance companies. The SSP injection represented less than3% of the 1998 financial reform program designed to manage the impact of the Asian financialcrisis. As reflected in the conditionalities of the program loan, the Government committed toundertake policy reforms and mitigation measures in labor and social welfare, education, andhealth sectors.

7. The Report and Recommendation of the President (RRP) noted the importance ofgovernment ownership and strong political commitment to carry out the reforms. TheGovernments commitment to the Program and its reforms were manifested clearly indiscussions with the cabinet and at the highest levels of the ministries. A deputy prime ministerwas appointed to chair the Program Coordinating and Monitoring Committee (PCMC), whichwas to oversee SSP. However, the RRP recognized the risk of complexity in coordinating alarge number of government agencies and line ministries.

8. ADB approved the loan on 12 March 1998. Some Board members expressedreservations about its design due to the sense of urgency and implicit political factors (e.g.,creating goodwill with the Government, and being the first multilateral funding agency to financethe social sectors in Thailand). In the view of the Operations Evaluation Mission (OEM), thesereservations were well-founded. Program preparation was rushed to respond to the crisis. Notime was available to undertake detailed sector analysis, or to discuss the Program with theGovernment over an extended period. ADB did not have deep sector knowledge in the health,education, and labor sectors based on previous operations in the country. SSP was the firstsocial sector loan in Thailand. These factors raised questions about the depth and quality of theanalysis on which the Program was based. That being said, it was important for ADB and othermajor funding partners to participate in IMF-led rescue packages to help Thailand and othercrises affected countries. This required providing large scale, quick disbursing assistance in ashort time period. Traditional program loans, prepared under great time pressure, were the onlymodality available to ADB.

C. Objectives and Scope of the Program and Technical Assistance

9. The Programs three objectives were to (i) mitigate the short-term adverse impact of thecrisis on society, particularly on the most vulnerable groups; (ii) initiate structural reforms toenhance the competitiveness of the Thai economy through the development of human resources;and (iii) reduce inefficiencies in the provision of social services. The OEM reconstructed anoutline program framework (Appendix 1). The diagram does not show the implicit objective ofthe Program to support Thailand during the financial crisis, with an injection of capital to provideneeded liquidity for financial institutions. MOF confirmed that $300 million of the SSP loan wasused for this purpose. At that time, the private sectorThailands engine of job creationcouldnot access credit because of the collapse of the financial sector. The resulting retrenchment inbusinesses increased unemployment and poverty.

10. The Program was designed to strengthen the Governments budgetary capacity to copewith the social impact of the crisis in the short run, and to design and implement policy reformsand build the institutional capacity of the Government to undertake social sector reforms in thelong term. The summary of activities carried out by SSP, and the corresponding project costs, arein Appendix 2. The specific outputs expected of the Program are categorized under (i) labor andsocial welfare, (ii) education, and (iii) health. For labor and social welfare, the outputs were tosupport laid-off workers, create employment for vulnerable groups, improve competitiveness ofthe labor market, promote private sector investment in training, and encourage pro-poor resource


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allocation. Education outputs included prevention of school dropouts, improved quality of priorityeducation programs, rationalized allocation of education staff, and promotion of the private sectorin education. Health outputs included provision of health care for the poor, protection of priorityhealth budgets, and decentralized health services provision.

11. The policy matrix contained 30 policy actions that the Government was required to

undertake. Fourteen of these policy actions were to be met before the release of the firsttranche of the loan ($300 million) in June 1998. An additional 16 policy actions were required forthe release of the second tranche ($200 million) in June 1999. Of the 30 policy conditions, 9were for labor and social welfare, 15 for education, and 6 for health.Appendix 3 contains theoriginal policy matrix of conditionalities, with updates on the status after program completion.The loan covenants and compliance status are in Appendix 4.

12. Three TA grants, each for $700,000, financed from ADBs Japan Special Fund, wereprovided to support the policy reforms prescribed in SSP: (i) Capacity Building for Social SectorReforms (TA 2995-THA); (ii) Education Management and Financing Study (TA 2996-THA); and(iii) Health Management and Financing Study (TA 2997-THA).10 These TAs are discussed inAppendix 5.

D. Cost, Financing, and Executing Arrangements

13. The SSP loan for $500 million was from ADBs ordinary capital resources, with anamortization period of 15 years, including a 3-year grace period. The interest rate wasdetermined in accordance with the pool-based variable lending rate system for US dollar loansand a standard program loan commitment charge of 0.75% per annum. The Bank of Thailandwas to transfer the local currency proceeds or counterpart funds to the Government to supportthe social sector activities included under SSP. The loan was disbursed fully, closed on31 March 2000, and pre-paid on 30 September 2002.

E. Implementation

14. MOF was the Executing Agency of the Program. The National Economic and SocialDevelopment Board (NESDB) assisted MOF as the technical secretariat for implementation,monitoring, and coordination with line ministries. The Ministry of Labor and Social Welfare(MOLSW), Ministry of Education (MOE), and Ministry of Public Health (MOPH) were the mainimplementers of the related action plans and TAs. Other agencies, such as the NationalEducation Commission and the Bureau of the Budget (BOB) were involved in the design andimplementation of SSP. The United Nations Educational, Scientific and Cultural Organization(UNESCO)supported the implementation of the TA on education.

15. A steering committee, PCMC, was established to monitor the progress of SSPsimplementation. The committee also was to provide guidance to, and coordination among, the

implementing agencies. To signify the Governments strong commitment to SSP, a deputyprime minister was appointed as chairperson of PCMC. MOLSW established the Office forInternational Loans to monitor each project. This office, which reported to a deputy permanentsecretary, submitted reports each month to MOF and NESDB until February 2001. However, notall relevant MOLSW offices or departments involved in SSP provided updates on their activities

10These TAs are associated with ADB. 1998. Report and Recommendation of the President to the Board of Directorson a Proposed Loan and Technical Assistance Grants to the Kingdom of Thailand for the Social Sector Program.Manila.


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every month. Other ministries were less systematic in their monitoring and reporting. Overall,the Programs monitoring and reporting had weaknesses. MOF confirmed to the OEM that thesubmission of reports in English was a problem since Thais wrote reports in their language.Partly because of the language issue, and partly because of weaknesses in the monitoringsystem, the Government did not comply fully with the policy loan covenant on reporting (Article

1V, Section 4.05 (b) of the Loan Agreement).

16. Most of the other provisions in the loan covenant and policy conditionalities werecomplied with except for the reporting requirements (Appendixes 3 and 4).

F. Completion and Self-Evaluation

17. The program completion report (PCR) of December 2002 rated SSP as highlysuccessful. No major concerns were highlighted. The PCR identified lessons learned,particularly those relating to proper information dissemination during program preparation andimplementation to enhance support and participation by the Government and civil society. Thereasons cited for this rating were (i) program objectives remained relevant long after appraisal;(ii) mitigation efforts on the social impact of the financial crisis were achieved, although theimpact of policy reforms in the long term was not assessed; (iii) changes were not required inthe scope of the Program or in its implementation schedule; (iv) reforms proposed under theProgram were mainstreamed in the policy process of the Government; and (v) significantcapacity was built through the three TAs in monitoring the impact of the financial crisis, and inimplementing the proposed reforms in the education and health sectors. Based on the findingsof this report, the OEM believes that the PCRs rating was too high.

18. Following elections in 2001, a new Government assumed office, headed by a rivalpolitical party. The PCR did not anticipate the impact of the new Governments policies on SSP-supported policies and initiatives. At PCR preparation, the new political leadership wasexpected to implement draft legislation and cabinet-approved action plans of the previousGovernment. However, this did not materialize. The new Government adopted new policyinitiatives, and none of the action plans were implemented after SSP was completed in 2001.Because of developments after the PCR, the OEM concluded that the PCR rating was no longerappropriate. The PCR, in the OEMs view, also overestimated the impact of the three TAs. ThePCR did not examine the impact of SSP on the poor and vulnerable groups, and thesustainability of reforms. With the release of the second tranche, an implicit assumption wasmade that social sectors would benefit and that SSP policy reforms would be sustained.

G. Operations Evaluation

19. An OEM visited Thailand between 5 August1 September 2004 to evaluate the programperformance of SSP, as well as the operational impact of the three TAs. The OEM examinedthe Programs formulation, design, implementation, and sustainability by (i) reviewing availabledocumentation and statistical data; (ii) conducting interviews with key informants; (iii) rapidappraisal techniques; (iv) triangulation;11 (v) meetings with Government and developmentpartners; (vi) focused discussions with stakeholders; and (vii) on-site visits to schools, hospitals,

11Triangulation is the use of three or more theories, sources, or types of information, or types of analysis, to verifyand substantiate an assessment. By combining multiple data sources, methods, analyses, or theories, evaluationseeks to overcome the bias that comes from single informants, single methods, single observer, or single theorystudies. (Source: Organisation for Economic Co-operation and Development. 2002. Glossary of Terms inEvaluation and Results Based Management, Development Assistance Committee. Paris.)


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training centers, vocational schools, employment centers, and home-craft industries supportedby NGOs. SSP projects in seven provinces12 and in Bangkok were visited during field work. TheOEMs findings were discussed during an evaluation dissemination workshop, jointly organizedby the OEM and MOF in Bangkok. All participating Government agencies under SSP, as well asrepresentatives of other stakeholders (the United Nations Development Programme, UNESCO,World Health Organization, United Nations Childrens Fund, World Bank [International Bank for

Reconstruction and Development], Japan Bank for International Cooperation [JBIC], and NGOs)attended the workshop. At a wrap-up meeting with MOF at the end of the Mission, the OEMreached an agreement on the rating of this program performance audit report (PPAR).

II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design

1. Consistency with Government and Asian Development Bank Strategy

20. The program design, which targeted the poor and vulnerable groups affected by the

financial crisis, was relevant and consistent with ADB and Government strategies. SSP wasconsistent with the Eighth National Economic and Social Development Plan (19972001), whichaimed to shift from a growth orientation to people-centered development (footnote 5). Thepolicy reforms contained in SSP also were consistent with Thailands 1997 Constitution, whichcalls for universal education, better health services, and an unprecedented devolution of fiscalpowers to provincial governments.13 SSP also was designed to fit with ADBs changingstrategy14 in Thailand. With the advent of the financial crisis, attention to social issues becamecritical. ADB provided simultaneous assistance to support financial and social sector reformprograms in Thailand and Indonesia, two of the worst hit countries during the financial crisis.ADB also supported financial sector reform in Korea. The financial sector reform programscomplemented the IMF led macroeconomic stabilization effort by providing much neededliquidity and by addressing structural and institutional deficiencies. The social sector programs

were designed to ensure adequate budget provisions for basic social services for the poor, andto promote policy and institutional reforms. SSP was consistent with the broad efforts of thefunding community, including ADB, to assist countries affected by the Asian financial crisis (e.g.,Indonesia, Republic of Korea, and Thailand).

2. Time Frame for the Design

21. The Program was formulated quickly15 at a critical period during the 1997 financial crisis.It was part of an IMF-led rescue effort to prevent a collapse in Thailands financial sector, and tocontain the Asian contagion. SSP was designed to use the crisis as an opportunity to pushreforms needed in the social sectors. Given the severity of the crisis, the formulation and designof the SSP entailed a necessary trade-off between (i) a rigorous design review that would delay

12Provincial and local offices visited were Chiang Rai, Chiang Mai, Mae Hong Son, Khon Khaen, Phuket, Hatyai,Samut Sakhon, and Samut Prakan (see map, page xi).

13By the end of FY2006, 35% of all departmental budgets are planned to be shifted from the central to the provinciallevel.

14ADBs strategic development objectives from 1995 included (i) promotion of economic growth; (ii) reduction ofpoverty; (iii) improvement in the status of women; (iv) human development, including population planning; and(v) environmental management. The Long Term Strategic Framework, starting in 2000, redefined the relationshipof the poverty reduction objective with the others, giving more attention to social sectors.

15SSP was formulated in just 3 months.


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the provision of urgently needed liquidity; and (ii) speed in providing assistance to preventfurther damage to Thailands balance of payments and financial sector, and to ameliorate theadverse impact on civil society, particularly the poor. Upon approving the loan, members of theBoard of Directors expressed concerns about whether the Program was designed as well as itcould have been. Their concerns included the benefit-cost of certain activities, such as the labor

market programs; the focus on inputs rather than outcomes; and the apparent lack of detailsspecified for processes such as decentralization. The SSP loan was approved expeditiously dueto the urgent need for financial support during the financial crisis (para. 8). In the circumstancesprevailing at the time, the OEM has concluded that a reasonable balance was achievedbetween speed of processing and depth of preparation.

3. Logic of the Design

22. The logic in the Programs design (i.e., the anticipated effects of the crisis on society)was coherent. The assumption that people losing jobs would be less able to afford theirchildrens education and health care made sense, as did the anticipated indirect effects on theelderly and other vulnerable groups. The Programs design comprehensively covered most ofthe critical aspects of labor, education, and health. It was balanced evenly among the threepurposes of the SSP, with 35 sets of anticipated outputs corresponding to each purpose(Appendix 1). The inputs generally supported the attainment of program purposes. However,they lacked sequencing and an overall sense of integration. Several did not have specifictargets or indicators for measuring progress or satisfactory achievement.

23. The design lacked some potentially critical elements that might have enhanced thePrograms impact on specific subsectors. Some indicators in the original program framework didnot correspond well to the actions that were supposed to be taken. For example, the onlyindicators for quantitative and qualitative improvements in math, science, and languages werebudget allocations. Changes in budget allocations do not necessarily correspond to qualitativeimprovements. In health, the ratio of health staff per population, while an important indicator, isnot adequate to improve the quality of services for the people. Instead of just enumerating theaction plans, more attention should have been given to human resource management.

24. Nine of the conditions required only drafting action plans or cabinet approval of draftlegislation, a critical issue in SSP design. The program design did not specify the details ofimplementation of the action plans or adoption of the legislation. For instance, one action plancalled for the cabinet to approve a proposal to improve the labor forces competitiveness.However, this action plan eventually was abandoned. The scheme to reduce administrative staffin MOE by at least 25% through rationalization of positions and redeployment to localgovernments provided another example. Although the scheme was approved, the results werenot achievedand no effort was made to do so. The commitment to make all public universitiesautonomous by 2002 also was not fulfilled. While the Government technically met the loanconditionalities and tranche release conditions in these cases, it was not under any obligation toimplement the action plans or enact the legislation. Much of the SSP design focused on inputsand outputs (e.g., production of action plans), but not on the actions necessary to achieve theobjectives, purpose, and impact of SSP. Managing for development results requires a greaterfocus on the achievement of objectives and purposes, so that the anticipated impactsmaterialize.

25. The 11 projects funded by the first tranche of the loan were not developed specifically forthe SSP. Through interviews, the OEM learned that the projects were existing proposals that


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had not been implemented earlier by the line ministries due to budget cuts. The proposals wererevitalized when MOF and NESDB asked for submissions for SSP funding.

B. Achievement of Outputs

26. The $500 million SSP loan was used to support financial institutions ($300 million) and

the social sectors ($200 million). The PCR measured the program efficiency by counting specificoutputs.16 These included the number of (i) laid-off workers who benefited from social securitycoverage during SSP, (ii) people employed by the two major expenditure programs under theMiyazawa Plan funded by the World Bank and JBIC, (iii) student loan recipients, and(iv) recipients of the health card scheme. However, such quantification was impossible duringthe OEM due to the lack of records after the PCR, discontinuation of many SSP projects after2001, and absence of systematic data related to SSP.

C. Cost and Scheduling of the Program

27. The Program did not link the loan proceeds to specific expenditures, giving theGovernment the flexibility to use them in accordance with the fiscal framework defined in its

overall restructuring agreement with IMF.17 ADBs 1997 policy on program loans governing SSPallows the Government to use the loan on an unrestricted basis for general developmentpurposes, or on a case-to-case basis for the development needs of the specific sector that is thefocus of the program loan. The SSP loan was released in two tranches: $300 million upon loaneffectiveness, and $200 million on 28 October 1999 upon the Governments fulfillment of thesecond tranche requirements necessary for program implementation.18 Cabinet discussions andapproval of the extensive actions required by SSP delayed the release of the second tranche by4 months. This delay did not cause significant problems with implementation, as activities werealready underway in managing the crisis.

D. Organization and Management

28. The organization and management of SSP is shown in the program implementationstructure in Appendix 6. The functions of the PCMC, headed by the deputy prime minister,diminished after the release of the second tranche and as the impact of the Asian financial crisiswas brought under control. Given the complexity of SSP conditionalities, and the lack ofawareness from line agencies, the delivery of social services became less efficient (paras. 15and 16).

16ADB. 2002. Program Completion Reporton the Social Sector Program (Loan 1611-THA) in Thailand. Manila (p.10).

17Refer to 1997 OMSection 6/BP, applicable at that time, particularly para. 18 on use of counterpart funds.

18The requirements for the release of the first and second tranches are in the policy matrix in Appendix 3.


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III. ACHIEVEMENT OF PROGRAM PURPOSE

A. Operational Performance

1. Labor and Social Welfare

29. Labor and social welfare reforms under SSP included (i) the establishment of Centers forAssistance to Laid-Off Workers (CALOWs) to provide one-stop service for training referral,counseling, and job-placement assistance; (ii) the extension of social security coverage forworkers laid off during the crisis by at least 6 months after retrenchment; and (iii) cabinetapproval of programs to provide employment to vulnerable workers and the unemployed.CALOWs ceased operations in 2001,19 3 years before the OEM. Existing career guidance andemployment centers in each province continue to provide similar services to all Thais, not onlyto the poor and vulnerable groups. The decision to integrate CALOWs services with theemployment centers as normal services after the crisis was reasonable. To create jobopportunities for laid-off workers, and to enhance their competitiveness, SSP supported atraining program to develop computer skills of the unemployed with secondary education, and to

train them in information technology. The Ministry of Labor (MOL)

20

also absorbed this program.

30. By extending social security coverage for laid-off workers from 6 to 12 months, theGovernment exceeded the conditions in SSPs policy matrix. This was a desirable, pro-poor,temporary measure during the crisis. After the immediate impacts of the crisis was broughtunder control in 2000, coverage reverted back to 6 months. From 1998 to 2000,636,040 employees were laid off.21 At the OEM, social security benefits and coverage werebeing reviewed for possible revision.

31. To meet the commitment to create jobs for people laid off during the crisis, theGovernment launched three employment schemes in March 1999 that aimed to providetemporary work. Jobs were not created directly by SSP. An economic stimulus and job creationpackage funded by JBIC and the World Bank contributed B24.8 billion (of a total of B53 billion)to create 86,000 jobs for skilled workers and 400,000 jobs for unskilled workers.22 Employmentand training projects supported by SSP through government counterpart funding employed13,619 people and trained an additional 28,445. The third major employment package, theWorld Banks Social Investment Project, created another 348,159 temporary jobs. The threeemployment programs created jobs for 2.7% of the people working in Thailand during the thirdquarter of 1999 (Appendix 7, Table A7.1).23

32. A set of reforms under the policy matrix sought to protect the poor in the informal sectorand rural areas by making poverty programs more effective. To improve the targeting of povertyprograms, SSP aimed to transform the budgeting system. Before the SSP, funds were allocatedfor poverty reduction based on the population of the provinces. The new system requiredbudgets to be formulated based on the incidence of poverty in each province. BOB and NESDB

19The PCR reported that, between late 1997 and the end of 1998, CALOWs assisted 16,000 persons in finding jobs,counseled close to 40,000 walk-ins (52% were women), and helped more than 60,000 others by telephone.

20From 2001, MOLSW became MOL, and the social welfare office was dissolved.

21Ministry of Labor. This number is not an accurate means for determining how many laid-off workers receivedextended social security coverage, because the figure also includes people dismissed for reasons that would notnecessarily qualify for receiving benefits.

22World Bank. 1999. Thailand Economic Monitor, Second Quarter 1999. Washington D.C.

23This is based on the job creation figures divided by the total number of people employed (31.9 million people,according to National Statistics Office data).


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prepared guidelines on pro-poor budgeting for the ministries, and the new system began inFY1999. The OEM found that this system continues to be used. In FY2004, the Governmentallocated B79.14 billion as subsidies to the Local Administrative Organization for (i) providingpublic services at the standards set by the Government, (ii) resolving local problems that mightexceed their fiscal capabilities, and (iii) supporting projects in harmony with the budgetallocation strategy.

33. Another set of reforms under SSP was designed to promote private sector investment intraining employees. The Government simplified the procedures for tax deductions for employersunder the Vocational Training Promotion Act, which was reformulated as the Skills DevelopmentPromotion Act in 1999. A Skills Development Fund (SDF) was to be created, which wouldreceive contributions from private firms.24 However, the SDF law will not be implemented until2005. MOF has to issue four ministerial regulations related to SDF, inlcuding tax exemptions,before it takes effect. MOL estimated that 1,700 firms will borrow from SDF to provide trainingfor 90,000 people in the first year of its implementation. Eventually, at least 2 million people areexpected to benefit from private sector training supported under the law. This would be a major,positive development if the SDF law is implemented.

34. The last set of policy conditions for labor and social welfare sought to improve thecompetitiveness of the labor force. This entailed maintaining the minimum wage in accordancewith the Governments November 1997 agreement with IMF, and cabinet approval of a laboraction plan to improve competitiveness. Since many companies had closed, the Governmentmaintained the minimum wage25 for 1998 at the previous years level. A labor action plan wasdeveloped covering five components: (i) improvement of labor legislation and regulations toeliminate duplication, support investment, and protect employees rights; (ii) improvement ofwage policies; (iii) improvement of the Employee Assistance Schemecovering social security,and labor protection for formal and informal sectorsto eliminate duplication and to account forproduction costs; (iv) promotion of labor relations among employers, employees, and respectiveorganizations for the mutual benefit of all; and (v) acceleration of improvements in skill levels ofthe Thai workforce to international standards in line with the demands of a productive sector.

The labor action plan, which had been approved by the previous Government, was notimplemented due to the change of Government in 2001.

2. Education

35. In the education sector, the five policy priorities were (i) reducing the incidence ofdropouts from the school system due to financial difficulties; (ii) improving the quality of priorityeducation programs through a better allocation of resources; (iii) rationalizing the staff size,deploying more staff to rural areas, and establishing a new personnel management frameworkin line with the Governments general decentralization policy to delegate greater authority andresponsibility to local governments; (iv) decentralizing financial and management authority tomake all levels of education more responsive to societal and community needs; and

(v) promoting private sector provision of education and training.

36. The budget for student loans was increased to address the problem of students droppingout because of financial difficulties. The assumption was that an expanded student loanprogram would provide sufficient support to families to keep their children in school. From 1997

24Companies will be required to contribute to SDF if they do not provide training or offer an inadequate amount oftraining as specified by law.

25The range of minimum wage from 19982000 in all provinces was between B130 to B162 per day.


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to 2000, the Government had doubled the size of the loan fund. The number of students (newand old) receiving loans increased every year between 1997 and 2002, more than doublingduring that period (Appendix 7, Table A7.2). In April 2004, the Council of Ministers dissolved theEducation Loan Fund, replacing it with the Income Contingent Loan (ICL) Fund. ICL Fund26 wasdesigned as a mechanism for changing from a supply-side system to a more demand-side

budgeting system. It also aimed to increase the students share of higher education costs, andproduce graduates in areas most suited to the countrys economic and social needs. ICL Fundoffers loans only to students wishing to enroll at higher education levels.

37. The quality of priority education programs was to be enhanced through a set of policyreforms (Appendix 3). Two of the mandated policy actions involved maintaining and monitoringexpenditures for science, mathematics, and foreign languages, including teacher training. Thesepolicies were not maintained. Budgets for science from the Office of Basic Education have beenerratic since 1998. Budgets for teacher training for science and foreign languages did notexceed 1997 allocations until 2003. The Government budget for education shrank in 1998 dueto the impact of the crisis. However, the proportion of the budget allocated to the educationsector was largest among all sectors in 2000 at 25.7%, before declining to 21.8% in 2002. In2004, 24.4% (B251.2 billion) of the national budget was allocated to education.27

38. As required under SSP, the Office for National Education Standards and QualityAssessment (ONESQA) was established in 2000 to measure educational quality. All primaryschools are to be subject to an external evaluation from ONESQAs certified evaluators byAugust 2006a year later than required under Chapter 6 of the National Education Act of 1999(NEA). As of the end of 2003, 8,856 basic education institutions (23% of the total) had beeninspected. The results of these assessments were not available during the OEM.

39. SSP also intended to shift more students into general education28 by increasing theupper secondary budget by at least 5% relative to vocational education in FY1999.29 The actual3.6% budget increase fell short of the target in 1999, partly because pre-crisis budgets hadallocated significant resources to vocational education. From FY1999 to FY2004, the budget forvocational education declined nearly 19%, and its share of the MOE budget dropped from 7.8%to 6.0% over that period.30 The OEM was advised that the Government is planning to increasethe vocational education budget.

40. One of the measures to rationalize MOEs staff size was to control the number of newprimary teachers hired starting in FY1998. The aim was to achieve a student-teacher ratio of25:1 at the primary level by FY2002. The primary level student-teacher ratio for 2002 and 2003demonstrates that minimal progress has been made in this area. The ratio was 19:1, 31 up from17:1 in 1998, but well short of the SSP target.

26 Under this scheme, the Government will advance tuition fees to students in each higher education institutionthrough the ICL Fund. Students pay back their loans according to their future income.

27Office of the Education Council. 2004. Education in Thailand 2004. Ministry of Education, Thailand. p. 53.

28The erosion of Thai economic competitiveness in the wake of globalization was attributed partly to theinappropriate quality of its human resource base. Shortages of trained personnel in technical and scientific areascan be traced to the traditionally weak emphasis on science and mathematics in basic education, and low output ofhigher education graduates in science and engineering programs.

29The reason for this was the disproportionate number of students entering vocational schools, and fewer studentspursuing higher education.

30See Appendix 8 on vocational education.

31Office of the Education Council. 2004. Education in Thailand 2004. Bangkok.


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41. Another reform to rationalize MOE staff was the requirement that the cabinet approvedraft legislation for a new personnel administration and salary system, and a plan to reduceMOEs administrative staff by at least 25%. Draft legislation for the new personneladministration and salary system outside the civil service system was prepared during SSP.After the Program was completed, the draft legislation was revised. However, Parliament did notenact the legislation. The plan approved under SSP to reduce MOEs administrative staff was

abandoned, replaced in 2004 with a new plan to reduce the staff by 33%. The OEM was notable to obtain the figures for administrative staff in 1997 and 2004. The Government wasconcerned that disclosure of this information would create the perception of layoffs.

42. Parliament has not enacted draft legislation prepared during SSP to decentralize basiceducation to provincial and local administrative organizations. However, a new 15-yeardecentralization plan (200216) provides for transferring authority of schools gradually fromMOE to local authorities. This is consistent with the intent of the SSP, though substantiveimplementation has not begun.

43. The delegation of more authority to vocational schools has been limited. TheGovernment is committed to giving vocational schools autonomy over curriculum matters, cost

recovery, and personnel and financial management. While vocational schools now have theauthority to determine their curriculums, they lack control over the personnel and salary system.Full autonomy for vocational schools awaits a parliamentary decision.

44. At the higher education level, the Government was required to (i) grant universitiescontrol over their non-salary current budget, (ii) establish a performance-based monitoringsystem, (iii) commit to making all public universities autonomous by 2002, and (iv) grant onepublic university autonomy by the end of 1998. Universities received control over their non-salary current budgets, and reallocate at least 5% of their overall budgets among differentbudget items. As of 2004, universities controlled approximately 10% of their finances. The firstround of the performance-based monitoring system for universities was completed in 2003.However, the OEM concluded it was too early to assess the impact of these reforms on

accountability and transparency related to the use of finances at the university level.

45. Only one university, King Mongkuts University of Technology, gained autonomy in1998.32 In May 1999, the cabinet approved the Ministry of University Affairs autonomy masterplan, which would have made all universities autonomous by 2002. However, the master planwas abandoned as university staff resisted the changes due to (i) unclear policies,(ii) differences within the universities on the autonomy plans, (iii) lack of understanding of themeaning of autonomy, and (iv) concerns over job security. The Office of the Higher EducationCommission reported that these issues have been resolved, and most universities are nowwilling to become autonomous. Parliament is considering the autonomy plans of 4 of the 11universities that have been submitted. Ten other universities have not submitted autonomyplans.

46. To promote the participation of the private sector in education, the Governmentcompleted two main actions under SSP. First, the Government amended the B20-billion HumanResources Development Fund to make it more accessible to private schools that wish to drawfunds and build new structures. Second, the cabinet adopted a policy to prevent theGovernment from overcrowding private schools at all levels of education. SSP-linked reforms topromote the private sector in providing education included allowing private schools to establish

32See Appendix 9 for a summary of King Mongkut Universitys autonomy experience.


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their own fee structures, and ensuring that private schools have the same registration andaccreditation systems as public schools. In addition, private educational institutions wereexempted from taxes on operating profits, including those from books and material sales,dormitories, and cafeteria services. Tax exemptions also were given for dividends earned fromshares in educational institutions. Passage of the Private Higher Education Institutions Act in

2003 was beyond the scope of SSP reforms. Private schools are allocated the same per capitasubsidy from the Government as public schools. These measures have helped to improve theenabling environment for the private sector in education.

3. Health

47. Priority policy actions in the health sector aimed to (i) protect the poor; (ii) shift thebudget focus towards programs for women and children, and HIV/AIDS (humanimmunodeficiency virus/acquired immunodeficiency syndrome); (iii) improve health care servicedelivery in rural areas; and (iv) enhance efficiency in health care delivery by restructuringhospitals as corporations. The budget and coverage of two health care schemes for the poorwere expanded during the SSP. The budget for the Public Assistance Scheme33 increased by56.9% from 1997 to 2000. The scheme, which covered 25.7 million in 1998, added 3 millionpeople in FY1999. The Voluntary Health Card scheme,34 which had 2 million cardholderscovering 9 million people in 1997, also was expanded. Its budget more than doubled (anincrease of 109.4%) between 1997 and 2000. More than 12 million additional poor peoplebenefited from better access to health care during SSP. The B30 policy, which covers all Thaisregardless of income, has replaced these two health care schemes. The new policy goesbeyond SSP in terms of coverage. However, the OEM found that older people in rural areas donot favor the new program since they have to pay B30 per hospital visit. Under the previouspolicy, they would pay only what they could afford or would receive treatment for free. On thepositive side, if they are hospitalized or require surgery, they pay a maximum of B30.35However, most older Thais would rather stay at home in the care of family than be hospitalized.They commonly consult a doctor for medical prescriptions, meaning hospital visits can befrequent. Another drawback of the B30 policy is bureaucracy. Beneficiaries reported that thewaiting time for medical services under the new scheme is very long, sometimes lasting all day.

48. The HIV/AIDS budget fell below the FY1997 level in FY1999 (Appendix 7, Figure A7.1).Despite the drop in overall HIV/AIDS funding, prevention activities as a percentage of the totalHIV/AIDS program in FY1999 remained at the FY1997 level of 10.9%. Combined with advocacyand awareness campaigns, this contributed to the continued success in reducing newinfections,36 as well as maintaining care for those who are infected. Between FY1998 andFY2004, the budget allocations for AIDS prevention did not reach the FY1997 level. Likewise,the annual budgets for AIDS patient treatment through FY2004 never surpassed the level ofFY1997.Budget allocations to the Department of Disease Control for all immunizations grew by58% from FY1998 to FY1999, and peaked at B1.04 billion in FY2000. However, cutbacks in200103 reduced the Departments budget to B320 million, about one third of the peak level in

33The focus of the Public Assistance Scheme includes programs for women and children, such as maternal and childhealth, essential vaccinations, prevention, community development, and NGO activities related to HIV/AIDS.

34The voluntary health card costs B500 per year for each family holder. The B30 policy health care scheme replacedthe SSP health schemes in 2001. The new health scheme was implemented gradually in April 2001, and expandedto the whole country by the end of 2002.

35For poor Thais over 60 years old and under 12 years old, a gold card can be issued that exempts them from payingfor medical services. However, not all old people are aware of this scheme.

36The exact percentage in 1999 was 10.8% of the total HIV/AIDS budget. United Nations Development Programme.2004. Thailands Response to HIV/AIDS: Progress and Challenges. Bangkok.


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FY2000.37 In FY199899, the budget surpassed the FY1997 levels, most likely due to theinjection of funds from SSP. The allocation in FY2000 fell below the base year before exceedingthat level again in FY2001. Maternal and child health budgets have not been strengthenedconsistently or protected since the crisis. However, as a whole, the appropriation for the healthaffairs and services budget increased from B72.7 million in 2002 to B83.6 million in 2004.38 Thisis compatible with continued government support to the sector.

49. The health policy priority in SSP to improve health care service delivery in rural areasrequired the Government to prepare an action plan with mechanisms to redeploy healthpersonnel to rural areas. The cabinet approved the action plan39 in May 1999. However, theplan was not implemented.

50. To improve efficiency in health care delivery, SSP required the restructuring of hospitalsas corporations. One public hospital, Ban Phraeo Hospital in Samut Sakhon, was restructured in1998 and became autonomous in October 2000. It remains the only corporatized40 hospital inThailand.41 The cabinet approved a draft action plan for seven hospitals to gain autonomy inMay 1999. However, differences within the cabinet resulted in the other six hospitals not beingcorporatized. The director of Ban Phraeo Hospital reported improved efficiency in providing

health services and managing its financial situation. Because of the improved servicescompared to government hospitals, private individuals had offered grants and funding support toBan Phraeo. These positive developments suggest that restructuring hospitals as corporationsis worth pursuing.

B. Performance of the Operating Entity

51. As the Executing Agency, MOF established a steering committee, chaired by the deputyprime minister, to make decisions. MOF also established a coordinating body, NESDB, tooversee the daily operations in coordination with line ministries. In the early part of SSP, thecommittee met regularly as needed when called by the chair. The frequency of meetingsdeclined after the release of the second tranche and as the crises abated. Proposals for project

funding from line ministries went through a screening body headed by MOF. Due to thecomplexity of the Program and the numerous bodies responsible for multiple activities,monitoring and reporting were important. However, the system did not function as efficiently asplanned. Line ministries treated the activities as normal projects of their respective agencies,and were not clear about the policy matrix and loan commitments needed to ensure betteroutcomes of such activities.

C. Performance of Technical Assistance

52. Three TA grants, totaling $2.1 million, were provided to support the policy reformsprescribed in SSP: (i) Capacity Building for Social Sector Reforms (TA 2995-THA), 42

37As reported by the Ministry of Health.

38Bureau of Budget. 2004. Thailands Budget in Brief, Fiscal Year 2004. Bangkok.

39This was developed through TA 2997-THA (ADB. 1998. Technical Assistance to the Kingdom of Thailand for theHealth Management and Financing Study. Manila) for $700,000, approved on 12 March 1998.

40In the context of SSP, corporatize means management of a public or government owned entity in a commercialmanner, where the entity is responsible for controlling and raising their own human and financial resources as inprivate sector, although it may still receive government subsidy.

41See Appendix 10 for Ban Phraeo Hospitals autonomy experience.

42TA 2995 was provided by a firm, for 52.2 person-months.


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(ii) Education Management and Financing Study (TA 2996-THA),43 and (iii) Health Managementand Financing Study (TA 2997-THA).44 While the first two TAs were successful, the last onewas not. The first TA strengthened the Governments planning and management capacity toevaluate the impact of the crisis on social welfare, employment, education, and health. Thesecond TA mainstreamed reforms in education. The last TA failed to achieve its objectives, and

had minimal institutional impact. A complete discussion of these TAs and their rating is inAppendix 5.

IV. PROGRAM OUTCOMES

A. Achievement of Development Impacts45

1. Mitigation and Social Impacts

53. The program framework for SSP is in Appendix 1, while the summary of activities andactual project costs is in Appendix 2. One of the three main goals of the Program was toaddress the adverse social impacts of the financial crisis in Thailand and the underlying social

sector causes. Thailand generally was successful in mitigating the immediate adverse socialimpacts of the crisis. Given the depth of the crisis, this was a major accomplishment. SSP waspart of the package of assistance that made this possible. Notable progress has been made instrengthening the social safety net, particularly in targeting poverty funding better, extendinghealth coverage for the poor, and providing broader coverage for social security. The newly re-elected Government recently announced that it would spend up to B1.5 trillion ($39 billion) onnational development and pledged to eradicate poverty within 6 years by focusing on raisingoverall living standards in deprived rural regions.46

54. The mitigation of the short-term impacts of the financial crisis is most apparent in thelabor and social welfare sector. Three basic groups were affected: (i) salaried workers in thebanking and financial sector, (ii) workers in export enterprises, and (iii) informal or home-based

workers. The first two groups were covered by social security under the Labor Protection Act of1998. The last group was not, and thus relied mainly on family support and social networks. In1999, a National Statistics Office survey estimated that 3.6 million workers, 30% of the Thailabor force, received less than the minimum wage.47 Unemployment rates dropped consistentlyafter 1998 (Appendix 7, Table A7.1). While employment programs helped mitigate the adverseimpacts of the crisis, the recovery of the economy, in general, and the private sector, inparticular, were major factors as well.

55. Mitigation measures in the education sector, including the help of an expanded studentloan program, to prevent declines in completion and transition rates, were not consistentlysuccessful. The transition rate to upper secondary education in 2001 was below the 1998 rate,and the completion rate fell sharply in 2000 from a year earlier before recovering in 2001. Thecompletion rate of primary education in 2001 dropped below the 1999 level following anincrease in 2000. Transition rates to lower secondary education fluctuated during the crisis

43TA 2996 was provided by UNESCO for 49.8 person-months and individual consultant for 1 month.

44TA 2997 was provided by a firm, Management Sciences for Health, for 45.2 person-months.

45The estimated cost of reforms under SSP is in Appendix 11.

46Oxford Analytica. 1 April 2005.

47Many of the laborers opted to accept lower wages rather than lose their jobs. Others agreed to forego some socialsecurity benefits to continue working, as many companies closed or scaled back their operations due to theeconomic crisis.


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years of 19982000 (Appendix 7, Figure A7.2). Gains in the transition rate to lower secondarylevel were not consistent until academic year 20022003. However, the transition rate to uppersecondary education still fluctuates and remains below the pre-crisis level. The OEM concludedthat other factors must be at work, contributing to these less than satisfactory outcomes, whichthe expanded loan program was insufficient to solve.With the passage of NEA, the Governmentcommitted to support 12 years of education for all children and support to higher level students

including those in vocational schools. Students who cannot avail of an ICL loan are eligible forscholarships. Students in elementary schools visited by the OEM have been provided with milkand lunch programs, which are helpful in preventing school dropouts and contribute to betterchild nutrition.

56. The mitigation of potential adverse effects on the health of the population was somewhatsuccessful. However, these achievements would have occurred without the Program, as thehealth programs were mainstreamed before SSP. HIV/AIDS budgets during the crisis were notmaintained at the FY1997 level (para. 48), though the lower spending did not lead to a higherrate of new infections (Appendix 7, Figure A7.3). The budget allocation for national AIDSprevention and treatment fell by 23% between 1997 and 1999. However, Thailand lowered theannual number of new HIV infections between 1996 and 2003, a trend that has continued since

1992. This achievement suggests that the Government has found or maintained more targetedand efficient ways to prevent HIV infections that do not require increasing expenditures.

57. For maternal and child programs, budget allocations to the Department of DiseaseControl for all immunizations grew by 58% from FY1998 to FY1999. However, coverage ratesfor key childhood immunizations, such as DPT3 and polio, and maternal-related immunizationsdid not increase (Appendix 7, Table A7.3). The percentage of people covered by selectedimmunizations fluctuated between 92.5% in 1997 and 89.3% in 2002.

58. The impact of the budget changes on the mortality rate for children under 5 and maternalmortality rate (MMR) is unclear. Improved data collection methods starting in 2001, which showhigher MMR in 2001 and 2002 than before (Appendix 7, Table A7.4), obscure the picture

further. MOPH asserts this increase represents better reporting, not an actual worsening ofMMR.

59. The OEM made a limited assessment of the impact of the Program on vulnerable groupsthat were provided assistance under SSPs welfare schemes. These groups consist ofhouseholds headed by women, children, the elderly, and the handicapped. During interviewswith these groups and with NGOs working with them, the OEM found that support during thecrisis was adequate. However, it diminished after the Program closed. The Labor Protection Actof 1998 only covered workers in the formal sector, not the estimated 30% of the Thai labor forcethat works in the informal sector (e.g., home and cottage industry workers). With the introductionof the new Governments policy one tambon, one product,48 separate from SSP, some homeworkers, who are mostly women and the elderly who were producing different products, lost

trade due to competition and the new policy. Overall, SSP mitigated the adverse impacts of thecrisis on vulnerable groups but with some limitations. This is discussed in more detail in thesupplementary appendix.

48Under this policy, each tambon (village) is encouraged to produce and specialize in only one productthat whichthe village has a competitive advantage in producing. The Government provides the marketing support and qualitycontrol. If a certain village is producing one particular product, all village workers will only produce this particularproduct, and nothing else.


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2. Enhancement of Competitiveness Through Human Resource Development

60. The second purpose of the Program was to enhance competitiveness through humanresource development. SSP policy and outputs have not contributed substantially towards thisobjective, either because the reforms have not been fully implemented, or the SSP conditions

and/or actions were inadequate. Labor unions and the Government resisted the condition torationalize minimum wage to enhance export competitiveness. Given the high number ofcompanies that went bankrupt during the crisis, employers and employees agreed to flexiblearrangements to prevent layoffs. These included reduced working hours or reduced socialbenefits. Forced to choose between losing jobs and lowering wages and benefits, manylaborers chose to survive. SSP provided support for those who lost their jobs, although this wasa mitigation measure rather than an enhancement of labor competitiveness.

61. Simplified procedures for obtaining tax deductions for worker training resulted in morecompanies sending workers for qualified programs of MOLSW. The number of companiessending workers for training rose from 69 in 1997 to 271 in 1998, while the number of workerstrained increased nearly four-fold from 51,702 to 199,592. Between 1998 and 2002, an average

of 244 companies and 200,589 workers participated in training annually.

49

The simplifiedprocedures had the desired effect of persuading more firms to send their workers for trainingunder MOL prog