Document of

The World Bank

Report No. T-6534-NI

MEMORANDUM AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 15.7 MILLION

TO

THE REPUBLIC OF NICARAGUA

FOR AN

INSTITUTIONAL DEVELOPMENT PROJECT

FEBRUARY 24, 1995

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CURRENCY EQUIVALENTS

US$1 = 7.2 Nicaragua C6rdobas (January 1995)

FISCAL YEAR

January I - December 31

ABBREVIATIONS AND ACRONYMS

CERAP Committee for the Reform of Public Administration(C'omite para la Reforma de la Andministracion Publica)

DIGEFUP Directorate General for Public Administration (TDirecci6n Generalde [Fincion Piiblica)

ERC Economic Recovery CreditICB International Competitive BiddingIDA International Development AssociationIDB Inter-American Development BankIDF Institutional Development FundINAP Government Training Institute (Instiluto Nicaraguense de

Administracion Puiblica)LIB Limited International BiddingPFP Policy Framework PaperPHRD Policy and Human Resources Development FundSDS Service Delivery SurveySIGFA Integrated Financial Management System (,Sisema IJtegrado de

Gesti6n y A uditoria Financiera)TA Technical AssistanceUCRESEP Coordinating Unit for the Reform of the Public Sector

((nidad Coordinadora para la Reforma de Sector PIublico)UNDP United Nations Development ProgrammeUSAID United States Agency for International Development

NICARAGUAINSTITUTIONAL DEVELOPMENT PROJECT

TECHNICAL ANNEX

SECTION A: PROJECT DESCRIPTION

Background

1. When the current Government of Nicaragua assumed office in April, 1990 it faced severechallenges. The economy, devastated by mismanagement and civil war, was characterized by acumbersome, centralized public sector, a small over-regulated private sector, and atrophiedmarket institutions. Exports and GDP per capita had declined to 40 percent of the levels attainedin the mid 1970s, and macroeconomic imbalances, inherited from the previous administration, hadresulted in hyper-inflation and a massive external debt more than five times the size of the GDP.During 1991 and 1992 the Government implemented a strong stabilization program supported bythe IMF. It also began a structural adjustment program, supported by IDA, aimed at transformingNicaragua into a market economy capable of achieving sustained growth. An element in thestructural adjustment effort were programs to fundamentally alter the size and role of Governmentthrough employment downsizing, privatization of parastatal enterprises, and the reduction ofGovernment policy intervention in economic decision making.

2. Despite considerable progress in stabilization and adjustment, by early 1994 private sectorinvestment and economic activity had not rebounded as anticipated. A major contributing factorwas the continuing drag on the economy of the public sector. Even after privatizing over 300firms, labor force reductions, and major efforts at budget restraint, the non-financial public sectorremained large, accounting for 40 percent of GDP. Despite a high tax burden, the 1994 fiscalcurrent deficit in the non-financ:al public sector, before donations, is about 8 percent of GDP.Moreover, service delivery remains weak as public sector financial management processes arerudimentary, human resource management is nearly non-existent, and the mission, structure andfunction of individual ministries remains, in many instances, outdated and inadequate.

3. The authorities, fully cognizant of these deficiencies and the failure of the economy torespond as anticipated to the earlier adjustment measures, embarked on an intensified program ofadjustment with increased attention directed to public sector reform and modernization. IDAsupported this initiative with a second Economic Recovery Credit (ERC II), approved in June,1994, which aims at, among others: (i) a 15 percent reduction in public employment; (ii)continued privatization of public enterprises; (iii) reform of state banking institutions; and (iv) thedesign and launching of a comprehensive public sector modernization program. Preparation of aTechnical Assistance (TA) project to support reform design began in early 1994. Using bothPHRD and IDF grants, the Government was able to prepare diagnostic studies and actionprograms focused on institutional restructuring, civil service and financial management reform,and the development of an information technology improvement program for the public sector.Given the progress achieved in reform design and their strong desire to accelerate reformimplementation, the authorities requested that the proposed TA credit be expanded into a morecomprehensive, implementation oriented Institutional Development Project.

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4. Project Objectives: President Violeta Chamorro issued Decree 44-94 in October, 1994initiating a public sector modernization program and creating a cabinet level oversight C'ommitteefor the Reform of the Public Administration (CERAP), headed by the Minister of the Presidency.The goal of the reform is a public sector which is "small, strong, efficient.. and [which] acts as afacilitator to the private sector." Successful implementation of a comprehensive, coherent, andwell-targeted public sector modernization program would represent an important advance inNicaragua's ongoing structural adjustment effort. The proposed project would be a major sourceof support for the reform effort. Its objectives would be improvement in service delivery by thoseinstitutions restructured under the program and increases in public savings attributable to theprogram.

5. Project Concept: Institutional restructuring is the heart of the reform program and theproposed project. It would involve the systematic re-engineering of up to 20 ministries anddecentralized institutions over a five year period. Project execution would be phased with nomore than five institutions joining the program in any given year in order to limit demands on theGovernment's overall reform management capacity. An important degree of "self-selection"would be utilized in determining the order of entrance into the program to ensure commitmentand "buy-in" by the participating institutions.

6. IDC financed consultant services would assist CERAP undertake diagnostic studies of themission, structure, and function of institutions nominated to enter the program as well as designand support implementation of the institutional restructuring process. Institutional RestructuringAgreements (IRAs) would be negotiated between CERAP and each participating institutionEach IRA would establish objectives and performance benchmarks focused on identifying theappropriate mission and enhancing the main service delivery capacities of the participatinginstitution, as well as delineating the resources (technical assistance, training, informationtechnology, etc. financed by IDA or other donors) to be made available by CERAP to support therestructuring process. Each IRA is expected to remain in force for at least two years. Annualperformance reviews, including Service Delivery Surveys (SDS), being designed with the supportof the Economic Development Institute (EDI), would measure the institution's progress againstagreed objectives and establish the basis for any modifications in the IRAs for the following year.While the Government is confident that all ministers and heads of institutions would activelysupport the restructuring process, Government sponsored incentives, in addition to thoseprovided through IDA and other participating donor resources, would include increasedresponsibility in budget formulation and execution, improved human resource management andtraining, and scope for selective pay adjustments for essential professional and technical personnelfinanced out of reform related savings.

7. The project would also finance three critically important cross-cutting components (civilservice reform, financial management reform, and investments in information technology)necessary to sustain improved service delivery in the restructured institutions. These systemsmust be designed as overarching, enabling systems for the public sector as a whole. Theinstallation of these components, however, would be targeted first on those institutions with IRAsin force. Although not a separate component per se, training would be an integral aspect of thereform effort, to be delivered initially by the substantive consultants in each project component.The project would also implicitly complement the Government's decentralization efforts by

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providing training to local officials and supporting, through the restructuring process, theexpansion of decentralization initiatives currently being piloted in several institutions.

Project Components

Institutional Restructuring ($7.05 million, including training, 22% of total base costs):

8. The Problem: Diagnostic studies' of seven ministries, two decentralized institutions, andfive local governments commissioned by IDA during project preparation, as well as a separateassessment of pay and employment practices, have documented a generic set of institutionalweaknesses in the public sector. Among the salient findings are the following:

* Most ministries, especially those whose controlling legislation sets multiple objectives, are notfulfilling their stated missions nor ensuring that their activities fully reflect current Governmentpriorities;

* Confusion and fragmentation of responsibilities is common due to overlapping legal mandatesamong institutions;

* Various services could be provided more productively by the private sector,

* Within institutions there is organizational confusion and fragmentation. Some ministries havemore than one organization chart, of which none reflects reality;

* Departments within ministries frequently operate with excessive autonomy, pursuingindependent agendas,

* Weak mechanisms for target setting and performance measurement, the poor state ofinformation systems, and the lack of feedback into the budgetary process in all institutionsstudied attenuate performance and accountability,

* The high proportion of donor funding to total resources available to some ministries increasesthe influence of donors' interests and objectives, which may diverge with those of thegovernment, heightening confusion and fragmentation of purpose;

* Ministries appear to be overstaffed at the top and bottom, and

* Across ministries there are large numbers of small "management units" whose existenceappears to respond to pressures other than rational work organization. Out of 20 institutionsstudied, 12 had an average of less than four employees per manager. One ministry has 17administrative units in its Central Activities Program, of which two have an average of 25.5employees, while the other fifteen average only 3.01 employees per unit. Another ministry hasthree units averaging 20.3 persons and 19 averaging 2.07 persons. Whether or not this

Nicaragua: Institutional Diagnosis and Restructuring Study, November, 1994

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pattern also reflects the impact of separate donor projects and ad hoc attempts to overcomelow pay levels, there appears to be too many supervisors for too few employees.

9. As indicated above, the Government has pursued public sector reform and downsizingsince assuming office in 1990. It has reduced public sector intervention in the market,demobilized much of the military, privatized over 300 parastatal companies, and initiated sectorprograms with important institutional development components utilizing assistance of IDA, IDB,and USAID in the agriculture, health, and education sectors. The Government also implementeda voluntary labor force reduction program between 1991 and 1993, financed by USAID, whichresulted in the separation of approximately 25,000 employees. The combined impact of these andother initiatives is demonstrated in Table l.

Table 1: Public Sector Employment 1977-93(thousands)

Government Unit 1977 1990 1993

Central government 24.1 67.2 57.3

Security and defense 9.2 109.2 24.9

Rest of non-financial sectors 7.7 20.9 16.2

Flinancial sector 2.2 9.1 3.5

CORNAP (holding company for 0.0 78.0 4.3state owned companies)Total 43.2 284.8 106.2

GDP per public employee 679,225.0 63,734.0 169,654.0(1980 cordobas)Source: Ministry of Finance

10. In spite of the substantial progress made in reducing the size of the public sector, the 1994ratio of GDP per employee is still only about a fourth of its 1977 level. Similarly, the ratio oftotal population to the public sector as a whole, less defense and security, dropped from 98.1persons per public servant in 1977 to 63.5 in 1990, recovering to 76.9 by April 1994. While thesefigures must be used with caution and recognition accorded to an increased commitment to socialsector investments, the analysis suggests further global reductions are warranted within thecontext of carefully prepared institutional restructuring programs.

11. The Government's Program: In a Public Sector Management Development Policy letterto IDA in March, 1994 the Government indicated its intention to consolidate past reforms andlaunch a more comprehensive public sector modernization program. A Government white paperin July, 1994 identified institutional restructuring as the keystone of the reform program. TheGovernment subsequently advanced the concept of explicit contractual agreements (i.e., IRAs)between CERAP and participating institutions to govern and discipline the institutionalrestructuring process. During project appraisal the Government and IDA agreed on a model, orgeneric, IRA (see Annex 1). CERAP, with IDA assistance, is presently developing the initial fourIRAs which would serve to launch the institutional restructuring program no latter than mid 1995.The authorities and IDA have agreed that at least one IRA would be formally contracted prior to

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credit effectiveness. Assurances were provided by the authorities that IRAs would be negotiatedbetween CERAP and participating institutions as a condition for entrance into the program.

12. Institutional restructurings would be based on diagnostic reviews of the mission, structure,and function of the institution, with a view toward eliminating duplication and fragmentation,contracting out or privatizing functions wherever appropriate, strengthening program formulation,human resources capacity, and financial management and, in general, strengthening theinstitution's ability to execute a well defined, service oriented mission. The Government hasnominated the ministries of Finance, Government, Environment and Natural Resources,Transportation and Construction, and the Social Security Institute to initiate the restructuringprocess during 1995. Diagnostic studies have been, or will soon be, completed in all theseinstitutions. An additional five institutions would join the program during 1996. Diagnosticstudies to prepare for these and subsequent restructurings would be carried out with IDA financedassistance. Subject to the progress achieved in the initial ten institutions, the availability of fundsand the Government's ability to manage program expansion in a systematic and efficient manner,up to 20 institutions could be restructured during the five year life-of-project (see Table 2). TheGovernment and IDA have agreed to undertake a mid-term review of the program after theproject's second year. A central concern of this review would be to determine if the third andfourth rounds, each respectively involving up to five institutions, should go forward as indicativelyplanned or, alternatively whether the available resources should be used to further deepen andextend the institutional restructuring process underway in the initial 10 IRA institutions for anadditional one or two years. Both the authorities and IDA agreed during appraisal that adecision to continue to expand institutional coverage during the project's outer years, versus amore intensively focused, institutional deepening of the ongoing program, could not be decided apriori, but should await the results of the mid-term review.

Table 2: Institutional Restructuring ScheduleYear 1 2 3 4 Total

1995 1996 1997 1998Number ofInstitutions 5 5 5 5 20BeginningRestructuring

13. Proposed IDA Assistance ($5.7 million in Technical Assistance and $.26 million forTraining): IDA would finance a competitively awarded, two-year renewable contract with a firmwith relevant international experience. The firm would: (i) assist the CERAP Commission forAdministrative Reform establish and operate the IRA process, (ii) provide direct technicalassistance (both management and sector specific) to the selected institutions implementing IRAs,(iii) design and carry out diagnostic studies for prospective restructuring institutions; (iv) assistand support CERAP in its effort to establish and implement the SDS; (v) assist CERAP carry outthe annual IRA performance reviews, (vi) provide selected professional expertise to supportrelevant training programs, (vii) assist CERAP establish the overall management framework andimplement the Public Sector Modernization Program, and (viii) oversee the coordination of thecontractors responsible for providing technical assistance to the other components of theprogram. The proposed consulting services are expected to be about 144-person months of longterm residential assistance and 124 person-months of short term advisory support. Additionally

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this component would cover management training activities to be designed and initiallyimplemented by the technical assistance contractor and subsequently replicated and extended by[NAP to participating institutions.

14. Expected Outputs: The expected outputs of the Institutional Restructuring componentwould be: (i) enhanced service delivery by participating institutions as recorded and measuredthrough annual service delivery surveys and institutional performance reviews to be carried outby CERAP; and (ii) more rational and cost effective recurrent and capital expenditures at theindividual institutional level, expressed in terms of each participating institution's contribution topublic savings.

Civil Service Reform ($3.34 million, including training, 10% of total base costs):

15. The Problem: Improvements in institutional performance will require complementaryreforms in several areas including the civil service system. A comprehensive diagnosis2

undertaken during project preparation identified a range of legal, institutional, and policyweaknesses in managing human resources, including the following:

* Public sector employment in Nicaragua has never been governed by a civil service code. TheGovernment vetoed civil service legislation passed by the outgoing administration, believingthat it would not establish an appropriate framework for a professional and merit based civilservice;

* There is no national establishment register with a file on each employee, no job classificationsystem, no government-wide occupational based salary schedule, and no uniform set ofpolicies and procedures guided by a central personnel agency,

* The policy framework for the functioning of the civil service is based on custom and tradition,augmented by separate laws and individual collective bargaining agreements negotiated at theministry level,

* Ministries often have separate and distinct codes which govern human resource management.Consequently pay, grievance procedures, medical benefits, occupational injury regulations,leave, death and severance benefits, and fringe benefits relating to food and clothing varywidely among institutions. Staff in some ministries work a five-hour day for eight-hours pay.Some agreements give employees the right to strike. Although many agreements have notbeen renegotiated upon expiration, they continue in force;

* Personnel administration is rudimentary within each institution. Recruitment, hiring, firing,and promotion are generally handled outside of the personnel division, without uniforminstitutional standards and procedures. Performance evaluation, except during a probationaryperiod at the onset of employment, does not exist;

2 Nicaragua Civil Service Diagnostic Revicw: October. 1994.

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* Training opportunities for staff at all levels is extremely limited. Much of the training thatexists is initiated and financed by international donors as ad hoc interventions rather than partof a coherent public sector human resource management and career enhancement program;

* Management style tends to be authoritarian rather than consultative, motivating, and directedtoward problem solving;

* Although there is limited data, civil service pay appears to be substantially below that of theprivate sector across all occupational classifications, especially for technicians and seniormanagers. Average earnings in government were 791 Cordobas/month ($115 equivalent) in1993 versus 1,600 Cordobas/month ($229 equivalent) in the private sector (see Table 3);

Table 3: Average Monthly Earnings By Economic Sector and OccupationFebruary 1994

(Cordobas)Sector Laborers Services Administrative Professional Managers Average

TechnicalMines 988 848 1,163 1,671 2,291 1,077

Industry/Man. 1,706 2,061 1,872 3,884 6,255 2,189

Gas, Water 1,041 906 1,204 2,110 3,425 1,498&Elect.Construction 1,142 770 1,072 1,687 4,371 1,128

Rest. & Hotel 1,046 873 1,560 2,191 5,209 1,719

Transportation, 1,394 1,494 15,117 2,465 3,669 1,562Storage, andCommunicationInsurance 0 1,006 1,367 2,151 5,000 2,170

Personal 951 794 1,152 2,016 3,191 1,536ServicesGeneral 791GovernmentMinistry of 817HealthTeachers 577

Ministry of the 1,514Presidency

Source: Ministry of Labor

* There appears to be a wide range of salaries for similar occupational classifications within thepublic sector, reflecting the absence of any formal wage structure for the government andmisclassification of individuals as a result of weak personnel administration (see Table 4);

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Table 4: Minimum, Maximum, and Average Monthly Salary ofSelected Positions in the Ministry of Agriculture

(Cordobas)Occupation Minimum Maximum Average

Department Head 735 6,000 2,133Office Head 772 1,822 1,202Executive Secretary 425 3,680 751Office Secretary 422 722 562Project Analyst 847 5,000 1,651Veterinary "A" 1,272 4,500 1,882Analvst-Ag. Prod. "A" 847 1,522 1,256Sanitary Specialist "A" 670 1,272 1,019Statistical Analyst "A" 772 1,560 1,198Economic Analvst "A" 1,222 3,500 2,065Agricultural Inspector 452 2,736 1,086Lab Quality Technician 472 2,574 1,030C.P.F. Agent (A) 234 1,250 510Janitor 234 500 315Chauffeur-Light Vehicle 272 1,000 503

- Ad hoc arrangements to overcome low pay through donor financing of Nicaraguanconsultants associated with donor financed projects may be unsustainable if internationalassistance diminishes and the consultants abandon the public sector. One ministry has 425regular positions and 555 Nicaraguan consultants associated with 27 donor financed projects.These consultants are paid on average twice the prevailing rate for the correspondingoccupational categories on the government payroll, and

- The ongoing program to reduce public employment under the Government's "Labor MobilityProgram" should be strengthened by tightening controls over new hiring, ensuring thatdeparting employees are not the most productive, linking reductions to institutional prioritiesand restructuring goals, and permitting institutions to share in the budgetary savings achieved,perhaps to provide program support and performance incentive payments to the remainingwork force. The latter would be facilitated were donors to contribute to a severance paymentfund, to relieve the pressure on the Government's recurrent budget which is currentlyfinancing severance payments.

16. The Government's Program: Given the serious macroeconomic imbalances andprecarious fiscal position inherited by the Government in 1990, its immediate objective was toreduce the fiscal impact of an excessively large public sector labor force. This was achieved,although some of the Government's more able civil servants left (perhaps inevitably givenimproving prospects in the private sector). While still pursuing more selective downsizing under asecond phase Labor Mobility Program (to be supported by diagnostic reviews under the project),the Government wants to create a properly structured, better compensated, and more professionalcore of human resources in the public sector. To this end, the Government recently created,within the Ministry of Finance, a Directorate General for Public Functions (DIGEFUP), which

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will serve as a nascent Civil Service Administration and which has initiated a job evaluation andposition classification effort. The Government recently created personnel divisions in lineministries and decentralized agencies which presently perform only a minimal set of personnelmanagement functions, principally preparation of payroll submissions and recording changes inemployee status. It is the Government's intention to enhance salaries for scarce technical andprofessional skills in certain occupational categories, perhaps through the creation of a new civilservice cadre. Given immediate fiscal constraints, and as DIGEFUP seeks to define such asystem, the Government would permit participating spending agency ministers to utilize a portionof budgetary savings generated through the restructuring process for selective pay adjustments.Finally, with support from UNDP and USAID, the Government has taken initial steps to developtargeted short-term management training programs, and has moved to strengthen the publicsector's training capacity in INAP.

17. Proposed IDA Assistance ($3.0 million in Technical Assistance and $34 million forTraining): IDA would finance a competitively awarded, two-year renewable contract with a firmspecialized in human resources management and with relevant international experience to assistthe Civil Service Commission and the DIGEFUP design and carry out the civil servicemodernization program. The level of effort of this proposed consultant services contract isexpected to be in the range of 96 person months of long-term residential assistance and 26person-months of short term advisory support. Three types of assistance are envisaged:

* The contractor would assist the Civil Service Commission and DIGEFUP: (i) draft, andimplement upon enactment, a merit based civil service code3; (ii) develop a standard set ofregulations to implement the civil service code, covering all aspects of personneladministration from grievance procedures to performance evaluation; (iii) further develop andmaintain a government-wide job classification system and supporting computerizedestablishment register; (iv) develop a service-wide, incentive based salary structure and thecapacity to periodically update the salary schedule through labor market wage surveys; (v)design and carry-out targeted staff reductions arising from the institutional diagnosis andrestructuring process; (vi) develop and apply appropriate recruitment and staff selectionprocesses, and (vii) strengthen the capacity of DIGEFUP to meet its responsibilities as therector of the civil service system.

* At the individual institutional level, the contractor with DIGEFUP would provide technicalassistance, as elaborated in each IRA, to assist the institution's personnel divisions upgradepersonnel management practices and implement the new civil service code.

* The contractor would assist DIGEFUP design and carry out a core program of training inhuman resources management (estimated cost $0.34 million). The contractor would alsocoordinate the training activities associated with the Institutional Restructuring, IntegratedFinancial Management and Information Technology components (see paras. 13, 21 and 26).

3 It is the Government's intention to send the proposed civil service legislation to the National Assembly fordebate and approval. The Executive Branch, however, has independent authority to establish, throughpresidential decree, the necessary legal framework for the creation of the proposed civil service in the eventthat the legislation is not passed by the Assembly.

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This training would be initially developed and delivered by the consultants retained underthose components and subsequently replicated and expanded by INAP. The overall IDAcontribution to training, across all five project components, would total $2.0 million (seeSchedule 2). The UNDP would provide assistance to INAP, in the context of its ongoingcapacity building program, in training management, finance, and logistics.

18. Expected Outputs: This component would help establish the legal foundation andsupporting management framework at both the central and specific agency level for a modern civilservice. Personnel administration and merit principles would be introduced across theGovernment. A single job classification system, computerized establishment register andsupporting salary schedule would be fully functional, enabling the government to effectivelycontrol and manage public employment and maintain an occupation based salary schedule.Administrators and staff would receive training in applying the newly acquired personnelmanagement procedures. Moreover, a large cross section of civil servants would have receivedtraining in general management, financial management and information technology, and theinstitutional capability of INAP to sustain this training effort would have been strengthened.

Integrated Financial Management ($11.16 million, including training, 34% of total costs):

19. The Problem: The financial management system of the public sector is poor andconstrains the Government's ability to execute its policies and programs in a cost effective,efficient, and transparent manner. Diagnostic studies prepared by USAID and IDA4 haverevealed:

• The absence of a government-wide accounting system to comprehensively standardize,classify, and account for public revenues and expenditures;

* Weak expenditure controls and cash flow management practices and supporting Treasuryfunctions"

* An institutionally fragmented and only partially developed system to manage and controlpublic credit;

* A cumbersome procurement system;

* No linkage between the rudimentary personnel establishment register and the budget andexpenditure control process; and

* A weak and limited ex post audit capacity.

20. A diagnostic study of the budget sub-system prepared for the project5 revealed that thebudget process, notwithstanding significant progress made by the present administration, is

Nicaragua Financial Mana-gement and Control Project, December, 1994Nicaragua: FRMP Budget System Implementation Plan, July, 1994

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rudimentary and subordinate to short-term cash management priorities. The formal budgetprocess is limited to marginal adjustments from the previous year's base rather than analysis ofpast expenditures, performance assessments, or forward planning. As the Government's fiscalposition is extremely tight and subject to fluctuation, which is especially unpredictable in theabsence of a cash flow plan, the Ministry of Finance exercises monthly cash control. This hasproved successful in terms of maintaining macro-fiscal targets, but at the cost of micro-serviceefficiency and effectiveness at the spending agency level. As a consequence, spending agencybudgeting is a short term, monthly activity which bears little relation to the formal budgetsadvanced during the formulation stage. The system of internal audit in each ministry is alsoinadequate. Units, which under law report to agency heads, in practice report to the ComptrollerGeneral, frequently perform ex ante control, and do not provide timely information or support tothe affected minister.

21. The Government's Program: The Government is taking actions to strengthen the publicsector financial management system and increase its integrity, Budget reforms identified in thediagnostic work are improving short-term revenue and expenditure forecasting, increasing thetransparency of the budget document, establishing a new budget classification system, as well asinitiating measures to improve expenditure control. More broadly, the Government is undertakinga comprehensive reform of its financial management system. Under the joint policy leadership ofthe Ministry of Finance and the Comptroller General, the Integrated Financial ManagementSystem (SIGFA) would seek to establish the concept and policy of operational decentralization ofauthority and responsibility for financial management to individual spending units anchored by auniform and automated accounting system. The Government has secured assistance from severaldonors to support discrete sub-components of the SIGFA system. USAID has committed $4.4million to develop the accounting system and strengthen the audit capacity of the Office of theComptroller General. The UNDP is expected to approve $0.9 million for general capacitybuilding within the Comptroller General's office. The IDB has committed $1.5 million to furtherdevelop the treasury, public credit, and procurement functions. The Government has requestedIDA to finance reforms in the area of budget formulation and internal audit and control.Implementation of the SIGFA project would involve the full integration of all donor technicalassistance into a single team, with all consultants, regardless of financing source working underthe direction of an internationally experienced Technical Director, who would report to CERAP.The Government would seek USAID, IDB, and IDA advice in the selection of the TechnicalDirector, who will be financed by USAID.

22. Proposed IDA Assistance ($3.0 million in Technical Assistance and $.20 million forTraining): IDA would finance a competitively awarded, two-year renewable contract with a firmwith relevant international and specialized experience in public sector budgeting and internalauditing. Long term residential advisory assistance, supported by short term consultants, wouldassist the Ministry of Finance, the Commission for Government Financial Administration andControl and spending agencies strengthen the budget formulation, programming, and evaluationprocesses as well as reorient and strengthen the operation of internal audit units. Budgetformulation would center on macro-budgeting in advance of the detailed budget process;improvements in the budget classification system and budget coverage, improvements in capitaland recurrent cost budgeting, and the design and introduction of an intergovernmental fiscal

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transfer mechanism in support of local government. Programming would focus on thedevelopment of processes linking budget implementation and cash management. Evaluationwould involve systems, linked to the service delivery surveys as possible, to evaluate budgetexecution and results. The internal audit consultant would develop policies and procedures, wellcoordinated with the external audit sub-system, for internal control mechanisms and internal auditunits in each institution reporting to the responsible minister. These units would not exerciseblanket ex ante control, but provide continuous ex-post audit review of transactions, systems,policies, and procedures to ensure compliance as well as to evaluate and recommendstrengthening of internal controls, especially during the transition period to the new decentralizedfinancial management system. The level of effort of this proposed technical assistance is expectedto be about 96 person months of long term residential assistance and 32 months of short termtechnical assistance. The consultant services contractor would be responsible for developing andconducting appropriate short courses in the relevant budget and internal audit subsystem areas.IDA would finance the participant and administrative expenses of these programs (estimated cost:$0.20 million) which would be replicated and expanded by INAP.

23. Expected Outputs: For the SIGFA generally, the following outputs are expected: (i) anew, unified public sector financial management system and implementing regulations operative inall spending agencies; (ii) a standardized and automated government-wide accounting systemoperating in all spending agencies able to annually produce consolidated financial statements ofthe central government, (iii) improved ex post audit capacity installed and operative in the Officeof the Comptroller General; (iv) improved cash management and treasury functions; and (v)improved debt management operations and their integration into the Government's financialmanagement system. The IDA financed budget component would produce: (vi) a budgetdocument and process that covers all major revenue and expenditure sources; (vii) improvedbudget classification in full accordance with accounting classifications; (viii) improved expenditureforecasting and monitoring; (ix) the installation and application of a budgeting system whichemphasizes results and outcomes and associated performance indicators in all IRA institutions; (x)improved capital and recurrent cost budgeting; (xi) the introduction of fiscal transfer budgeting;and (xii) the issuance and periodic update of a Budget Manual that reflects the interrelationshipswith accounting, treasury and debt management. Outputs expected from the internal auditcomponent would center on (xiii) the creation or strengthening of internal audit units inparticipating IRA institutions and consequent measurable improvement in budget execution andfinancial accountability.

Information Technology ($6.91 million, including training, 21% of total base costs):

24. The Problem: A modern, well designed, and integrated information technology system iscritical to the institutional restructurings and improvements in human resource and financialmanagement systems contemplated under the public sector modernization program. Nicaragua'sprogress in information technology development atrophied in the 1980s due to the absence ofsuppliers, spare parts, and poor maintenance of the existing limited installed capacity. Although

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the situation is improving, serious problems remain, as identified in studies6 completed duringproject preparation:* Only nine of 31 central government institutions have information centers and systems, and

these centers account for 83 percent of the government work force with computer training;

* There is a paucity of trained personnel in information systems technology. Although severaluniversity programs are training technicians and professionals in the field, the Government'snon-competitive wage structure hampers its ability to attract and retain qualified informationsystems specialists;

* Although the Government has received over 1,400 computers from donors in recent years,their utility has been constrained because information systems are generally poorly developed,with few connections between databases and the near total absence of networking;

* Hardware and software systems are diverse and often incompatible;

* In public sector financial management the absence of a universal information systemframework and architecture has led to the development of several specialized, stand-alonesystems which have had the perverse result of further fragmenting and weakening centralbudgeting, expenditure control, and accounting systems,

* In the absence of a government-wide information technology plan and associated standardsand management arrangements, especially in the areas of public finance and human resourcesmanagement, program imbalances have emerged. For example, in the Ministry of Financetechnology support for revenue systems improvement is relatively well endowed while thoseentities charged with expenditure control have been, with certain exceptions, ignored;

- Information equipment in several ministries experience periodic and prolonged breakdownsdue to inadequate maintenance budgets and service contracts; and

* A positive, although unintended, side-effect of Nicaragua's decade long hiatus in informationsystems development is that the Government does not have a large investment in oldermainframe equipment and proprietary systems, and, therefore, is well positioned to adopt on asystematic and comprehensive basis the new "open" technology and put in place moderninformation systems without the need to develop extensive "bridging" programs with older,closed systems.

25. The Government's Program: Recognizing the need for carefully designed and sequencedinformation technology investments to support its financial management and civil service reforms,the Government has proposed a five-year program for differentiated investments at the center andministerial levels. The information systems design is consistent with the information systemsmanagement model recommended by the IMF.7 The SIGFA central system at the Finance

6 Information Technology Diagnostic Study. Conceptual Framework, and Action Plan, October, 1994Hashim and Allan, Core Functional Requirements for Fiscal Managecment Systems. IMF, March 1994

14

Ministry would require a super mini computer with capacity to handle 64 work stations to supportthe accounting, budget, treasury, public credit and procurement sub-systems. The ControllerGeneral's Office, and the three large spending agencies would require medium size computers andthe fifteen smaller agencies would require a smaller computer configuration. The cost of thehardware, software and communications linkages is summarized in Table 5. The investmentwould take account of existing information technology in the public sector, and is considered theminimum necessary to appropriately support the policy and procedural reforms contemplated inthe institutional restructuring, financial management, and civil service components.

Table 5: Information System Hardware and Software Costs(S thousands)

Institutions CostMinistry of Finance 942.4 large ministries 546.15 smaller ministries/institutions 1,080.

TOTAL 2,568.

26 The systems would be brought on-line in a staged manner starting the project's secondyear to ensure implementation of the various sub-system reforms being financed by USAID, IDA,and IDB. The terms and conditions governing each ministry's participation in informationtechnology investments would form an important part of the IRA. An indicative systemsinstallation plan is presented at Table 6. The Government has also prepared a comprehensivetraining program under which 1,400 Ministry of Finance and spending agency personnel would betrained over the five-year period through 24 specialized programs. Targeted personnel would bedrawn from three occupational categories; managers, end-users, and technical systems personnel.

Table 6: Indicative Information Technology Installation ScheduleYears

Institutions 1 2 3 4Ministry of XFinance2 large ministries X7 small ministries/ Xinstitutions2 large ministries X8 small agencies/ Xinstitutions

27. Proposed IDA Assistance ($3.0 million in Technical Assistance. $2.56 millioncomputers/software. $.50 million training): IDA would finance a competitively awarded, two-year renewable contract with a firm with relevant international experience. The selected firm,specialized in information systems development, would be responsible for assisting the

15

Government design and implement its information technology development program specificallyrelated to financial management and human resources systems development. IDA would alsofinance the procurement of the required hardware and software. The Information SystemsContractor would assist CERAP and the National Directorate for Information Systems in theprocurement process. Finally, IDA would finance the cost of the information technology trainingprogram (estimated cost $0.50 million), which would be required to ensure the continueddevelopment and sustained operation of the new financial management and human resourcesinformation system. The contractor would provide the training, either directly or through sub-contracting, in conjunction with INAP and the UNDP, which would be responsible for theadministering the participant training funds and logistical requirements.

28. Expected Outputs: Major output indicators would be the installation and proper operationof financial management and human resources information systems in up to 20 ministries anddecentralized agencies and the number of associated staff who have received training in variousaspects of information systems management and technology. Another important output indicatorwould be the level and execution of information technology maintenance budgets.

Reform Management ($4.24 million, including training, 13% of total base cost):

29 The Government has sought to design a flexible management structure (see Figure 1) thatpromotes debate and inclusion of key players while permitting timely decision making andimplementation of a complex reform process. CERAP has been empowered through PresidentialDecree 44-94 to articulate Government policy and strategy, approve draft laws for submission tothe President and legislature, and oversee program implementation and the institutionalrestructuring process. CERAP is chaired by the Minister of the Presidency and is comprised ofthe Ministers of Finance, Construction and Transport, Economic Development, Social Action,Government, the two Vice Ministers of the Presidency and the Vice Minister of Finance, whowould also serve as the CERAP Executive Secretary. Presidential Decree 44-94 establishesseveral commissions which would have responsibility for overseeing the development andimplementation of the various reform initiatives under the auspices of CERAP. Especiallyimportant commissions for the project would include: Administrative Reform (i.e., institutionalrestructuring), Civil Service; Government Financial Administration and Control; andDecentralization. The analytical work of these commissions would be supported by relevant lineministry personnel and national and international consultants as appropriate. CERAP memberswould chair the respective commissions overseeing the specific reform components. TheCERAP Chairman can invite other ministers in an ex-officio capacity with the right to vote whenthe subject matter would affect their sector. As a condition for credit effectiveness, CERAPwould prepare and issue the internal operating procedures for both CERAP and its subordinatecommissions. CERAP will establish an Advisory Committee to involve non-governmental interestgroups as authorized in Decree 44-94. It has already established a Donor Advisory Group onPublic Sector Modernization, which is expected to meet in-country on at least a quarterly basis.

30. The Vice Minister of Finance has been named the CERAP Executive Secretary. TheExecutive Secretary the Vice Minister would manage, on a continuous basis, the public sectormodernization program and IDA project. The Vice Minister would be supported by the

16

Coordinating Unit for the Reform of the Public Sector (UCRESEP). Through a PHRD Grant andUNDP financing, this unit's operational structure has been defined and terms of reference draftedfor all key management and staff positions (see Figure 2). UCRESEP would be staffed initiallywith Nicaraguan consultants with line responsibility for key program components, i.e. InstitutionalRestructuring, Civil Service Reform, Integrated Financial Management, Information Technology,Decentralization, Training, and Service Delivery Surveys. These staff would serve, asappropriate, as counterparts to each of the principal institutional contractors as well as overseereform implementation. The Institutional Restructuring contractor, in addition to its responsibilityfor providing technical assistance in its component area, would assist the Executive Secretary andUCRESEP Director in overall coordination of components within the restructuring institutions.These institutions would be required to designate a senior staff member to serve as the agency'sCounterpart Officer to work with the Executive Secretary, UCRESEP Director, staff andconsultants. Finally, UCRESEP would contract the services of a Chief Accountant, aProcurement Officer and a lawyer. A long term resident advisor would assist the ExecutiveSecretary prepare the final reform design, launch, and assist in early program implementation.During appraisal agreement was reached with the authorities on this staff complement and theGovernment agreed to have the CERAP/UCRESEP staff in place before credit effectiveness.

31. The Service Delivery Survey (SDS) would also be financed under the project managementcomponent. The surveys would be an innovative and essential management tool both inestablishing initial IRA performance objectives and annually assessing improvements in servicedelivery. EDI assisted the Government design the SDS instrument during project preparation andwould help conduct, during the first quarter of 1995, the baseline surveys for the first fiveagencies initiating restructuring. Planning for the initial five surveys was initiated concurrent withthe IDA appraisal mission. UCRESEP would retain one or more local or regional contractors toconduct the annual surveys and a professional with specific responsibility for managing the initialinstitutional base-line and subsequent annual performance surveys.

32. Proposed IDA Assistance ($2.6 million): IDA would support the CERAP ExecutiveSecretariat, the respective CERAP technical commissions and UCRESEP as presented in Table 7.It would finance UCRESEP staff cost, the analytical work of the various commissions createdunder Presidential Decree 44-94, the SDS, annual project audits, long term resident consultants,and purchase of selected equipment.

Table 7: IDA Reform Management Support Financing---- (US $ Thousands) -

Reform Managemen pprt Cost

I. UCRESEP/COM. Staff Consultants 1,242.2. SDS 312.3. Annual Project Audits 125.4. Resident Implementation Consultants 646.5. Equipment 275.6. Total IDA Support 2,600.

FIGURE I: MANAGEMENT STRUCTURE FOR THE REFORM OF THE PUBLIC SECTORNICARAGUA

PRESIDENCY OF|THE REPUBLIC

|__ _ _ _ _ _ _ _ MINISTERS OF:THE PRESIDENCY, CHAIRMAN

FINANCEECONOMY AND DEVELOPMENT

CONSTR. AND TRANSPORTSOCIAL ACTION

V MINISTRY OF PRESIDENCY FORGOVERNMENT AFFAIRS

LEGAL COUNCIL PRIVATE SECTORl l |~~~~~~~~~~ADV. COMMITTEE|

i _ DONOR ADVIS.EXECUTIVE SECRETARY ] GROUP (DAG)

COORDINATING UNIT FOR THEREFORM OF THE PUBLIC SECTOR

(UCRESEP)

SECTORIAL REFORM COMMISSIONS

Fl F 2l 3 { 2 4 5

DECENTRALIZATION CIVIL SERVICE & INTEGRATED FINANC. INSTITUTIONAL

ADM. CAREER MANAGEMENT STRUCTURAL REF. OTHERS

FIGURE II: EXECUTIVE COMMITTEE FOR THE REFORM OF THEPUBLIC ADMINISTRATION (CERAP)

NICARAGUA

CERAP

EXECUTIVESECRETARYIPROGRAM

MANAGEMENT{UR SEP)

. | ~~~CONTRACTS ;COORDINAT. CONSULTANT/ F OFFICER

__INSTITUT. RESTRUCTURING------ -------- ---------- IINSTITUTIONAL RESTRUCT.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IISITTOALRSTUT

INST FIN MGT (BUD/ INT CONT) INTEGRATED FINANC. MGT.INSTIT CONTRACTOR ACTION OFFICER

CIVIL SERVICE REFORM CIVIL SERVICE REFORMr INSTITUT. CONTRACTOR ------------------------- ACTION OFFICER

INFORMATION TECHNOLOGY IINFORMATION TECHNOLOGYIINSTITUT. CONTRACTOR ---------- ACTION OFFICER

TRAININGACTION OFFICER

SP DINf AGENCIESINS .RSTUCTURING

(I

17

Project Cost and Financing

33. Total project costs, as shown on Table 8, have been estimated at $33.5 million over thefive-year project life. IDA financing of $23.0 million equivalent would cover approximately 69percent of project costs while other donor contributions and the Government of Nicaragua wouldfinance 24 percent and 7 percent respectively.

Table 8: Estimated Project Cost by Activity and Source.(US $ millions)

Project IDA Other Government Total**Activity Donors*Institutional Restructuring 5.7 0.0 0.57 6.27Civil Service Reform 2.7 0.0 0.27 2.97Financial Management 2.9 6.8 0.29 9.99Information Technology 5.6 0.0 0.56 6.16Training/Obs.Travel/Sem.** 2.7 0.4 0.27 3.37Reform Management 2.6 1.0 0.26 3.86Contingencies 0.8 0.0 0.08 0.88TOTAL 23.0 8.2 2.30 33.50* Other donors include USAID, IDB and UNDP.** Component base cost estimates presented in MOP (paras. 7-1I1) incorporate pro rata training cost allocation in eachrespective project component.

34. The estimated division between local and foreign exchange costs of IDA financing ispresented at Table 9 by expenditure category.

Table 9: Estimated IDA Local Currency and Foreign Exchange Financing(US $ Thousands)

Activity Local Foreign TotalConsultant Services (62 %) 2,860. 11,440. 14,300.

Institutional Restructuring 1,138. 4,554. 5,692.Civil Service Reform 549. 2,195. 2,744.Budget and Internal Audit 573. 2,291. 2,864.Information Technology 600. 2,400. 3,000.

Computer Hardware/Software (11%) 0. 2,568. 2,568.Training/Travel Tours/Sem (12) 1,646. 1,046. 2,692.Reform Management (11%) 1,601. 999. 2,600.Contingencies (4%) 252. 580. 840.Total IDA Financing 6,359. 16,633. 23,000.

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SECTION B. PROJECT ADMINISTRATION AND IMPLEMENTATION

Organization and Implementation

35. As described in para. 30 above, the CERAP Executive Secretary would serve as theoperationally responsible manager for the public sector reform program. The Executive Secretarywould be supported by the UCRESEP. This unit would have substantive staff to oversee variousreform components and supervise institutional contractors and long term advisors, as well as staffto assist in the day to day administrative management of the project and other donorcontributions. INAP, with the support of the UNDP, would manage training activities other thanthe core training programs initially administered by the respective institutional contractors (seeSchedule 2).

Procurement

36. Contracts for goods (computer equipment and software) shall be packaged into lotsvalued at $100,000 equivalent or more and would be procured through Limited InternationalBidding (LIB) for an estimated aggregate amount of $2.6 million. LIB procedures are justifiedgiven the small number of providers with after-delivery service in Nicaragua. Contracts for othergoods and equipment with estimated values of less than $100,000 equivalent would be procuredusing international shopping procedures; and contracts below $25,000 equivalent for other goodsand equipment would be procured through local shopping. Local and international shoppingprocedures combined would be applied to contracts up to an aggregate amount of $500,000equivalent. Standard IDA bidding documents would be used for LIB. All procurement fortraining under the various components would be in accordance with IDA guidelines. [NAP wouldadminister training activities with the assistance of UNDP (see Technical Annex, Schedule 2,para. 4). Consultant services would be procured in accordance with IDA Consultants guidelinesdated August, 1981. For the four large institutional consulting contracts, IDA's standard form ofcontract would be used for consulting services . Terms of reference for all consultant contractswould be satisfactory to IDA. All LIB procurement of goods, all individual consulting contractsabove $50,000 equivalent, and all contracts with consulting firms above $100,000 equivalent,including the four major institutional contracts, would be subject to prior review by IDA. Theexemption from prior review for consulting contracts below the $50,000 and $100,000 thresholdswould only apply to contracts up to an aggregate value of $1.0 million equivalent. Finally, toensure consistency in the administration of individual contracts valued below $50,000 equivalentthe first three individual consultant contracts in each calendar year would be subject to priorreview by IDA. These review arrangements would provide for IDA review of approximately 80percent of the value of all contracts financed by IDA.

Disbursements and Financing

37. The project is expected to be implemented over a five year period. Disbursements wouldbe administered by UCRESEP. All withdrawal applications would be fully documented, exceptfor expenditures under contracts for goods valued below US$100,000 equivalent, individualconsultant contracts valued at or below $50,000 equivalent after the first three approved each

19

year and consultant firm contracts valued at or below $100,000 equivalent up to $1.0 millionwhich would be made on the basis of Statements of Expenditure (SOEs), for which detaileddocumentation evidencing expenditures would be retained by UCRESEP and made available forreview by auditors and by IDA staff UNDP would provide "bridge" financing, as needed, tocover project activities initiated prior to loan effectiveness. Retroactive financing in an amount ofSDR 1,360,000 (US$2 million equivalent), approximately 9 percent of the credit, would beavailable for eligible expenditures incurred after January 30, 1995. This financing would cover thecost of additional diagnostic work and project start-up activities. A Special Account in USdollars would be opened in the Central Bank, with an authorized allocation of $1.5 millionequivalent. Annual audit reports would be produced, starting in December, 1995, at the end ofeach calendar year and submitted to IDA within six months after year end. The expected projectcompletion date is June 30, 2000 and the credit closing date would be December 31, 2000. Animplementation completion report would be prepared by the Government and submitted to IDAno later than June, 30, 2001.

Monitoring and Evaluation

38. IDA would supervise the implementation of the credit through frequent supervisionmissions with a total annual supervision input of approximately 20 staff weeks. Assurances wereobtained that: (a) the Government would provide IDA with semi-annual progress reports; (b)annual reviews of project implementation would be conducted jointly by the Government and IDAno later than March 30 of each year, starting in 1996. The annual reviews would include, interalia: (i) project performance against the matrix of key project activities and implementationtargets, (ii) progress of each participating institution under the terms of its respective IRA; (iii)management performance of UCRESEP, (iv) INAP's training program management; and (v)policy and coordination activities of CERAP; (c) a comprehensive mid-term review would takeplace no later than June 30, 1997, replacing the annual review, in which the following, inter alia,would be discussed additionally: (i) the new Administration's assessment and continuedcommitment to the reform program; (ii) overall progress of the reform program, particularly theintegration of separate component activities into a cohesive and complementary set of actions; (iii)institutional capacity to carry on (or, alternatively, slow down or speed up) project activities; and(iv) project redesign or corrective actions, as needed; and (d) to substantially achieveimplementation targets as in Schedule 1 (a) and (b). Terms of reference satisfactory to IDAwould be prepared by the Government for the mid-term review.

Annex INICARAGUA

DRAFT INSTITUTIONAL RESTRUCTURING AGREEMENT'BETWEEN THE

EXECUTIVE COMMITTEE FOR PUBLIC ADMINISTRATION REFORMAND THE

MINISTRY OF THE ENVIRONMENT AND NATURAL RESOURCES

CONSIDERATIONS

Whereas, the Government of Nicaragua wishes to become an Administration with thecapacity to be decisive, modern, small, strong, facultative, efficient and technologicallyable to produce services of quality through improved allocation and utilization ofresources suitable for the development of an appropriate economic and social frameworkfor the financing of democracy in the country,

Whereas, in order to improve the level of services that the Public Sector extends to thepopulation it is necessary to deepen the process of institutional restructuring, which hasalready been initiated in the ministries and autonomous institutions, including improvingfinancial administration, human resources, and technical systems,

Whereas, in the Public Sector there exists a dispersion of responsibilities and obsoletetechnology which do not contribute to an efficient administration and which cancompromise economic stability and create obstacles for productive growth,

Whereas, the Presidency of the Republic created on the 28 of October 1994, by means ofDecree No. 44-94, the Executive Committee for Public Administration Reform (CERAP)to lead the strategy in the process of reform. The same Decree created both the ExecutiveSecretary to oversee the execution, supervise, and monitor the plans and programsapproved by the Committee, and the Coordinating Unit for the Reform and Modernizationof the Public Sector (UCRESEP),

In addition, the reform created seven Sectorial Reform Commissions, whose functions areto assure implementation of sector reforms, design plans and programs and submit viablesectorial alternatives to CERAP,

Whereas, the functions of UCRESEP are to monitor the execution of the reform projects,offer technical and operational support to the Executive Secretary, and administer thefinancial resources of the World Bank and other organizations,

I Informal translation of working draft IRA.

Whereas, the Ministry of the Environment and Natural Resources (MARENA) hasinitiated a process of institutional and legal restructuring,

Whereas, MARENA would like to effect substantial changes in its accounting, budgeting,human resources and information systems, to strengthen its administration and costcontrols, and augment the quality, efficiency, and effectiveness of its service delivery,

THEREFORE:

Mr. Antonio Lacayo Oyaguran, Minister of the Presidency, as Coordinator of CERAP,married, residing in Managua, Industrial Engineer; and Mrs. Mirna Somarriba Garcia, ViceMinister of Finance, as Executive Secretary of CERAP, married, residing in Managua,Economist, both representing the Executive Committee for Public Administration Reform,and Mr. Milton Caldera, Minister of MARENA, married, residing in Managua, Economist,representing MARENA, agree to this Institutional Restructuring Agreement (IRA), andestablish the norms of conduct in relation to the participation of MARENA in theInstitutional Restructuring Program, based on the following rights and obligations.

RIGHTS AND OBLIGATIONS

Clause 1: Objective. The final objective of this Institutional Restructuring Agreement(IRA) is to increase and improve the quality of the services rendered to society andincrease efficiency in the use of taxpayers' resources.

Clause 2: Obligations of the Ministry. In order to obtain these objectives, the Ministrycommits itself to implement the following types of actions in the period of twelve months.It is understood that the actions for the second year will be determined during the ninthmonth of implementation of the first year, and will be incorporated into this Agreement, byway of an amendment to Clauses 3, 4, and 5, signed by mutual consent of the parties.

Clause 3: Actions for the Improvement of the Quality and Efficiency of the Services. Tobegin the fulfillment of the goal to improve the quality of services, MARENA will proceedto develop the Service Evaluation System (SES) in a period of months. The SES willbe incorporated into the restructuring process and will be used as a tool in the decisionmaking process, to institutionalize the process of performance evaluation. To developSES, MARENA agrees to use two sources of information: compilation of administrativestatistics and user surveys, according to the Plan of Action and Timetable attached inAnnex 1, which is an integral part of this IRA.

Clause 4: Actions for the Improvement of the Institutional Structure. MARENA iscommitted to accomplish the activities of the Plan of Action and Time Frame attached inAnnex 2, which is an integral part of this IRA.

Clause 5: Actions to support the Institutional Restructuring and the Reforms of the CivilService, Financial, and Information Technology Services of the Public Sector, MARENA

2

is committed to accomplish the activities of the Plan of Action and Time Frame attached inAnnex 3, which is an integral part of this IRA.

Clause 6: Obligations of CERAP. To accomplish the requirements of the restructuringprocess in MARENA, CERAP will in turn be committed to finance the activities bycomponent according to the description attached in Annex 4, Plan of TechnicalAssistance, which is an integral part of this IRA.

Clause 7: Time Periods. The obligations of the parties should be executed according tothe plan of action and schedules attached as an integral part of this Agreement in Annexes1, 2, 3 and 4.

Clause 8: Time Period of IRA. The period of this IRA is twenty four months beginningon the date of signature, with the option to extend it for an additional year, with thewritten agreement of the parties.

Clause 9: Coordination, Monitoring, and Control. For the effect of coordination, andmonitoring of the activities herein, CERAP has designated the Coordinating Unit for theReform and Modernization of the Public Sector (UCRESEP). MARENA should assign arepresentative of the highest level of the Ministry as a representative to UCRESEP and amember of the staff, dedicated full time to the implementation of the InstitutionalRestructuring Program in accordance with this IRA CERAP and MARENA are to meetformally every trimester to discuss the progress and advances of the IRA, as well as otherissues associated with its implementation.

Clause 10: Reports. MARENA will provide to the Executive Secretary four progressreports on a trimester basis during the year on the implementation of activities inaccordance with this agreement. Every report should be delivered two weeks before thequarterly meeting with Executive Secretary, in its original form along with written copiesand one magnetic copy. Additionally, CERAP will be able to solicit at any moment it feelsnecessary, either directly or by way of the Executive Secretary, verbal or written reports,partial or complete, on the implementation of the activities that are contemplated in thisIRA.

Clause 11: Evaluation. CERAP will conduct two external evaluations at the end of eachyear, for the duration of this IRA. These evaluations will serve as the basis formodification, expansion and termination of the Agreement during the next year.Furthermore, CERAP will be able to accommodate additional evaluations when itconsiders pertinent

Clause 12: Modifications to the Agreements. This Agreement will be neither totally norpartially modified in its parts without the written consent of the official representatives ofCERAP and MARENA.

3

The parties therefore decide to sign the present Institutional Restructuring Agreement,which is initiated at signature in the city of Managua on 1995.

Ing. Antonio Lacayo 0. Lic. Mirna Somarriba G.Minister of the Presidency Vice Minister of Finance

CERAP Coordinator Executive Secretary of CERAP

Mst. Milton CalderaMinister of the Environment and Natural Resources

4

ANNEX 1

SES SOURCES OF INFORMATION AND ACTIVITIES

SOURCE: Compilation of Administrative Statistics

Commitments of MARENA:

Determine monthly administrative costs as a percentage of total ministry expenditures.

Elaborate in months a review of internal management procedures, including timerequired for operations and internal delays.

Determine in months the number of complaints per month, reasons for them, and timerequired for their resolution.

SOURCE: User Surveys

Commitment of MARENA

Design and administer in months a survey among product distributors and agriculturaland wood product producers, on the marketing, purchase and application ofagrochemicals, fertilizers and pesticides.

Design and administer in months a survey of municipalities, to determine informationgaps on the status and quality of water, soil, forests, and control of residential andinsdustrial wastes.

5

ANNEX 2

ACTION PLAN AND TIMETABLE OF ACTIVITIESTO IMPROVE THE INSTITUTIONAL STRUCTURE

MARENA agrees to perform the following activities:

Readapt the mission and functions of MARENA, using workshops during March 1995and technical assistance of 30 consultant-days, to readapt, transform, and consolidate itsmission, objectives, functions, and organization.

The mission will allow the development of the following functions: formulate, evaluate,follow up, coordinate, promote, and facilitate natural resources policy, strategy, andimplementation, natural resources sustainability; prevention and control of environmentemergencies and disasters, and broader intersectorial participation of municipalities, publicagencies, the private sector, and civil society.

To accomplish the mission, the workshops will analyze the following five priority areas ofMARENA:

* Transforming MARENA's Institutional Structure* Incentive Regime* Investment Project Management* Transformation and/or Privatization of Investment Projects* Transformation of Internal Procedures

During the workshops, decisions will be taken to better allocate budget resources inrelation to environmental strategy.

To effect its transformation, MARENA will complete the following activities:

-In three months implement the new organizational structure.-In four months draft a new organic law.-In four months initiate a study to create new regulatory entities.

In seven months adapt regulations and propose new legislation; consult and negotiate withthe donors, NGOs, sector and municipalities; evaluate those functions to betransferred/delegated, and implement the new processes selected.

In MARENA Headquarters:

In four months reduce administrative expenditures up to 20%.

In four months privatize the cafeteria, security, transportation, and cleaning services.

6

In two months replace sectorial divisions with three divisions that will handle: policies andstrategy; regulation and control, and institutional relations, to the end of unifying Ministrypolicies, improving communication, coordination, and regulation, and reducingadministrative costs.

In two months determine the functions that will be delegated or transferred.

MARENA PROJECTS

In two months, reduce 20% of administrative positions.

In three months, eliminate duplication in administrative and financial functions in projectsin order to improve the follow up and control

In months create a master plan and timetable to transfer, decentralize, or privatizeforest supervision activities, hatcheries, laboratories, workshops, wood production, andconstruction materials.

CREATION OF INCENTIVES

FONDOSILVA

Reform administrative procedures in FONDOSILVA

Strengthen FONDOSILVA's ability to apply environmental norms and allocate budgetresources to priority areas.

OTHER INCENTIVES

Analyze the current situation in the application of incentives and identify alternativeincentives such as creation of jobs in the productive sector, promotion of sustainabledevelopment with the preservation of biodiversity; creation of guarantee funds for thecreation of new companies, and/or to privatize existing entities.

To transform the management of investment projects in order to create appropriatedevelopment in the areas influenced by the projects, allow groups to take advantage of thenatural resources, promote the creation of job opportunities and social equality,MARENA in the period of eight months should accomplish the following activities:

* Analyze and evaluate existing projects in terms of their environmental, social, legal,technical, administrative and financial terms. Analyze and resolve outstandingquestions of title, eminent domain, and inventory of state property.

* Evaluate and select viable alternatives

7

* Begin the institutional strengthening by consulting donors, public agencies, NGOS andmunicipalities, implementing selected reforms, and promoting assistance and trainingto public agencies, NGOs, and communities involved.

FOR TRANSFORMATION AND PRIVATIZATION OF FOUR INVESTMENTPROJECTS

In eight months create the following activities for the transformation, privatization, and/ortransfer to other public agencies of; ADFORES, Northeast Forest Project, Atlantic ForestProject, and the Seed Bank and Center for Genetic Improvement.

Analyze and evaluate the four projects in terms of land title, eminent domain, and stateproperty.

Evaluate and select viable alternative structures.

Initiate negotiations with donors, implement selected transformation procedures, anddesign the terms of reference for the bidding process for those projects to be privatized.Ensure the protection of biodiversity, and the protection of patrimony, environmentaleducation, and generation of job opportunities at a local level and the private sector.

In six months:

After appropriate evaluation and selection of alternatives, transform, decentralize,transfer, privatize, and/or grant concessions on the following: Zool6gico Nacional,Reservas Naturales Urbanas, Servicios Turisticos y Parque Nacional Volcan Masaya.

TRAINING (in coordination with UCRESEP)

In months train staff of MARENA in environmental evaluation of projects andenvironmental audit.

In _ months train _staff of public agencies, NGOs, municipalities, communities, andthe private sector in natural resource management.

In months train staff of MARENA, public agencies, NGOs, municipalities, andcommunities, in the design, installation, and management of client service orientedenvironmental techniques, networks, and computer systems.

PERFORMANCE INDICATORS

Implementation of the new organizational structure

Number of privatized, transferred, and/or delegated projects

8

Reduction in employees in the administrative and financial areas of the projectmanagement.

Elimination of duplication in administrative and financial functions in project management.

Number of environmental norms of procedures created.

Number of activities privatized, transferred, and/or delegated.

Numbers of positions created to foster environmental activities.

TIME FRAME - To Be Determined

9

ANNEX 3

ACTION PLAN AND TIMETABLE OF ACTIVITIESTO SUPPORT THE INSTITUTIONAL RESTRUCTURING AND

REFORM THE HUMAN RESOURCES, FINANCIAL, ANDCOMPUTER SCIENCE SERVICES IN THE INSTITUTION

REFORM OF THE CIVIL SERVICE (Administration of Human Resources)

FIRST STEP

* To provide the Directorate of Public Functions in the Ministry of Finance with basicdata during the 60 days after this agreement is signed in order to expand informationon available human resources.

* During March, 1995 MARENA personnel files will be updated.

* In the following 60 days, create, review, and organize a list of employees includingtheir experience and academic background.

SECOND STEP

Install multi-user computer hardware initially consisting of a 485 PC with 8 Mc ofmemory and 200 MB of hard drive.

With the objective of eliminating duplication, redundancies, and to adjust the organizationto the necessities--once MARENA's mission and organizational structure are generallydefined, MARENA will over 11 months:

- Determine the organization structure (in first month).* Conclude the minimum profile of personnel required.* Define the responsibilities and duties of positions (in three months).* Compare the requirements of the new structure against the available personnel (in two

months).* Parallel to the previous activity, identify redundant personnel.* Classify positions according to their complexity and level of responsibility.* Design a methodology for personnel performance evaluation.

In months strengthen the office responsible for the administration of human resources.

In _ months design a training program for key areas of the Ministry.

10

THIRD STEP

In coordination with UCRESEP:

* Train in _months staff of the Human Resources Division in "Coping withChanges in Human Resources Administration".

* Train in months a staff of the Human Resources Division in selecting,recruiting, hiring, evaluating, training, and paying staff.

* Train in months employees in concepts such as team work, quality control,management of organizational change and institutional restructuring.

PERFORMANCE INDICATORS: To Be Determined

TIME FRAME: To Be Determined

REFORM OF FINANCIAL ADMINISTRATION

In two months perform a financial audit in order to develop one accounting system thatwill allow the identification of the origin of three sources of funds: ordinary, external anduser funds. Establish opening balances and use norms incorporating MIFIN accountingand budgeting guidelines.

Once the mission, functions, and new structural organization are established in _months, consolidate financial functions and the budget, regardless of the source of fundsor their use in line with the Budget Schedule in the Annual Budget Law and Article 16 ofthe Regulations for Budget Execution.

In _ months report all revenues and expenditures according to "Decree on Revenues"and Articles 11 and 12 of the Annual Budget Law.

In months apply measurement indicators to monitor implementation.

Once the mission, functions, and the new organization are established, develop in a periodof months financial indicators to measure budget execution against the new goals,objectives, and programs.

In months review budget accounts according to the new expenditure and revenueclassifications created by MIFIN.

In months, submit the fiscal-financial accounts obtained monthly or quarterlyaccording to Art. 12 and 30 of the Annual Budget Law.

11

In months prioritize the analysis of programs and classifications by criteria, object ofexpenditure, and revenue in order to redesign programs and projects.

Register and transfer expenditure transactions from MARENA to MIFIN through onediskette in order to update the central budget system, where the "bridge system" has beendeveloped by the National Directorate of Information Technology in MIFIN.

Include in the budget the resources necessary for the acquisition of supplies (diskette,ribbons, etc.) and the maintenance of the hardware and software.

Conduct an external financial audit at the end of the first year to help improve financialadministration.

Submit to the Minister, with copies to MIFIN, a consolidated financial statement forMARENA.

In months develop an evaluation system to judge project implementation .

TRAINING

In coordination with UCRESEP train employees overseas and employees withinthe country in investment and risk evaluation. Train employees in months in themanagement of new classifications by object of expenditure.

PERFORMANCE INDICATORS: To Be Determined

INFORMATION TECHNOLOGY REFORM

Under the guidance and coordination with the National Directorate for InformationTechnology in MIFIN, proceed with the following activities:

In months establish and consolidate the Strategic Information Plan (SIP) to update thetechnological platform to be used in coordination with MIFIN; train human resources ininformation technology; accelerate automation procedures; and build and prioritize the listof projects.

Increase the compatibility of information with MIFIN and other institutions, incorporatingthe activities mentioned in this agreement, and developing a five year action plan.

SIP will incorporate, among other things, the development of an information system basedon a database that will allow automatic file updating, generation of reports, updating ofon-line processes, consolidating information, and exchanging information with private andpublic entities (i.e. MIFIN and municipalities)

12

SIP must take into account the automatization process of MARENA's divisions withpartner private and public entities with whom they jointly control and supervise activities.

In months initiate the SIP implementation activities, taking in consideration software,and system design of the government wide Sistema Informatico Institucional Local(SIFGA)--(i.e. budget, accounting, treasury, civil service, etc.) in order to follow technicalguidelines of SIFGA and facilitate information exchange between MARENA and MIFIN.

Use information technology procedures and standards established by SIGFA.

TRAINING

In coordination with UCRESEP train in months employees in informationtechnology systems maintenance.

PERFORMANCE INDICATORS: To Be Determined

13

ANNEX 4

PLAN FOR TECHNICAL ASSISTANCE AND TIMETABLE

Assistance per Component

Selective salary incentives to essential professional personnel in accordance with those tobe established in the new Salary System for Managerial and Technical Staff.

Financing of technical assistance and the training necessary to implement the process ofinstitutional restructuring, with the intention to provide MARENA with the tools toimprove budgeting and public spending and the quality of the services provided (i.e.observational trips, SES) totaling US$ _.

Technical assistance and financing of equipment and training to improve personneladministration totaling US$

Technical assistance and financing of equipment and training to improve financialadministration totaling US$

Training in the area of Services Evaluation System.

Increase budget releases to MARENA to a trimester equivalent level.

Technical assistance totaling US$ _ to support institutional restructuring.

Training packets for personnel in the following areas (management, informationtechnology, financial administration, personnel administration) for employees totalingUS$ _.

Hardware, software, systems, and training for SIGFA system.

14

Nicaragua

INSTITUTIONAL DEVELOPMENT PROJECT

MATRIX OF KEY PROJECTS ACTIVITIES

Main Govemment Project Component Activities Expected Output Institutional Arrangements Timing/TargetsObjectives Responsibilities

1. Improve service All activities Measurable improvement by CERAP and participating Government/IDA annual, mid-delivery end of project in service IRA institutions. term and final evaluations.

delivery from all participatingIRA institutions;

2. Increase public All activities Quantifiable increase in public CERAP and participating GovemmenVIDA annual, mid-savings savings generated by partici- IRA institutions. term and final evaluations.

pating IRA institutions.

Institutional Restructuring: Improved service delivery in CERAP and IRA par- By end of Project Year 1: 5 IRAAssist Govemment define and each participating IRA insti- ticipating institutions. institutions participating inimplement a Govemment-wide tution as measured by annual program.institutional restructuring process Service Delivery Surveys/consistent with program objec- management reviews; and By end of Project Year 2: 5tives. Assist CERAP: design/ more rational and cost ef- additional IRA institutionsimplement IRA process; design fective recurrent and capital participating in the program;and carry-out diagnostic studies expenditures at specific IRAfor prospective IRA institutions; institution level and for public By end of Project Year 3-5: upassist IRA institutions implement sector as a whole as re- to 10 additional IRA Institutionstheir respective IRA programs; flected by each participating join program. Restructuringand conduct annual performance institution's contribution to process in original 10 partici-reviews. increased public savings. pating IRA institutions expanded/

deepened. CO

0~CD'a

Main Govemment Project Component Activities Expected Output Institutional Arrangements Timing/TargetsObjectives Responsibilities

Civil Service Reform: Civil Service code and CERAP, DIGEFUP and By end of Project Year 1: DraftAssist Govemment: frame and supporting service-wide personnel divisions in all civil service code; active manage-implement merit based civil personnel management sys- participating IRA institutions. ment upgrading program inservice law/implementing regu- tem in place; computerized personnel divisions of initiallations; develop/maintain com- occupational classification 5 IRA institutions.puterzed occupational clas- system, establishmentsification system and estab- register and merit-based salary By end of Project Year 2: Com-lishment register; develop/ schedule in place and opera- puterized occupational clas-selectively apply incentive based tive in all IRA institutions; sification system, establishmentsalary-structure; carry-out general management and register and merit-based occu-selective staff reductions; personnel administration pational salary schedule in placestrengthen personnel divisions training delivered to 2,000 in all IRA participating institu-in participating IRA institutions; civil servants; upgraded tions; INAP delivering training instrengthen management capacity personnel administration management and personnelof DIGEFUP; and train civil management capacity within administration in active IRAservants in management and all participating IRA institutions institutions.personnel administration DIGEFUP and INAP.

By end of Project Year 2: Com-puterized personnel administra-tion and management up-gradingprogram extended to 5 additionalIRA institutions and associatedtraining delivered by INAP undercontract.

By end of Project Year 3-5:personnel systems upgradingand training delivered to allremaining IRA institutions orintensified and deepened per-sonnel management program 0)

executed in 10 original par- .Iticipating IRA institutions. OL

CD z. _ <D~~~~~~~~t

Main Govemment Project Component Activities Expected Output Institutional Arrangements Timing/TargetsObjectives Responsibilities

Integrated Financial New financial legislation, MIFIN and all IRA For Global SIFGA (Multi-donor)Management: policies, regulations; institutions. By end of Project Year 1:Global SIGFA (Multi-donor) procedures; improved ex post Technical definition/design ofEstablisment of an integrated audit capacity; integrated financial managementfinancial management system system (SIGFA) complete;to improve govemment effec- SIGFA Technical Directoratetiness and ability to plan, ad- fully operational. Draft financialminister, and control public re- law to assembly;sources. Donors include USAID:accounting and audit; IDB By end of Project Year 2: Newtreasure, public credit and pro- financial management systemcurement; IDA: budget and codified; accounting systemintemal audit; UNDP training in operational; and institutionalContraloria. audits completed in at least 4

IRA ministries.

IDA Budget Formulation and Improved budget process For IDA Budget Formulation andIntemal Control Component with emphasis on results/ Intemal Control ComponentUpgrade budget formulation outcomes and on expenditure By the end of Project Year 1:capacity with emphasis on planning and strengthened Budget structure and manual,development of a system of intemal controls. System of expenditure planning and in-stable, results-oriented multi- intergovemmental fiscal trans- temal control and audit systemsyear budgets within macro- fers established. design completed; pilot budgetspending targets; strengthen formulation process in 4 IRAintemal audit and control institutions underway; intemalprocesses. audit and financial control

system evaluated andstrengthened in 4 participatingIRA institutions.

CO0

CD

CD

Main Govemment Project Component Activities Expected Output Institutional Arrangements Timing/TargetsObjectives . Responsibilities

Integrated Financial By end of Project Year 2:Management results oriented budget system

and improved intemal expendi-ture control and intemal auditsystems operational in 5 ad-ditional participating IRA insti-tutions.

By end of Project Year 3-5:MIFIN and all particpating IRAinstitutions preparing validbudget documents which coverall revenues/expenditures andallow for comparison of program/activity expenditures over atleast three years; system ofinter-govemmental fiscal trans-fers operational; strong cor-relation between results orientedbudget process, improved in-temal financial managementcontrol and enhanced servicedelivery and increased publicsavings in all participating IRAinstitutions.

ci0

tDCD

CD

Main Govemment Project Component Activities Expected Output Institutional Arrangements Timing/TargetsObjectives Responsibilities

Information Technology The installation and proper CERAP with MIFIN as lead By end of Project Year 1:System. operation of financial manage- institution for systems SIGFA and Civil Service (centralAssist Govemment design, ment and human resources design and management. and local) information systemsinstall and operate within information systems in MIFIN IRA line ministers responsi- design complete and hardware,MIFIN and all participating IRA and up to 19 other partici- ble for management and software, and communicationsinstitutions a computerized pating IRA institutions. proper utilization of installed procurement initiated for MIFINfinancial management and systems, including provisions and 4 IRA institutions.human resources information of recurrent operating costs,system. at the ministryrinstitution By end of Project Year 2:

level. SIGFA and Civil Service (central)information systems operatingand MIFIN personnel trained;SIGFA + Civil Service Systems(local) operational in 4 IRAinstitutions and all IRA stafftrained in system operation.

By end of Project Year 2:SIGFA + Civil Service (local)system design and procurement,training complete for 5 additionalparticipating IRA institutions.

By end of Project Year 3-5:Up to 10 additional SIGFA andCivil Service (local) systemsinstalled and participating IRAinstitutions staffed and trainedin system operation.

co

0.

CD'.-

Main Govemment Project Component Activities Expected Output Institutional Arrangements Timing/TargetsObjectives Responsibilities

Human Resources Training: For the MIFIN and each par- CERAP/UCRESEP By end of Project Year 1:Assist the Govemment through ticipating IRA institution, a responsible for coordination Component consultants havethe institutional restructurng proc- significant cohort of senior of training program devel- developed and pilot-tested firstess,civil service,financial manage- and middle level managers opment. Respective con- round training modules in 4ment and information technology and technicians will have sultant teams will be participating IRA institutions in:components provide up to 8,000 received training in four key responsible for course devel- Public Management; Personneltraining units in general manage- areas: general management, opment and initial training Administration; Financialment; personnel administration; personnel adm.; financial of trainers; INAP, with UNDP Management; and Informationbudget formulation and internal management and information support, will be responsible Technology.control and information systems technology. for training administrationmanagement and operation. and subsequent training

program replication.

By end of Project Year 2:1,000 civil servants from 10participating IRA institutionshave received short course andOJT in four subject matter areas:management; personnel ad-ministration; financial manage-ment and management infor-mation systems.

By end of Project Year 3-5:2,000 civil servants annuallyfrom up to additional 10 par-ticipating IRA institutions re-ceive recurrent rounds of OJTand short course training in fourcore training areas. This in-cludes successive rounds oftraining for participants in all g.

_______________________________ _ __ _ __ _ __ _ __ _ __ _ _ ______________ participating IRA institutions.'

CD

0)

Schedule 1 (b)

NICARAGUA: INSTITUTIONAL DEVELOPMENT PROJECTIMPLEMENTATION TARGETS

ACTION BY PROJECT COMPONENT TARGET DATE

Part A: Institutional Restructuring Program:

1. CERAP to prepare, negotiate, and sign 3rd Quarter, 1995five Institutional RestructuringArrangements (IRAs);

2. Design and execute, for 5 Eligible Institutions, 4th Quarter, 1995"change management" training programs to bedeveloped under Part A. 1(d) of the Project;

3. Complete diagnostic studies and action 1st Quarter, 1996plans for five (5) prospective EligibleInstitutions;

4. CERAP to complete annual performance 3rd Quarter, 1996reviews of the initial five (5) Eligible Institutionsunder existing IRAs;

5. CERAP to negotiate 2nd year Action 3rd Quarter, 1996Plans for initial five (5) Eligible Institutionsunder existing IRAs;

6. CERAP to prepare, negotiate and sign 2nd Quarter, 1996five additional IRAs;

7. Design and execute, for 10 Eligible Institutions, 4th Quarter, 1996"change management" training programs to bedeveloped under Part A. 1(d) of project;

8. CERAP to negotiate with Eligible Institutions 2nd Quarter, 1997respective 2nd and, if applicable, 3rd year IRAsand action plans;

Schedule 1 (b)

Part B: Civil Service Reform Program:

1. Define the powers, organizational 2nd Quarter, 1995structure and staffing requirements of DirectorateGeneral of Public Functions (DIGEFUP) for theimplementation of Part B of the Project;

2. Prepare action plan for the development 3rd Quarter, 1995of a merit based civil service system;

3 Define policy and program for the creation of 3rd Quarter, 1995the Borrower's Servicio Gerencial y Tecnico (SGT);

4. Prepare a personnel administration management I st Quarter, 1996development model for all Eligible Institutions and (Continuing)develop and implement, on a continuous basis,a training program for management and personnelstaff in human resource management for all EligibleInstitutions under existing IRAs;

5. Implement pilot test of SGT in five Eligible 2nd Quarter, 1996Institutions under existing IRAs;

6. Develop a public sector human 3rd Quarter, 1996resources management informationsystem at the national level (SISEC Central)and comparable system (SISEC Local)in five Eligible Institutions under existingIRAs;

7. Improve SISEC Central and install 4th Quarter, 1997SISEC Local in five additional EligibleInstitutions under existing IRAs;

8. Develop ajob classification system 3rd Quarter, 1996for the Central Government;

9. Install a job classification system 4th Quarter, 1996in five (5) Eligible Institutions underexisting IRAs;

10. Install ajob classification system 2nd Quarter, 1997in five (5) additional Eligible Institutionswith IRAs;

2

Schedule 1 (b)

11. Develop standardized, government-wide 4th Quarter, 1996wage and remuneration's policy linked to thejob classification system referred to in 8 above;

12. Review civil service legislation and 4th Quarter, 1996prepare civil service code;

13. Prepare implementing regulation 2nd Quarter, 1997for the new civil service codereferred to in 12 above;

Part C: Budget Formulation and Internal Audit

1. Prepare an action plan for budget formulation 2nd Quarter, 1995and consultant terms of reference approvedby the Financial Management Working Commission;

2. Prepare an action plan for internal audit 2nd Quarter, 1995activities and consultant terms of reference approvedby the Financial Management Working Commission;

3. Restructure Directorate General of Budget 1 st Quarter, 1996consistent with new budget orientation;

4. Complete new chart of accounts 2nd Quarter, 1996consistent with revised budget/accountingclassification;

5. Complete and publish a Manual on Budget 3rd Quarter, 1996Implementation, Follow-up and Evaluation;

6. Complete and publish a Manual on Internal 3rd Quarter, 1996Audit Procedures and Practices;

7. Complete design and draft legislation for 1st Quarter, 1996introduction of inter-governmental fiscal transfersystem;

8. Develop budget and internal audit 3rd Quarter, 1996training modules and train relevant Central (continuous)Government staff;

3

Schedule I (b)

9. Train staff and execute pilot project in 2nd Quarter, 1997unit costing and managerial accounting; (continuous)

10. Implement new budget process, with emphasis on 3rd Quarter, 1997results, as part of 1998 Budget Submission;

11. Introduce medium term expenditure planning 3rd Quarter, 1998in 1999 Budget Submission;

Part D: Information Technology:

1. Complete the information system design 4th Quarter, 1995for the Integrated Financial ManagementSystem (SIGFA) and Civil Service (SISEC)at both the central and local level;

2. Commence bidding process for 2nd Quarter, 1996hardware, software, and communicationsequipment (initial package) for SIGFA and SISEC;

3. Install SIGFA (Central) and SISEC (Central) 4th Quarter, 1996and complete staff training in Ministryof Finance;

4. Install SIGFA (Local) and SISEC (Local) 4th Quarter, 1996and complete staff training infive (5) Eligible Institutions;

5. Amplify SIGFA (Local) and SISEC (local) 4th Quarter, 1997in initial 5 Eligible Institutionsand install systems and train staff in five (5) additionalEligible Institutions;

Part E: Project Management:

1. Initiate quarterly CERAP meetings; 2nd Quarter, 1995(continuous, quarterly)

2. Prepare terms of reference for 2nd Quarter, 1995CERAP working commissions and (continuous)commissions commence operation;

4

Schedule I (b)

3. Establish a donor advisory 2nd Quarter, 1995group on public sector (continuous, quarterly)modernization and meet quarterly;

4. Establish a private sector 2nd Quarter, 1995advisory group on public (continuous, quarterly)sector modernization and meet quarterly;

5. Install and operate a project accounting 3rd Quarter, 1995system and complete staff training;

6. CERAP approves first operating 3rd Quarter, 1995plan under Section 3.03 (b) of DCA (due 3rd quarter alland forwards to IDA for approval; project years)

7 Commence operation of four (4) 4th Quarter, 1995consulting firms to assist inimplementation of Parts A, B, C andD of Project;

8. Complete annual project audit and 2nd Quarter, 1996submit to IDA; (due end 2nd Quarter

all project years)

9. Publish annual report to disseminate Ist Quarter, 1996information on the programs to be (due 1st quartercarried out under Parts A, B, C, and D all project years)of the project;

5

Schedule 2

Training Plan and Budget

Nicaragua Institutional Development Credit

Introduction

I . Training would constitute an important part of the Government's Public SectorModernization Program. Training of public sector managers, technicians andadministrative personnel would serve both as an important vehicle for modernizing publicsector institutions and as a key incentive for public servants to improve their own skillsand collectively the performance of their respective institutions. Accordingly, theproposed Institutional Development project would support a significant, but focused,training effort.

The Training Concept

2. Training proposed under the project would be tightly focused on developing andreinforcing the critical skills required of civil servants to effectively support and carry outthe public sector modernization program envisaged under the project. Accordingly,training has been structured around three core modules: management and personneladministration, financial management, and information system technology. Each of thesemodules was respectively prepared by the consultants who were retained by IDA todevelop the Civil Service Reform, Financial Management, and Information Technologycomponents of the project. Development of course material and initial delivery of trainingwould constitute an important task of each of the long term residential advisory teamsproposed to be retained under the project.

3. Training opportunities would constitute one of the more important incentivesoffered by CERAP to each institution entering the modernization program and, as such,would form an important part of each negotiated Institutional Restructuring Agreement(IRA). The scope and pace of the training program would, therefore, be integrally tied tothe underlying institutional restructuring program and process which envisionsapproximately five ministries/institutions joining the program annually. A significant crosssection of senior and mid-level management as well as technical and administrative stafffrom each participating IRA institution would be provided the opoortunity of participatingin a range of on-the-job training (OJT) or short courses over the two or three years theIRA remains in force for each participating institution. As noted, each of the proposedtraining modules, with the exception of the management training module, has beendesigned to provide the operational skills necessary to implement the new systems (i.e.

1

personnel administration, financial management, and information system technology) thatwould be installed in each participating IRA institution during the course of programexecution. The attached tables present the different training modules that would befurther developed, tested, and implemented under the project. Over the five year life-of-project approximately 8,000 participant training rounds involving 20 participating IRAinstitutions would have been conducted.

Training Program Management and Implementation

4. While the development of course content and initial delivery would be theresponsibility of each of the four institutional contractors, the overall administration andassociated financial management of the training program would be the responsibility of theNicaraguan Institute for Public Administration (INAP). During project preparation, theGovernment indicated its desire for INAP to assume the lead role in coordinating andmanaging public sector human resources development with UNDP providing technicalassistance to INAP and channeling donor funds. This arrangement represents a logicaldivision of responsibilities between IDA and the UNDP and is the central mandate of[NAP. The UNDP has supported the institutional development of INAP for the pastseveral years and will continue its capacity building support. This proposed arrangementwould provide assurance that the large and complex task associated with the logisticalarrangements, administration and financing of hundreds of participants annually would beadequately addressed under the program. Accordingly, prior to negotiations, IDA, theUNDP and INAP would develop an inter-institutional agreement which would spell outthis cooperative arrangement consistent with IDA/UNDP policy and guidelines.' Duringappraisal, these arrangements were confirmed and further developed with the UNDP,[NAP, and UCRESEP. An Aide Memoire, dated 01.25.95, was developed and signed bythe respective institutions and is available in the project file.

5. It is expected that after the courses have been developed and pilot tested by therespective residential advisory teams, INAP would competitively contract out to local andregional providers (e.g. universities, consultant firms, regional institutions and NGOs) thevarious training modules to ensure broad program coverage and to develop permanenttraining capacity both in Nicaragua and the Central American region.

Estimate Training Program Cost

6. Over the five year project life approximately 8,000 participant training roundswould have been conducted involving more than 20 different courses to be developed andexecuted under the program. The cost of the training activity, which would be financed byIDA, is estimated at $2.0 million, representing an average participant per course cost of$250. The sustainability of this important capacity building initiative will depend heavilyon the Government's ability to find and alternative source of financing once the IDA

"Standard Annex to be Used in all UNDP Project Documents Which are Nationally Executed and arePartially or Totally Funded by Government Cost-Sharing Resources Originating in World BankLoans, or Technical Cooperation Grants Administered by the World Bank"; 11/21/1994.

2

resources have been disbursed. One such source is the 2% government payroll taxpresently channeled entirely to the Nicaraguan Technical Training Institute (INATEC) forvocational training. During project negotiations, IDA will seek agreement with theGovernment to apply a portion of these or other sources to maintain the curriculumdeveloped under the proposed project.

3

-rx YmI Y_l .. Y_3 Yvow Y_ WS TOTAL

9 'CI7 Cod Am Q111 cod Am Q.ArY Co A~ Qs-ml con AMd Q -c _ -

L Ca4 gob ac5., 071.871

A. £z.uwdw D.. (M ~ Gm 1400,60Dim A Dm) I I dr 6 &kx '

C.mrse Dd.pn4 4 S1.000 S4.000 3 $1.000 $3,000 I 3.00 S 1.000 II S1,500 S12.00 I 1.000 s1.000 S37.0

o di..*(3 * l6 dy¶ es) 72 ntt z21,600 90 3300 s27,000 144 1300 543.200 144 s300 343.200 144 s300 S43.200 S573.20

POici_px Mmiah (20 p- s) 30 SOS 1.200 loo s3I5 s1,30 160 s1 12,400 160 Sl3 S2.400 160 113 32,400 ".90

PuOk4p.. Pw Din 1440 SOS n21.600 1620 sII 324.300 2st0 $13 S43.200 2s20 S1 S414,200 2310 s3s S43,200 3175.500

* T-'g * f TvA..( rNAP,( ' S42J7S4 Sc14 MU HR. Pmmu,d) 3 dys_

C . D13 . 2 s 1.000 S2.000 2 11.000 s.to0 2 S1.000 So,0 2 S11,00 12o000 2 Sl.00 13,00 S 11.000

h~i.n(I uw x I 5 dy.) 10 5 300 S3.00no 10 s300 I3.000 1 0 1300 53000 10 3300 13.000 0o 1300 S3.000 S15.001

Ptxfipu6 M . ai(2 5 p. ) 0 315 s7in 30 SOS 1750 30 xSs 1750 50 115 37s0 50 115 3730 S3,750

Pici Per PDiv 10 s31 33.730 250 s15 S3,730 123 Ss S1.975 125 SOS SL.IM 123 s1s SI.F75 113.125

TO&Ne Pwfmm - &Moed of neCS3R A H Tadq.sa) 5 & Toual es

Coummo Dewlepnnu 4 13,00 14.00 3 11.00 13.00 II 11600 1iS11.000 a13.000 3ttoI 11.0 1112,00 S327.0

hulimm( I immien :3 days) 20 1s0 53,000 23 1300 17.00 40 S130 S12,000 40 s300 s132000 40 s130 $12.000 WS3W0

Pcjp6 Mxibh (X PMi mmqy) 200 sOS 3,0000 230 SO3 33.750 400 S1S 16.000 400 5 S6.000 40 13 S16.000 124.730

D. A u sxlr u drppwt Uff 1041.303

CuD_s w S1wie Cm ) 3 dy.

Cer.smmm Ducd.pawu6 4 Slim0 14.000 S S1.0.000 S3000 I 13.00 13.00 I 11,0m II00 11.000 11.000 133.00

~udi_ .(I _md 3 days) 12 300 S3,600 Is 1300 S4.300 24 10 17.200 24 0 17.20 24 1300 57.200 S2.700

Pmikip_ Massmi., (40 p SO) S60 13 S2.400 200 S13 13.000 320 SlS S4.300 320 Sl1 S4ku0l 320 S13 S4.30t0 119.300

P .dpin Pw 48 S3S S77.200 100 3S3 19.000 9"0 S1s S14.400 9"0 135 S14.400 940 SiS S14.400 1 400

ii II fi 110 1 r if 1 11

- - 8 - __ 8 - _ - _ ____- _ 1 _ _<

-llo" -ool o - _ - --- .__ _ _ _ _- ____ _

_*o8lz louI o- --L__ _ _

-jal -_oo _-1 8 - -_ 1_ _ _ _ _ _ 8 . li:

Xl¢:2jogl~ -!2J -8 _ -_ -_ _ _-4 °

Xll|~_ _L i j b

.Imp _ml Y1~ Y 3 I Y_4r TOTAL

Q--aq C_4 Q41 C_. NMW Q-t C_. A-_ -a C_ A_- C_Mu

C TA6- T r_dg (.b- _ Ix5S Tpp n t T4.dg

CCWY lSveq S4 I,D000 14,000 5 11,000 55.000 6 1.000 16.000 6 11.000 S6.000 6 1.000 16,000 S1,

h.(.cti~(I aaet x I0 dy.) 40 P300 S11.000 50 S300 115,000 60 1300 S1t,000 70 D300 S21,000 60 1300 SIlt000 S-4,000

r M.L-t.l (I 5 p..c,p".) 60 S15 S2 100 7' 535 S'.625 901 135 3.150 90 135 D3,150 90 S3 S 91,150 S14,175

1iop.P Fs D. 600 S15 S9.000 750 SI SI 11.250 900 S15 I 13,500 ON Mi S 113.500 900 SI S 513.500 560,750

D. StAF Tbh. (l U MIFON . I &4M i. - U sdSLAF Mo.&l)

C- D-I°P- 4 Sl .000 S4.000 Sl 000 00 S00o- a l ,000 SJ.000 Sl ,1000 MOM03 I n ooo S 16.000 SA 1,000

k.bdi- (I mo-t.x 5dy.) 20 1300 16.000 25 1300 17.200 40 1300 S112,000 40 1300 SI12,000 40 1300 11It000 4950

P-.Iip.d tMaia(b (I 5 p. opN ) 60 325 s1.500 75 125 S,ns75 120 125 13.000 120 $2 I 53.000 120 15 D3,000 Sl 2.375

Pucips 6P D4n 300 515 S4,500 375 SiI 55.625 600 Si1 19.000 600 115 19.000 600 S15 19,000 S37.125

L OmI S.pp.l (Svpd Pnl. S43.500MIFIN A M ris.s - PC & Sodwe Ph d

C ncD lq~ 2 S1.000 $ooo 002 S1,OO S2,000 2 11.000 Sl.000 2 s1,00o0 $2,000 2 S2,000 S4.000 112,000

lb.ai- (I lbd. x 5 d.) I10 n 300 13,000 S I $300 13.000 I 1300 13.000 10 1300 S3,.00 10 1300 13.000 n o 15.000

p".P.o % M. .ol6 (IO P10 r p.,) 1o s30 $1.200 60 S30 S 1200 60 130 n 1o 100 60 S30 S 1,g00 60 130 s1,20 s9,000

P uidp.d Pe D, 100 5 11.200 100 S15 1.500 100 S1 S1l.500 100 S15 S1,500 100 Sl Sl.500 57,300

SUB rOTAStBY YE.AR 320 1267 £05.400 300 "If 0134.675 390 S259 J212.95e 516 £306 D15.#50 Sig 1304 SL549OJ

m. rflANCIAL MANAGEMENT S1441.750DUDCEING

A. D.Wgf4( . (MUOnN &Ss9.112M ri - 3 x 2 day C,X - 6 day. -Evad.-m V..w, Fa)

Coanlq.nn-k 4 S10011 S4.000 2 S1.000 14,000 I S1.000 1S4.000 1 S1.000 14.000 I T 4.000 120,000

1. bwat(I udwo x 6 dys) 24 S300 17.200 12 $300 S13.600 6 1300 S1.,00 6 1300 S 1,l00 6 300 sI.tO0 S 116.200

PuIikip.n M4iai.I (25 p.nic.pa1.) 100 Sly5 S1,5DO 50 S15 5750 2 5 S1 S375 2 5 11 s375 25 S15 1375 S3.75

P.tlip..Po'Dian. 600 $151 19.000 3001 s1l 34.500 ISO1 III 1 2.2 50 ISO 115 32.250 ISO $15 $2,250 1720.250

B. Uft C_ & ptFf.. M-m MAN(MIFSN. NFE &a M1i. OJT A 2 d.y

. _9 d _r I Yw I 'w 3 Yw 4 y'w YO_5AL

Q_ _. C C_d AM_ Q_ Cad AS Q-a7 Ca" Am.& coo AmmS_

Cm. - 3 n CajAcca. . LU,dCmf for Loadn Oa."mm

Cg D rl_ 4 S1.0Doo s4000 2 SLOW 32o00 I SI,oCO sl.00 SI,00 31.000 I sLmOW s3,s "Ose,

IOdioa(I dy.) II £S00 32.400 4 DW0 1.00 3 30 10 Doo 1 3S300 S900 s1ea o tice

P.aipq M-di (2 1pav, _ oa ) 100 Sl Sil,00 30 SlI 17n0 23 Sl £371 2S SIs £371 23 Sils £7 D.371S

Ptip.a7fDift_ 300 I1 S14500 Iso Sl3 S3,210 71 S13 S11123 71 SI S 11.25 75 II 15 11.12 S10.123

NIlE, U_i a _I Sl. )o r 1 ) _ _.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~& f

Co bnro..a 2 51.000 S2.000 I S1.000 Sl.000 I s1.000 s1.000 I SLOW o1n000 I S1,000 s1.000 I2.000

baft...ct(I 1 . 1mr..: a dy.) 10 S300 S3,000 S £300 31.10 5 S300 1.100 1 £30 s 0 S11.100 s £300 S1.500 312.300

P..bcpad M 1dnal _( P -1bp.o) 40 SlS S600 20 Sl 1300 20 lis £300 20 sII 1300 20 II5 S300 S1.t00

Pt1,dpom?~~a Dimtoo £12 I1.O00 s0 £11 1750 10 IM 1710 so III S750 10 II $750 11.510

D. PoW - A.d (AG AF, Ase". S40.000

MIFrN. CC BA -

Co.o,. D"A.PIown 4 Sl,KO 14.000 4 1,e000 S4,000 2 S1.000 320 I S1.000 ,S,000 I SL.oo 31,000 s12.000

d t(I 1 y dy) 20 £300 S6,000 20 1300 s6.000 1 S300 S3.000 5 S3K00 S 1.00 . 3300 s1I00 s11.000

Ptcpa M-o.. (Ut.c. t) 40 Sl5 1600 40 SI5 1600 20o IIs S300 I 10s 1 sIso Io0 I s1s0o 31300

P.66p.d p Di.a. 200 sI s 3.000 200 S1l S 3,000 100 SlI s 1.500 so siI sso0 s0 s 1s n7so 9.000

L DN ota.11 P1_ M.am"d 174.000

(t,F 14. Mimu n 04 A LoAW1 -.,S$Rq-i. Slki-y Sy>)

Coon. DniIo g 4 1,000 S14.000 4 S1.000 S4.000 4 S1.000 S4,000 4 S 1,000 S4.000 4 S1.000 I4.000 S20,000

l.oastio (I .ad. 4 dyu) 16 £300 S4.000 14 1300 34.100 1 32 16 £300 S4.800 16 £30 14.00 S24.000

Pp, p mala.ls (26 pw.p..B) S0 I SI so.2on l0 1I5 1,200 *0 l5 St 1.200 to S1 I 1,1200 10 SII S 1.200 56,000

rP.Aip.t ?rDon,- 520 14.30 120 SIO S4.00 320 III S4.100 320 515 S4,100 120 SIS 54,0S S14,000

_ 3,p~ Y~rI YI _ Yr3 Y* Yw TOTAL

.O_iy C_d A_4 (.OoIA - A4 tdy C_4 A_.- Q-0 C_d Q_ MY ( A..--

F F.~~~~~~~~~~~~~~~~~k1 £ ~~~~~~~~~~~~~~~~~~~ ~~~~~~~ 1~~~~~~34,73Nn7E & M*c, E- A,.IoPn1 A Ppm. R. EllnucRTw, CnnU)

Co, q DSlp00t 4 3.00 $4000 4 SLOW e 4.000 S 1.000 S1.000 S 10.000 _ 1.000 I si.0o SL.000 SI 11000

1, I uao I 4 d3 16 S300 S 4.300 36 1300 S 4.100 4 1300 n 1.200 4 1300 S1.200 4 S300 S1.200 S 13200P t vsd M.lm6 (I t 5 vvs l . . ..... .......) 60 1. S0900 60 13I5 1900 IS l 15 1221 35 S13 I S125 35 1II S225 12.475

p.t.-,P.2 Pc D- 240 S15 13,600 240 S15 13.600 60 S15 M900 60 SIS S900 60 S15 S900 S9 900

C. J dgo, AdfI (MIFVN. NFPE. AGh& 19ooINIFOM - 3 x 2 dy C- - 6 day..0-b A Oobj A." Bodgt.3

Cow. D-Jlop-SA 4 O1.000 14,000 4 13.000 04.000 4 S14000 S4.000 4 1.000 14.000 4 S I.L, S4.000 S20.000

i-&-I( (I -owo . 6 d.y) 24 1300 17.200 24 S300 S7.200 24 1300 S7.200 24 1300 17.700 24 no00 S7,200 D76000

Pwi6p.m M - t0 PSI S1.200 10 SI5 S1l200 M0 SO S1.200 t0 S135 S1200 o S135 1.200 S6.000

-tKiPaV P.r D3 410 S15 I 7.200 400 Sls £7,200 410 S15 S7.200 .30 1II 17.200 4t0 S15 17200 16.000

It PA, a ?. 7Ymw (MIFIN A SS7J100Mowti. - 2 dar OT)

C.um. DIpK.opm.r, 4 S3 0000 S4l000 I 01.000 S1.000 I 1.000 13.000 I 13000 S 0000 It. 1000 13000 11.00

tmv (ion (I m,.fl. 2 dpy.x O p-t) 80 1300 524.000 20 S300 S6.000 20 n300 S6.000 20 1300 56.000 20 30o S6 000 S4t 000

r"P.m M1m3.I, (I1O P." i,np ) 40 SI S S600 20 III 1300 20 SIS 1300 20 II, 1300 20 15 1300 Io.,00r dU." P. D-cn0 15 SO 0 S13 S0 0 135 so 0 S15 SO 0 13 SO SO

L Mffdib1nC Tr-ak.-(MlFIN & S12.500INIFOM - F-.I R.Pqm C.p44

Cm.e. D.mlop.- I S1000 S1,000 I S1.000 S1.000 I S1.000 S1.000 I SO.0 S 13.000 I S1,O000 1,000 13,000

bvwu,.io (I 0000d00 2 d.),) 2 S3IM 1600 2 1300 1600 2 1300 16001 2 1300 SW0 2 1300 SW0 15.000

pwticipa Mum.h (20 Po.pa6t.) 20 Sl35 1300 20 Sl5 S300 20 SI5 1300 20 $13 1300 20 s15 1noo S1.500

Pmtip.d P,oD- 40 S15 S600 40 S05 S600 40 SIS S600 40 1I5 S600 40 S15 S600 S3.000

SuB Trors t7r YEVtAR 560 J241 3134.00 420 J225 Jr314 .005 5229 569,700 295 5225 S64500J 295 02 560

_n~ Y_I Y Y_ 1 . Y .Y_W Ya YOTAw

TOTAL Q~ty C_d A_ Q~7 C C_IfI Qs- guy Cad A_1

-Ij1

-1

*j 9 . ,fIIw C_ _ _

TOTAL

* §A tIfDP A' '':.6-d * 0,4.... S.__ _

rIL D TUlAL._

ATDE MEMOIRE

Representatives of INAP, CERAP/UCRESEP, UNDP, and IDA represented respectively by Mr.Alfrcdo Solorzano, Mr. Luis ViWalta, Mr. James Rawley al Mr. Ronald Myers met on 26-27 January, 1995to develop an understanding of: the Government's public sector management training objectives and p1ms;the respective plas of ULNDP and IDA for supporting the Government in the attainment of its truiningobjectives; and proposed cooperative working relationships for implamcnting traIning assistance suppont torNAP on the part of IJNDP aud IDA. The following paagraphs record theunderstandings reached on each of these themes during the mecEings:

1. The Government's Public Sector Managcment Training Objectivesand Plan:

** The Government is committed to the reinvigoration of the public sector through a progm ofpublic sector reform and human resource development To this cnd, the Govertlment has recently initiated acomprehensive public sector management TeforTn program through the issuancc of Presidential Decree 44-94;

11 The Government has assigncd INAP tie principal responsibility for developing themanasement and technical skills ofthe Niaraguan civil service;

f lNAP intends to fulill ls objective over thc medium term (i.e. 10 ye.r) through:

- The development of a trminal degree program in public administration leading to aMaser's Deore in Public Adminlstion to be confcrred by INAP and the NationalUniverity;

- The execution of in service short courses in a number of relevant subject areas for alarge cross section of the Nicarguan civil service.

To ensure a consistent and adequate flow of resources to cover a significant portion of the recurrentcosts associated with thesc programs rbe Government intends to asip to INAP a portion of the tax revenuescurrently assigned to INATEC.

2. UNDP Support for Public Sector Management Training: The UNDP has bcen requested by theGovcrmnent to continuc its support and serve as the lead donor institution for training in support of theGovernment's Public Sector Modernizatlon Progm. The MNDP has accepLed this responsibility anddeveloped a multi-donor proposal which will shortly be sent to UNDP Headquartrs for approval. Theproject would provide support for the Instinttional strengthening of INAP, assist TNAP in the developmentof an Applied Master's Program in Public Adminisaion and provide for UNDP oversight of the S2.0million in-service training program to be financed through the LDA Institutional Development Credit. TheUJNDP would commit S500,000 of its own resources and assist the Government in the mobilization fromother donors of an additional S4A milon. Total project cost would be S6.9 million including the proposedIDA contribution of 2.o million. Thc UNDP confirmed its willingness to administcr training funds to bemade available under tie proposed IDA stitutional Development Credit (see below).

3. MDA Institutional Development Credit: Under the proposed InstirUtional Development Credit (IDC)IDA would make availabic up to S2.0 Eillion to support the Government's in-service training requirementsas.ociated with Ihe implementation of the Public Sector Modcrnization Nlrogram. The in- service traiingprogrdm would bc under ibe joint leadership and management oversight of CERAP/UCRESEP, INAP andUN'DP and would centcr on the development and repeatcd imnplementation of a series of training programs.

Ihe proposed in-service training programs would be concentrted in the following areas: public sectormanagement; financial management; personnel adminilstaion and management and information technology.The proposed in-servicc taining programs would be developed jointly by the technical assislancc contactorsassigned to the respective comrponents of the reform program financed by the DC and INAP. In servicetaining would be dirceted to the civil servants in those instirtions with active Insfitutional RestructuringAgreements (AREs). As trainin.- modulcs are developed the respective technical assistance conaactors and£NAP would pilot test and refne ehe modules prior to the routine aad repeated implementation of themodules. Aftcr this initial pilot phase, INAP, in close coordination with CERAPIUCRESEP, w4. aid assumcfillI responsibility for the implementation of subsequenL traunig cycles The technLical assistance contractorwould continue to be available, as appropiate, to provide raining and ensure conformny of the trainingpro;rams with the ongoing and evolving work in participating IRA institutions. Given INAP's iotention toremain a small institutlon with no more than 23 profcssional staff and in line with the broader Governmentpolicy which emphasizes the private provision of public services, whenever possible, INAP would contractwith individuals or firms to carry out The expanded and cyclical repetition of the respective taining modules.The TDA Task Manager recommended that the scope and level of effort of each traming module be carefullyanalyized by INAP and whcu training modules involved a signUiicant number of participants and/or multiplecourse replications consideration be given to contractig firms instiead of individuals to lesson themanagement burden on INAP staff. To encourage the development of in-country trining capacity preferenccwould also be accorded to the selection of Nicaraguan finms and individuals or joint ventures involvingNicaraguan firss or lnsbtutions. UCRESEP/ANAP and IDA would undertake an evaluation of the in-servicetraining program after the second year and make adjustments as necessary.

4. Understandings Reached: The rollowlng understandings were agreed to among the parties.

INAP and UCRESEP: NP will undertake a technical skills assessment and needs analysis of theinitial four instlittions prcsently developing nsitutional Restructuring Agrcements (ARIs). INAP wil workclosely with UCRESEP and the Coopers & Lybrand consultants in this re-ard. INAP and UCRESEP willmake The appropriatc representations to secure the asignment to NAP of a portion of the tx revenuecurrently assigned to TNATEC. UCRSEP will prepare the Tams of Referencc for and undertake to coract aTraining Consultant;

UNDP: The UNDP agrees in principle, subject to Headquarters conflrmation as rnay be appropriate,to assume thc rollowing responsibilities on behalf of IDA with respect to the management oversight of theresources to be assigned to INAP for the purpose of implementing an in service raining program:

go Support INAP in the development and review of annual training and associated financialplans;

- Support INAP in the review and finaliduon of specific in servic trning proposals andassociated Tcrms of Reference;

' Support NAP in the developmcnt of training proposal solicitation documents consistentwith World Bank guidclines;

** Support NAP in the development and applcation of taining proposal evaluation andcontractor selection procedurm consistent with applicable World Bank guidelines;

** Support INAP in thc development and execution of training contracts consistent with applicableWorld Bank guidelines;

* Support INAP in the development of generally acceptable accounting standards and proccduresfor the proper management aDd accounting of financial resources provided under the instiutionalDevelopment Credit (DC) in support of in-servicc training under INAP's Programa Integral deCapacitacion dcl Sector Publico;

** Support lNAP in the definiton and execution of annual performance and financial audits ofthe Programa Integral de Capacimacion del Sectaor Publico;

40 Support INAP in the preparation, as appropriae of relevant documentation requreod by TDAfor the issuance of Letters of No-Objection and disbursement of funds.

To cany oat these responsibilities, as well as die broader responsibilies of its own support to INAP,the UNDP will provide professional admlnlsutive and flnancial staff support as appropriate.

IDA: Upon recommendation of the Govemmentr IDA wlll assign betwe three and five percentof the funds acually committed to JNAP for n-service taining under the IDC to help defray the UNDPoverhead cost associated with the technical and adminisUanve support described in pargaph 4.CERAP/UCRESEP and the IJNDP will cstablished the specific cost sharing formula and advise the IDA nolater than 15 February, 1995.

Conclusion: All pares agreed to updacj/modiry their respective project documentaion to reflect theseunderstandings as well as complete their rcspeciive internal approval processes as rpidly as possible.

4Mr. Ronald Mycrnep RcsL Rep. World Bank/IDA

UNDP/Nicar2gua