Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 12986-KG

STAFF APPRAISAL REPORT

KYRGYZ REPlUBLIC

SOCIAL SAFETY NET PROJECT

JUNE 13, 1994

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Country Department IIIEurope and Central Asia Regional Office

This docment has a resdicted distibution and may be used by recpients only in the performance oftheir official duties Its contenb may not othewise be disclosed witout Wodd Bank authiaon.

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CURRENCY' EOUIVALENTSCurrency Unit - Som

EXCHANGE RATE: SOM PER $

Period Official RateMarch 1994 12.3

WEIGHTS AND MEASURES

International System of Units (SI, "Metric System")

ABBREVIATIONS AND ACRONYMS

CC - Component CoordinatorES - Employment ServiceFSU - Former Soviet UnionICB - International Competitive BiddingIDA - International Development AssociationIS - Intemational ShoppingLIB - Limited Intemational BiddingMLSP - Ministry of Labor and Social ProtectionNGO - Non Governmental OrganizationPESAC - Privatization and Enterprise Sector Adjustinent CreditPCU - Project Coordination UnitSDR - Special Drawing Right

KYRGYZ FISCAL YEAR

January 1 to December 31

FOR OFFICIAL USE ONLYi

~YZ REPUBLIC

SOCIAL SAFETY NET PROJECT

STAFF APPRAISAL REPORT'

1. ECONOMIC AND SECTORAL BACKGROUND ............................ IThe Economy ............................................. ISocial Protection and Social Services .......... ................ 2Poverty and Unemployment Monitoring .......................... .. 4The Labor Market ............................................ 5Employment Services ......................................... 6Training and Retraining .7.................. 7The Government's Reform Strategy ............... 9I ................ 9The Association's Assistance Strategy ................................ 10

II. LESSONS FROM RECENT EXPERIENCE .............................. 12Experience of Targeted Social Assistance and Poverty Monitoring .............. 12Labor Market Policies and Employment Services ......................... 13World Bank Experience in Institutional Development ....................... 15

III. THE PROJECT ............................................... 17Project Origin and Evolution ...................................... 17Project Objectives .......... ..... 17Rationale for IDA Involvement .................................... 17Donor Coordination ........................................... 17Project Description ............................................ 18Social Assistance Reform Component ................................ 18Poverty and Unemployment Monitoring Component ....................... 25Employment Services Component ................................... 27Training Component ........................................... 30

IV. PROJECT COSTS, FINANCING, MANAGEMENT AND IMPLEMENTATION ... ... 34Cost of the Project ...................... . 34Basis of Cost Estimates ................. 34Customs Duties and Taxes ................. 35Contingency Allowances ................. 35

This report is based on the findings of an appraisal mission that visited the Kyrgyz RepublicMarch 12-26, 1994, comprising Bo Dahlborg (Mission Leader), Thomas Daves (Sr. ProjectOfficer), Alexandre Marc (Economist), Maria Gracheva (Researcher), Jane Falkingham,Robert Hall, and Carlos Mena (Consultants). The mission was assisted by Nurgul Idinova(Consultant) of the Association's Bishkek Office. Messrs. Russell Cheetham and RobertLiebenthal are the responsible Director and Division Chief, respectively.

This document has a restricted distuftion and may be used by eipiet only in the pefrm of their| fflcial duteL Its coton may not othemnAs be disosod vnthtn World Bo* lAozaw

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Foreign Exchange Component ..................................... 35Project Financing ............................................ 36Overall Project Management and Implementation ......................... 37Social Assistance Reform Component Implementation ...................... 38Poverty and UnemplAyment Monitor .g Component Implementation ............. 39Employment Services Component Implementation ........................ 39Training Component Implementation ................................ 39Implementation Schedule ........................................ 40Procurement ................................................ 40Disbursements ............................................... 42Accounts and Audits ........................................... 44Association Sapervision ......................................... 44

V. BENEFITS AND RISKS ........................................... 45Benefits ................................................... 45Risks. ..................................................... 45Environmental Impact .......................................... 45

VI. AGREEMENTS REACHED AND RECOMMENDATION .................... 46Agreements Reached . ......................................... 46Recommendation ............................................. 47

ANNEXES

1. Statement of Polic(-y Concerning Training2. Terms of Reference for Project Implementation3. Project Implementation and Supervision Plan4. Key Perforrnance Monitoring Indicators5. Disbursement Forecast6. Allocation of Loan Proceeds7. Current and Proposed Cash Flow Process of the MLSP8. Procurement Implementation9. Detailed Cost Tables

DOCUMENTS AVAILABLE IN THE PROJECT FILE AND IMPLEMENTATION VOLUME

1. Working Paper: Social Assistance Reform Component, March 19942. Working Paper: Poverty Monitoring Component, September 19933. Working Paper: Employment Services Conponent, March 19944. Working Paper: Training Component, March 19945. Kyrgyz Republic: The System of Cash Benefits, 19936. Environmental Data Sheet

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KYRGYZ REPUBLICSOCIAL SAFETY NET PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: Kyrgyz Republic

Amount: SDR12.0 million (US$17.0 million equivalent)

Terms: Standard IDA terms with a maturity of 35 years

Project Objective: This would be a capacity building operation aimed at improving mechanisms toidentify the poor and make social programs more effective and efficient intargeting and delivering social assistance, especially to the most vulnerablegroups. The project would also make the employment services and training moreefficient and effective in assisting the unemployed, particularly through animproved capability to deliver unemployment benefits, and in promoting theredeployment of labor.

Project Description: The proposed project would have a duration of four years and would comprisefour main components:

(a) the social assistance reform component (base cost $6.7 million) wouldprovide equipment, technical assistance and training to strengthen the capacity ofthe Department of Social Protection of the Ministry of Labor and SocialProtection (MLSP) to provide targeted social assistance, including cash and in-kir.d benefits, and mobilize NGOs and community organizations to enhance suchassistance. It would include support for policy formulation and the developmentof a new social assistance delivery system, the simplification of pensioncalculation and delivery, the retraining of staff, and the re-equipping of offices;

(b) the poverty and unemployment monitoring component ($3.4 million)would provide equipment, technical assistance and training to strengthen thecapacity of the State Committee for Statistics Goskomstat to carry outrepresentative surveys, especially of poverty and unemployment, in order toprovide enhanced information and guidance to social agencies in improving thetargeting and delivery of support seivices;

(c) the emnloyment services component ($2.7 million) would provideequipment, technical assistance and training to strengthen the capacity of theEmployment Service under the MLSP to (i) process and pay unemploymentbenefits to laid-off workers; (ii) create a capacity to accelerate the redeploymentof unemployed workers to productive activity through counseling, placement, andreferral to retraining; and (iii) develop a program to handle mass lay-offs. Itwould also include (iv) provision for a pilot program to facilitate the transfer ofsocial assets of restructured enterprises to local authorities; and

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(d) the training component ($5.2 million) would provide teclnical assistance.training equipment and materials to ensure the availability of a minimum capacityto respond to market demand for training in skills needed in a market economythrough short, flexible training programs for persons wishing to upgrade theirskills or change careers, including unemployed workers and persons at risk ofbeing laid off by restructuring enterprises. Training programs and materialsdeveloped under the project would be made available to all interested trainingusers and providers to encourage the development of a competitive market fortraining. To keep costs low, publicly provided training programs would use theexisting facilities of the State Committee for Training (SCT) under cost recoveryarrEngements. The quality and demand-driven character of training would befurther assured through institutionalized, close cooperation with public andprivate enterprises and the employment services in the determination of trainingspecializations, and other policy actions agreed with the Association anddescribed in an agreed policy statement.

Benefits: The proposed project specifically aims to strengthen the Govermnent's capacityto help the poorest and most vulnerable in the period of transition. It wouldbenefit women in particular, since a disproportionate percentage of the poor andunemployed are women. By facilitating the reorientation of human capitaldevelopment towards sectors with. prospects for growth and the removal ofbarriers to labor mobility, it would also help remove constraints to private sectordevelopment. In addition, the project would improve economic management inthe social sectors. These benefits would help maintain popular support forrf.borm.

Risks: There are two main risks. The first concerns the Government's ability, if ashortfall occurs in budgetary allocations for social security expenditures, tomaintain strict targeting of such expenditures, including an adequate balancebetween allocations for social assistance and eventual supplementary funding ofsocial insurance benefits. This risk will be addressed through annualconsultations over budgetary allocations and through a mid-term review. Thesecond major risk concerns weak implementation capacity and possibleinadequate coordination between implementing agencies and departments. Theproject's technical assistance inpi,s and the reporting relationships andresponsibilities of the Project Coordination Unit have been designed so as tominimize this risk, which would also be given particular attention by futureAssociation missions.

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Estimated Project Cost:t Local Foreign Total

.__________________ (in US$ Million)

1. Social Assistance Reform 0.4 6.3 6.7

2. Poverty and Employment 0,5 2.9 3 4Monitoring

3. Employment Services 0.2 2.5 2.7

4. Training 0.5 4.7 5.2

5. Coordination, Monitoring, 0.2 0.6 0.9Studies...

Total Base Cost 1.9 17.0 18.9

Physical Contingencies 0.1 1 .1 1.2

Price Contingencies 0.7 0.7

Total Project Cost 2.0 18.8 20.8

Financing Plan: Local Foreign Total

(in US$ million)

Government of Kyrgyz Republic 1.1 0 1.1

Government of Switzerland 0 2.7 2.7

IDA 0.9 16.1 17.0

Total 2.0 18.8 20.8

Estimated Association Fiscal YearDisbursements:

FY95 FY96 FY97 FY98

(in US$ Millions)

Annual 3.8 7.0 3.9 2.3

Cumulative 3.8 10.8 14.7 17.0

Economic Rate ofreturn: Not Applicable

Map: IBRD 24963R

t' Numbers may not add up due to rounding.

1. ECONOMIC AND SECTORAL BACKGROUND

The Economy

1.1 The Kyrgyz Republic is one of the smallest. poorest and least well-endowed of the countries ofthe Former Soviet Union (FSU). In 1992. the per capita GNP of the c-ountry's 4.5 million people wasestimated at only $810. Located in a very mountainous part of Central Asia adjacent to China, theKyrgyz Republic has limited areas of arable land. The country has modest deposits of oil and gas whichare now beginning to be exploited. A substantial hydro-power potential exists and it is a net exporter ofelectric energy. Substantial mineral deposits exist, but few have yet been exploited.

1.2 Prior to independence in 1991, the country's economy was firmly integrated with the Sovietsystem, and under central planning it was diversified away from being predominantly agricultural to onehaving a significant industrial sector. However, industrial investment was historically guided by strategicinterests rather than by comparative advantage. Whereas agriculture now accounts for about 35 percentof Gross Domestic Product (GDP), industry accounts for about 30 percent of GDP and empioys about20 percent of the labor force.

1.3 Despite the Kyrgyz Republic's remote location, lack of development of natural resources, andthe suppression of individual initiative and enterprise under the Soviet system, much was achieved priorto independence in the development of human resources. Life expectancy at birth is about 66 years,while infant mortality (corrected for international comparative purposes) is around 40 per 1000 livebirths. Comprehensive health, education and social security systems were established, generally similarin scope and quality to those of other FSU republics. Historically, the distribution of income within thecountry was relatively flat; and although about 35 percent of the population in 1989 had an income belowthe official poverty level of Rubles 75 per month, there was very little severe poverty in the country.

1.4 After independence, however, the country faced enormous challenges. The collapse of the SovietUnion led to the ending of fiscal transfers to the state budget which had previously been heavilydependent on support from the Soviet govern-ment. The country's terms of trade also deteriorated dueto large increases in the cost of imported oil and gas. In addition, inter-republican trade was disrupted,and payments arrangements were complicated by the introduction of a national currency (the Som) in May1993.

1.5 The Kyrgyz Government responded to the challenges by adopting an ambitious program ofstabilization and transition from a command to a market economy. This program includes privatizationof state-owned firms, enterprise and financial sector reforms, rationalization of subsidies, elimination ofmost price controls, deregulation of the trade and distribution systems, and legal reforms. Theinternational community showed its strong support for these reforms through a successful ConsultativeGroup meeting held in 1MI. In 1993, the International Monetary Fund (IMF) approved both a standbyarrangement and a systemic transformation facility for the country, while the International DevelopmentAssociation approved a rehabilitation credit. However, implementation of the reform measures has beenuneven, partly due to lack of expertise and administrative capacity in policy formulation, and partly toconcerns among the leadership related to the harsh decline in living standards and the difficulties arisingfrom the collapse of the old system.

1.6 While the intended reform mtasures, once fully implemented, should enable the economy toprosper in due course, the difficulties of the transition are enormous. The economy contracted about 40percent over the 1991-1993 period; real incomes are continuing to fall sharply; the distribution of income

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and wealth is becoming less even; and the number of poor is increasing. Unemploymelit is increasingand it is expected to rise more steeply as credit to state enterprises is reduced and as the newly enaeteobankruptcy law is applied. In addition, fiscal constraints and supply problems are having a negativeimpact on the provision of social services.

Social Protection and Social Services

1.7 The system of social security' inherited from the Soviet regime was clharacterized by a lack ofdistinction between social insurance and social assistance, no direct relations between contributions andbenefits, and wide eligibility for social assistance benefits which were allocated by category of thepopulation with no targeting of assistance to particularly vulnerable groups. As a result, nearly half ofthe total population in the country used to receive benefits of one kind or another, witlhout any clearrelation either to documented need or prior contributions. Social protection was extremely expensive forthe budget, with pension payments in 1991 amounting to 7.0 percent of GDP, child allowances 6.7percent, and generalized subsidies 3.8 percent of GDP. Including health and education services, totalsocial sector expenditures amounted to about 27 percent of GDP.

1.8 In this system, all benefits including pensions were viewed as entitlements, with virtually no linkto contributions. In addition, the system had no ability to identify the record of contributions made onbehalf of individuals (as opposed to work histories), while procedures for calculating and p?ying cashbenefits were extremely complicated and labor-intensive, relying heavily on manual record keeping.Family allowances were financed from the Budget and since 1991 from the Pension Fund. Enterprisesand trade unions together with the Ministry of Labor and Social Protection were actively involved in theoperational delivery of both in-kind and cash benefits. Many benefits were excessively generous: forexample, significant numbers of workers were allowed to retire before the normal retirement age (55years for women and 650 years for men) but continue to work, thus receiving both a pension and a wage.This contributed to an excessive financial and administrative burden on the system.

1.9 Impact of Reform. The Government recognized that as part oi the reform program, majorchanges would need to be made in the system of social protection. The stabilization program aimed tocut the fiscal defic.t from 14 percent of GDP in 1992 to 7 percent in 1993, requiring a substantialreduction in spending on social protection. This reduction in spending was actually achieved, partly byreducing generalized subsidies, partly through a policy of not indexing benefits fully at a time of rapidinflation, partly as a consequence of cash shortages (which led to some pensions and allowances not beingreceived at all), but also partly through a deliberate effort to try to target support only to those most inneed. Eligibility for child allowances was restricted to families with incomes below a set minimum, whilebread price compensation payments were limited to selected groups such as pensioners and childallowance recipients.

1.10 The overall impact of these measures was to reduce social protection expenditure to considerablyless than half its previous level. Total social spending by the Government and the extrabudgetary so( ialsecurity funds (Pension Fund, Employment Fund, and the Social Insurance Fund run by the trade unions)

2I Throughout this report, the term "social security" is used as a collective term for both (a)social insurance, which describes systems providing benefits linked in some way to prior contributionsand (b) social assistance, which covers benefits provided on the basis of need.

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in 1993 amounted to not more than about 10 percent of GDP. Compared to all Government spending,social protection expenditures then accounted for about 22 percent of the total.

I.11 Ilovertv. In 1992. the extent of poverty was estimated at 35 percent of the population, based onthe official houselhold budget sur-ey, but using a minimum consumption basket of goods. Since then,the proportion of the -opulation below this minimum subsistence level has increased. As part of thepreparation of this project, a comprehensive baseline household budget survey of over 2000 householdswas carried out in the second half of 1993 to investigate household incomes and expeuiditures,employment and unemployment, and health and nutritional status. The results of the survey are currentlybeing analyzed and will be available in mid-1994. However, preliminary results suggest that thecombined formal cash income of over half of all households is at or below the minimum wage level,which poinits to a significant increase in poverty over the last two years of the reform prograrm. Anotherin-depth analysis recently carried out by a cultural anthropologist of the circumstances of about 600vulnerable women and their families also indicates that poverty is spreading. An analysis of health datahas also been undertaken aind revealed a slight upturn in infant and maternal mortality rates.

1.12 Social Protection. The Govetnment intends to shift further towards a means-tested system ofsocial protection, where verified need rather than categorical status becomes the core principle of benefitallocation. In this way, benefits can be concentrated on those most in need. In contrast to other lowincome countries, the development of a targeted system of social assistance in the context of the KyrgyzRepublic is believed to be realistic since it has a large range of existing benefits and a system for theirdelivery. The unification of different social assistance programs into one single consolidated schemewould also reduce administrative expenditures. Detailed work is now underway to design ways ofintroducing more accurate income- and means-testing systems, including specific ways of targeting childallowances on families most in need. This is being done by the MLS? in conjunction with technicalassistance being provided funding from a grant for project preparation.

1.13 The MLSP has carried out a review of its organization, management and staffing in order toprepare to strengthen its ability to deliver benefits to those in need3 '. This review has shown that theMinistry itself will need to be reorganized and that its authority and control over the oblast and raion-level departments of social protection will need to be strengthened. Its control over resources will needto be enhanced in order to ensure an equitable approach to the provision of social assistance throughoutthe different regions of the country, and in the short term its present staffing levels will need to bemaintaine 1. The information system of the MLSP is also inadequate for the efficient delivery of targetedsocial assistance, and so a new system of office automation will be required. The Government intendsto implement major parts of the necessary reorganization during 1994.

1.14 Pensions. Proposals for pension simplification and rationalization are also being explored by theGovernment. The pension work is particularly importatit as the Pension Fund went into deficit at thebeginning of 1994, due both to an incr,ease in the nominal level of the minimum pension and problemsof revenue collection, mainly due to t.ie financial difficulties of enterprises. Rationalization of pensions

3 Within the MLSP 4bere are currently two main subdivisions, the Department of SocialProtection (DSP) and the i)epartnent of Employment (DOE) which includes the Employmen. Service(ES). Proposals to reorg.nize MLSP are described in section III under the social assistancecomponent.

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also needs to be combined with simplification of calculation and indexation arrangements in order to freeup staff time to focus more on targeted forms of social assistance, Indexation has recently been simplifiedand proposals for further rationalization are being prepared with the help of technical assistance.

1.15 As a complementary measure to the development of its social assistance pregram (funded throughthe Government budget). the Govermnent is emphasizing the parallel development of social insurance(based on employer and employee contributions). In late 1993. the Government decided to set up a newSocial Fund (SF to administer all social insurance, amalgamating the existing Pension Futid, EmploymentFund, and Social Insurance Fund (although keeping separate accounts for cach of them). The mainpurpose of this reorganization is to draw a clear separation between social assistance and social insuranceand to ensure administrative efficiency in the new amnalgamated fund. Support for the improvement andongoing development of this newly created SF will be primarily provided by the EU/TACIS program.However, some assistance to the SF will also be provided through the proposed SSN project.

1.16 Social Services. The deliver) of social services, especially health and education, is also criticalto social protection. At independence, the country inherited a comprehensive though rather inefficientsystem of health care, with high ratios of personnel and facilities to population. Over the last two years,the health service has suffered from funding cutbacks, major logistical problems, and an exodus ofprofessionals to other countries. However, the sector has benefitted from significant amounts of supportfrom external agencies (such as LUSAID, UNICEF and the Governments of Germany and Denmark).Under the IDA Rehabilitation Project, pharmaceuticals are already being financed and technical assistancein the management of pharmaceutical procurement is being provided. The Ministry of Health has alsomade major improvements in operational efficiency by modification of procedures and selectivelyreducing the number of hospital beds. Cutbacks in education have so far generally been rather lesssevere, and there has not been any fall-off in general education enrollments. Various reforms have beenimplemented, including an increase in cost recovery in higher education.

Poverty and Unemnloment Monitoringz

1.17 Historically in the Kyrgyz Republic, as in other parts of the FSU, there was no adequatemechanism to measure changes in income distribution or indeed in the extent or nature of poverty in thecountry. This was for two reasons. First, the concept of poverty, of a subsistence diet and a minimumlevel of living below which a person should not fall, was not used by the Soviet regime. Second,although an annual Family Budget Survey was carried out by the State Committee for Statistics(Goskomstat), it had many methodological weaknesses: if was based on a highly unrepresentative samplecomposed of workers at enterprises selected on a non-random basis, and included only workers in thoseenterprises who were willing to participate in such a survey. As a result the sample contained very fewpoor people, and no non-working poor, making the survey an inadequate tool for poverty monitoring.

1.18 Prior to independence, unemployment was officially non-existent and for this reason there wasno system for monitoring it. Since the establishment in 1991 of the Employment Service (ES),information has been collected on registered unemployment. However, the registered unemployed do notreflect the number and types of the unemployed but rather a measure of those who know about theEmployment Service and decide that they want to register. A number of legal and other characteristicsof the employment registry cause a large proportion of the currently unemployed not to be registered.As a consequence, the registry is not currently a reliable source of information on actual unemploymentand is not of great value in guiding labor market policy.

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1.19 While incomes and employment in the county did not change very much during the Sovietperiod, it is clear that they are already changing quite significantly, and it is expected that they willcontinue to do so in the future. Whatever the efforts of the Government, it is inevitable that a proportionof the population will suffer from unemployment and reduced incomes, and will remain in poverty at leastfor the duration of the reform process. It is also clear that enterprise restructuring and privatization willlead to increased levels of open unemployment. whether registered or not.

1.20 Better information on the incomes and employment status of a representative sample of theKyrgyz population will be essential to guide policy formulation and implementation in the future.Therefore, considerable restructuring of the existing family budget survey is needed. The improvedsurvey design will need to ensure that data collected on social indicators such as health, education andnutrition, as well as on incomes, employment, and expenditures fully meet the monitoring needs ofministries in the social sectors. Provision also needs to be made for regular and systematic disseminationof survey results and for feedback from users to Goskomstat to permit continuous inmprovement andadaptation of the survey to users' needs.

1.21 In order to improve the data available in the short term, the Goskomstat, assisted by the Bank,instituted the new household budget survey referred to earlier (para. 1.11), with the help of consultantsfrom Russia and the USA. It provides the basis for the development of institutional capacity within theGoskomstat, since Goskomstat staff were involved in the process and have become familiar with theprocedures and methods used; it created a standard questionnaire which will be used again in the future,with additions and modifications as necessary; and it devised a national sample frame for selectinghouseholds which can be used for future surveys.

The Labor Market

1.22 Under the Soviet regime, the labor market was characterized by a predominance of state sectoremployment, official full employment but significant hidden unemployment and underemployment, anegalitarian and distorted wage structure, low productivity and wages, relatively high labor turnover andlow geographical mobility, and high levels of participation in the labor force by women. TheGovernment realizes that some of these features are inconsistent with a market economy and has alreadyundertaken substantial reforms to the labor market. As a consequence, industrial firms are now free coset wage levels, and a new labor law has been adopted which has substantially reduced regulations onemployers and some of the most important administrative complexities, including the basis and calculationof unemployment benefits and the collection of payroll tax contributions by the EF.

1.23 In order to accelerate the process of enterprise restructuring, a Privatization Law was approvedin mid-12. By September 1993, about 3,000 industrial enterprises, accounting for about 26 percentof all fixea assets in the country, had been partially or totally privatized. In addition, about 10,000private farms were created during the initial phase of implementation of the program to convert state andcollective farms. In January 1994, Parlianent also passed a new Bankruptcy Law.

1.24 Throughout 1993, about 27,000 individuals registered with the ES for services of job placement,counseling, training, and referral. Of these, only about 6,700 were classified as unemployed accordingto ES norns. At the end of the year, the numnber of officially unemployed was almost 3,000 or less than.2 percent of the labor force. However, it is estimnated that the underlying rate of unemployment mayhave been about 10 percent at the end of the year, as at least 200,000 workers were on unpaid leave orwere out of work but not registered with the ES. All of these workers would be considered unemployed

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according to the standard Western definition. An increasing proportion of retrenched workers appliedto the ES, rising from 25 percent in 1992 to 50 percent in 1993. With the Govermnent increasinglysubjecting enterprises to hard credit constraints and the expected rise in bankruptcies, it is estimated thatthe underlying rate of unemployment will reach about 15 percent of the labor force, or about 300(000persons, by 1995.

1.25 Two particularly disturbing aspects of this escalating unenmployment, apart from its sheer size andthe suffering involved, are (a) the particular difficulty of large numbers of young school leavers in findingmeaningful employment, and (b) the likelihood that much of the unemployment will be long-term. Theserisks are present in all FSU republics but are especially important in the Kyrgyz Republic due to itsparticularly difficult economic prospects. This makes early attention to policies aimed at promotinggainful employment particularly important. Most important among these policies are those aimed atpromoting a vigorous private sector capable of responding to market opportunities. In the conditions ofthe Kyrgyz Republic, private sector growth is likely to be in services and other sectors with potentiallyhigh labor demand. The Association is endeavoring to support private sector development through itsPESAC and enterprise restructuring operations. To support these efforts, proactive labor market policiesare also needed: to help identify job opportunities, promote labor mobility and prepare the labor forcefor a range of new skill requirements.

1.26 In addition, other constraints on the efficient functioning of labor markets are being addressed.First, the old system of tariff wages appears to have been largely abandoned outside the centralgovernment sector, and enterprises are free to set their own wage levels. Second, formal legalrestrictions on labor movement have been largely relaxed, although efforts to abolish such restrictionscompletely have met with opposition from the security services due to the increase in crime. Finally,housing -- the most important constraint on labor mobility -- is being privatized, and there are signs ofan active housing market. At the same time, there is as yet no new organization for the maintenance ofhousing and the provision of utilities, both formerly the responsibility of state enterprises.

Empioyment Services

1.27 The main instruments for proactive labor market policies are employment services and training.The Department of Employment (DOE) and the ES were established under the MLSP in 1991, to analyzethe labor market, help unemployed workers to find jobs, administer the Employment Fund (EF) andespecially to pay out unemployment benefits. The EF is financed from an employer contribution of 1.5percent of the payroll, and it is currently in surplus. However, provision has been made in theRepublican budget to cover additional expenditures expected in 1994, and the introduction of an employeecontribution of .5 percent is being considered. The EF currently finances also the operating costs of theES, including proactive labor market measures such as retraining; in the longer term, such expendituresshould be transferred to the state budget to avoid their being "crowded out" by benefit payments.

1.28 In March 1994 the ES had 613 staff positions, 93 (or 15 percent) of which were unfilled. TheES has five offices in Bishkek, one in each of the six oblasts, and 61 in towns and raions. Much of thestaff time is occupied with collection and analysis of labor market statistics rather than providingassistance to clients. ES offices collect comprehensive records of employers' staff and vacancies and alsocarry out the equivalent of household surveys. These latter functions duplicate those of the Goskomstat,and it would be more efficient for the ES to limit its labor force statistical analysis to activities relatedto job vacancies and job seekers. The Goskomstat would have the responsibility to providecomprehensive labor market analysis through sample household and employer surveys. Until recently,

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there was a practice of relating the size of employment office staffing to population (15 to 100,000), butthis has now been discontinued as it bears little relationship to needs. Instead, staff are being relocatedto ES offices where unemployment is expected to rise, based on the characteristics of local enterprisesand expected effects of the enterprise restructuring program.

1.29 Due in part to its recent creation, the DOE has limited experience in delivering emnploymentserv;ees and is burdened with organizational and administrative constraints. In addition, insufficient stafflevels a-id the qualifications of existing staff are problems which need to be addressed. In December1993, 15 out of a total of 31 authorized positions at ES headquarters were vacant. The Government hassince filled 10 of the 16 vacancies. Each of the main divisions of the DOE are short staffed. Overall,an additional 30 staff are required. The MLSP has recently reallocated six positions to the DOE and isconsidering further staff increases. Constraints on effective employment service delivery also includeweak institutional and management capacity, inappropriate budgetary processes and financial managementsystems (including inadequate audit capacity), and the limited ability of DOE to formulste and implementnational policy and to provide programmatic guidance and support to the oblasts/lo. offices. The ESfunctions more as a regulatory organization than the service-oriented institution needed as the operationalfocal point for providing immediate assistance to retrenched workers, victims of major layoffs and youthin transition from education to work, and for promoting employment creation programs, access totraining, and occupational guidance services. To make the ES effective and efficient in its new functions,a major staff retraining effort would be required, as many ES employees are unaware of the types ofservices required in a transition or market economy. An important start has been made to reorient theES by the development of new procedures and staff training through technical assistance funded from agrant for project preparation.

1.30 Many local ES offices also have inadequate space for processing applications for assistance, lackadequate information on the labor market outside the immediate raion, and need better equipment,including computers. The existing computer systems service unit is inadequately staffed and structuredto support the needed automation of DOE/ES, and both hardware and software operating and maintenancecapacities need to be enhanced with additional qualified staff, equipment and other resources.

1.31 In addition to the problem of unemployment, the restructuring of firms will have an ir.mpact onthe provision of several social services hitherto provided by enterprises, such as housing, preschools andhealth services. The absence of a strategy for allowing firms to shed these services and developcompetitively, while maintaining essential services within the public sector, is an obstacle to enterprisereform and labor mobility. In view of its close links with enterprises, the ES could play an importantrole in developing and implementing policies to facilitate this aspect of the transition.

Training and Retraining

1.32 The education and training systems in the Kyrgyz Republic -were built over many decades andhave many achievements to their credit, including near universal access to basic education, and goodquality and high rates of enrollment in general education at primary and secondary levels. Also, a systemof training in skills for ew.ployment has been put in place which could, if suitably reformed andstrengthened, provide a solid basis for developing the skills necessary for economic recuperation andfuture growth. Vocational training is provided by vocational schools operated by the State Committeefor Training (SCT) as well as by technical schools operated by the Ministry of Education and some sectorministries (for instance, the Ministry of Health). After independence, a number of private training

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providers have also emerged, and are allowed to compete with other providers; however, their courseofferings are limited to a few training areas as described below,

1.33 Skill Needs. There is considerable uncertainty as to what skills will be needed as the economychanges. New economic activity is so far limited, except in retail trade, particularly in the burgeoninginformal sector. However, there is already manifest demand (and a partial supply response by the privatesector, as mentioned above) for skills in areas directly related to the shift to a market economy (forinstance, in business management, banking, accounting and marketing). In addition. other areas of skillshortage can be identified which, if not addressed in time (and there is inevitably some lead time inpreparing for training provision), are likely to emerge as substantial constraints to economic recovery anddevelopment in the near future. Preparatory work for this project which was carried out by a team ofsectoral training specialists suggests that such areas include: hydroelectric power (especially mechanicaland electrical installation and maintenance); agriculture and animal husbandry and related processing ofproducts of these sectors, such as wool, meat, and fruit processing; tourism (particularly hotel andrestaurant occupations and facilities maintenance); computer and other electronic equipment operation andmaintenance; and mining and processing of rare minerals, including a wide range of skills related toproduction, maintenance, and transport. These are also skill areas largely suitable as a basis for smallbusiness development and self-employment.

1.34 The skill shortages described above can in part be attributed to large-scale emigration of skilledpersonnel. For instance, the electric power company reports having lost over 700 skilled workers andtechnicians to emigration over the last three years. Net emigration from the Kyrgyz Republic in 1993amounted to 111,000 persons, a large portion of emigrants (about 140,000 in total) being described ashighly skilled. Over the last few years, more than half a million persons have emigrated. These numbersare large in relation to the total workforce of about 2 million people. (While data on the qualificationof emigrants are not available from official statistics, an enterprise survey is being carried out as aparallel activity to project preparation, and is expected to provide more detailed information concerninglosses of skilled workers.) In addition, training and upgrading opportunities in other FSU republicspreviously provided on a substantial scale by the Soviet government have disappeared or becomeprohibitively expensive for Kyrgyz nationals and enterprises. Furthermore, the country's new situationwith regard to available economic resources and conditions of trade puts a premium on reducing wasteof inputs and on the maintenance of existing material resources; this makes improved operating efficiency(for instance, to conserve expensive imported energy) and careful maintenance of existing physicalinfrastructure and equipment (including motor vehicles) a high priority, and the improvement andmultiplication of the corresponding skills a necessity, since the maintenance of existing plant will becomeincreasingly demanding and iabor-intensive with increasing equipment age.

1.35 Training Institutions. SCT is effectively a vocational training ministry and is the dominantprovider at the skilled worker training level. SCT's 115 schools are distributed throughout the country,provide training for a large number of occupations in industry and agriculture, and have generally goodbuildings and staff experienced in youth training in traditional areas. In the past, total enrollment in SCTcourses typically amounted to about 70,000 trainees with an annual output of about 20,000 skilledworkers, but these numbers have decreased in recent years as a consequence of falling production andlabor demand in state enterprises.

1.36 After independence, SCT has also been made responsible for arranging retraining for unemployedworkers, and has been one of the main providers of such short (one to six months) retraining courseswhich reached a total of 2,300 trainees in 1993. Most of these workers were referred to retraining by

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the Employment Service, and their training paid for from the Employment Fund under contracts directlybetween the ES and the schools providing the training; other individuals paid the tuition fees themselves.Tr.e training programs have consisted largely of shortened versions of existing courses for bookkeepers,managers, etc. and have been carried out by SCT staff and other teachers without adult educationcredentials. The Government plans to make available 10,000 retraining places in 1994 with EF financing.The administrative procedure of direct contracting appears to be working well and ensures a close linkagewith the ES at the local level.

1.37 In spite of many strengths, including good leadership and much good will among staff of theSCT, the training system needs substantial reform in order to serve efficiently and effectively theemerging market economy. The main issues are the following: irrelevance of some training to labormarket needs; lack of a mechanism to determine training demand; the demise of enterprise in-housetraining; limited competition in training provision; limited local capability for training program andmaterials development; lack of curricula, equipment and materials for some essential training areas; lackof modern training methodology, administrative capacity, and teacher preparation for adult education andtraining; lack of monitoring and evaluation of training; and inadequate financing arrangements fortraining. The Government's strategy for addressing these issues is described in Section III below.

The Governmnent's Reform Strategy

1.38 The Government's agenda for economic reform includes price liberalization, removal of subsidies,privatization and restructuring of public enterprises. At the same time, it is very concerned to protectvulnerable groups in the transition period, particularly the poor and the growing numbers of unemployedworkers. The fundamental issues facing the Kyrgyz Government in the area of social policy are: (i) howto develop appropriate instruments for poverty identification; (ii) how to help directly and effectivelythose individuals most in need of public assistance; (iii) how to take other actions to facilitate theeconomic transition process and to improve the employment prospects of the unemployed; and (iv) howto preserve essential social infrastructure; while (v) at the same time continuing to exercise the strict fiscalconstraint mandated by shrinking Government revenues.

1.39 The Govermnent has accepted that substantial policy changes are necessary because the presentsystem of social protection is too complex and fails to address the new challenges brought about by theongoing reform measures. It has adopted a strategy for social protection which stresses that support willbe provided but only to those in need and only in ways consistent with funancial realities. This strategyincludes the following features: (i) social assistance benefits (now delivered as family allowances, breadcompensation payments and "social pensions", etc.) will be streamlined and better targeted on those inacute need, using a new, unified social assistance benefit; (ii) a more reliable mechanism wii. beintroduced to identify the most needy segments of the population and to monitor the changing scenarioof unemployment and poverty; and (iii) labor market policies and mechanisms will be made more efficientin supporting the transition, both through implementing passive measures such as the payment ofunemployment benefits and by promoting new productive activity through programs for labor retrainingand reallocation. This strategy is consistent with the recommendations made by Association social sectorand project preparation missions, and imnportant steps have already been taken by the Government toinitiate it.

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The Association's Assistance Strategy

1.40 The IBRD/IDA Country Assistance Strategy (CAS) for the Kyrgyz Republic was presented to theBoard in the context of the Rehabilitation Credit in May 1993. Based on a strong reform scenario, theCAS set forth a program of policy advice, technical assistance, economic and sector work, and lendingto support the following key objectives: (i) macroeconomic stabilization through balance of paymentssupport; (ii) structural reformns covering privatization, enterprise and financial sector reforms, and privatesector development; (iii) an effective social safety net; (iv) sectoral reforms through operations inagriculture, infrastructure, mining, and environment, and (v) institution building and reinforcement ofthe Government's implementation capacity. The proposed project is entirely consistent with this strategy,and Association assistance in the social sector runs in tandem with its support to enterprise restructuringand privatizatiop.

1.41 Social conditions generally in the Kyrgyz Republic are deteriorating, and therefore the main short-tern priority is providing social assistance to vulnerable groups, and maintaining essential services. Inaddition, necessary enterprise reformn cannot proceed without additional support to assist retrenchedworkers. The liquidation or restructuring of a number of large loss-making state owned enterprises islikely to involve major shedding of labor and put a strain on both the institutional capacity of the ES andthe liquidity of the EF.

1.42 The Association's work on human resource issues in the Kyrgyz Republic is based on acomprehensive sector report', which was funded under the Technical Cooperation Agreement. Theresulting strategy comprises four main elements:

(a) support for key policy reforms and other decisions needed in the short term as set outearlier in this chapter;

(b) support for the development of adequate capacity to address priority short-term needs,especially in social assistance, payment of unemployment benefits, and health. This proposedproject is the main vehicle for capacity building in the social safety net programs. During projectpreparation, considerable effort was made to train staff in these areas, including a series ofseminars to orient and train officials in Association procedures and policies. A separate healthproject is in preparation.

(c) an active program of donor coordination, aimed at ensuring that priority needs arecovered, while avoiding duplication. A local Consultative Group meeting was held in early 1993that focussed on the needs for social protection. As a result, several other agencies are involvedin this project and in parallel initiatives. GTZ is supporting parallel technical assistance in theareas of labor market policy and pre-employment training. The EU-TACIS program issupporting the newly created Social Fund, while UNDP and ILO are providing assistance onoccupational classification and the development of public works policies. Substantial assistancefor the preparation of this project was provided by the Japanese and Swiss Governments, and theSwiss Government intends to cofinance the project in an amount of Swiss Francs 4.0 million(about US$2.7 million equivalent), to be administered by the Association and used primarily fortechnical assistance under the employment services and training components. Bilateral donors

4' "Kyrgyzstan: Social Protection in a Reforming Economy". World Bank, September 1993.

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and UNICEF are also active in staving off the potential crisis in health care provision, boththrough the provision of priority drugs and vaccines, and by providing logistical support. Whilethe future health project is being prepared, future Association missions will monitor budgetaryprovisions for the social sectors, including health, and continue efforts at donor coordination inthe health sector with a view to encouraging interested bilateral donors to support actions in, forinstance, training of health personnel.

(d) support for the first steps in medium term reform of labor markets and essential socialservice provision. Even though the short-term prospects for an improvement in the employmentsituation are not bright, a start is needed on programs to facilitate labor mobility and productivitygrowth, and to compensate for the exodus of skilled workers from the country. Thus, this projectalso starts the process of laying the basis for proactive labor market policies and for training, bothmedium term priorities.

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II. LESSONS FROM RECENT EXPERIENCE

2.1 The project is aimed at building Government capacity to help alleviate the social costs ofadjustment through targeted social assistance, improved poverty monitoring, and employment servicesand retraining. Relevant experience in these areas is summarized in the following. However, theuniqueness of the past Soviet experience should be kept in mind.

Experience of Targeted Social Assistance and Poverty Monitoring

2.2 Direct World Bank involvement in targeted social assistance programs is relatively recent, andtherefore lessons from its own experience are fairly limited.' Nonetheless, extensive experience in LatinAmerica and industrial countries reflect the issues involved in the design of targeting mechanisms as wellas lessons to be learnt. At the same time, the general lessons that have emerged from Bank attempts tostrengthen local institution capacity, promote staff training and computerization are also relevant.

2.3 All targeted programs involve a trade-off between the desire to cover all the poor and the riskof wasted resources if extensive coverage of programs results in leakage to the better-off. Experiencepoints to the importance of avoiding creating disincentives to work for those only just above the incomelevel that qualifies for benefits - for example, the targeted food stamp program in Sri Lanka is estimatedto have reduced labor market participation by as much as 3.5 days per month for men and 4.7 days forwomen. Similar disincentive effects have been experienced in Western countries. The lesson is that cashbenefits should not be set at such a high level as to discourage recipients from taking work.

2.4 The project supports the development of social assistance including cash and in-kind benefits.Generally, cash benefit payments are preferred because they leave consumption decisions to the recipient,avoid the distortions in goods markets that may occur with in-kind benefits, and are more transparent inthe budget. None, Aless there are situations in which in-kind benefits continue to be useful. In the contextof high inflation of transitional economies the real value of in-kind benefits is not subject to erosion inthe same way as cash payments are. Certain in-kind benefits may be more easily administered in countrieswith weak administrative capacity. Moreover, many industrial countries provide in-kind assistance to thepoor e.g., food stamps in the United States.

2.5 In principle, means-testing allows for more exact targeting of the poor. Country experienceshows, however, that means tested benefits may not be feasible in many situations, for a number ofreasons. First, there may be problems with monitoring incomes, so that there is a weak correlationbetween actual and observed incomes. Thus in southern Europe, where informal sector activity ispervasive, means-testing is not used in targeting programs. This may be relevant in the Kyrgyz Republic,where unreported private sector activities and incomes are growing rapidly. In such cases, forms of self-targeting are a way to overcome information deficiencies. Second, there may be difficulties in valuingincome, e.g., from agricultural plots; and in assessing the value of animals. Finally, the administrativedemands of a centralized means-tested benefit may be too great in the short-run for governments alreadycoping with the introduction of unemployment and other benefits. In these situations, the potential of

5/ The World Bank now has considerable experience in the area of social funds--these differ fromthe present project, however, in that they are conceived as temporary responses to the social costs ofadjustment, often implemented outside the existing institutional structure of the govermnent.

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decentralized and simpler schemes could be examined. Under the project, the above-mentioned problemsrelated to complicated means-testing mechanisms would be considered in working out a viable targetedsystem. While such a system is put in place, encouragement would also be given to cost-effective in-kindprograms and innovative delivery systems using schools, welfare committees, and NGOs. Suchtechniques will be piloted by a technical assistance team to be fielded witai grant financing.

2.6 In Latin America and to some extent in Africa, the principal instrument for social supportintervention has been the social fund. This approach is appropriate in countries where no system forsocial assistance exist, and depends in part on the private sector to implement infrastructure rehabilitationprojects. Neither condition applies n the Kyrgyz Republic where reform of the existing system of socialprotection appears preferable. However, there is also a consensus that public works programs could helpto alleviate unemployment and produce useful output; therefore, provision is made under the presentproject to implement a pilot program of public works.

2.7 Poverty monitoring will provide important information for policy makers and program design.The World Bank has, since 1980, undertaken over 16 individual and household surveys (often known asLiving Standard Measurement Surveys, LSMS). The LSMS is known for its short turnaround timebetween the end of data collection and availability for analysis. However experience shows that theoverall time taken to implement a survey depends on the starting point in the particular country--adequacyof the sample frame, availability of equipment and managerial expertise. The extent to which institutionalcapacity building has occurred through LSMS has varied significantly from country to country. TheKyrgyz Republic enjoys a relatively good position in this sense, particularly given the long Soviettradition in carrying out Family Budget Surveys. The project has been designed to build on thisexperience to improve the design of surveys and also would take specific actions to ensure the practicalusefulness and application of outcomes for the design of social policy.

Labor Market Policies and Employment Services

2.8 Research in industrial countries has shown that effective employment programs combine reactiveand active measures (e.g. unemployment benefits with job search assistance and training). Activemeasures often need complementary mechanisms if they are to be cost effective (e.g. employmentcounseling and assessment before training). At the same time, according to a recent World Banksurvey," it is critical that a legal and budgetary distinction be made between the source of financing forincome support, and that for active employment programs. Otherwise, evidence suggests that incomesupport expenditures will "crowd out" investments in active measures during periods of highunemployment, just when the need for the latter becomes more acute. As noted above (para. 1.27), thiscould become a serious problem for the Employment Fund and is the reason why the Association isseeking changes in the present budgetary arrangements.

2.9 In industrialized countries, there has been a shift of public resources toward active policies,particularly counseling and training, reflecting the growing importance of human capital development,and a decline in public works and wage subsidies as a means of combating unemployment. Employmentservice evaluations in a number of countries have demonstrated that counseling, job search assistance andplacement programs are cost effective uses of public funds in expediting the redeployment of labor. Suchevaluations take into account a range of benefits flowing from more rapid redeployment, including

6' Developing Effective Employment Services, Draft, June 2, 1992, EC2HR, para.99.

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additional labor and capital earnings, tax revenue, national insurance contributions, and savings onunemployment benefits. In the conditions of the Kyrgyz Republic, where rural employment predominatesand the immediate prospect is for a large amount of long-term unemployment, such proactive measuresneed to be introduced selectively and focussed on areas where they are likely to have most impact. Forexample. the substantial layoffs expected later in 1994 as a consequence of enterprise restructuring wouldtake priority in the program; and counseling to prepare workers for a new labor market situation whereindividual initiative and entrepreneurship is rewarded will be an important component of such measures,as will training in selected technical and self-employment skills.

2.10 Accumulating experience of mass redundancies points to the value of establishing on-siteeniploynient services as early as possible before the actual layoff date, and the importance of advancenotices. The most effective programs appear to be those where both employers and workers are directlyinvolved in the design and delivery of services. This approach has been followed in Canada, and is beingadapted and used in Hungary. In Canada, between 1971 and 1981, labor-management committees, setup with the assistance of the Industrial Adjustment Service (IAS), found 66 jobs for every 100 workersdisplaced, usually within a year. On average, IAS assistance reduced the jobless spell by two weeks(thereby virtually paying for itself). In the Kyrgyz Republic, mass layoffs are very likely to take placeon a substantial scale, and the corresponding program to handle them have been included and designedbased on, inter alia, available information on the Russian and Canadian experience.

2.11 Staff are a critical input to employment services, particularly as the emphasis shifts to activepolicies, as distinct from benefit delivery. Increasing demands placed on staff (with rising unemploymentand more active policies), combined with limited funds, have created serious problems with staffrecruitment and training even in well established employment services. Based on such experience, theproject would emphasize adequate staffing of the employment services at both central and local levels.Experience also shows that ES staff productivity can be svt,stantially enhanced through computerization,and the proposed project envisages a limited program of computerization.

Training

2.12 Experience of training in industrialized countries has been summarized in the recent OECDpublication "Employment Outlook" (OECD, July 1993) which concludes that training programs, jobsubsidies and counseling to job-seekers, if well targeted and appropriately implemented, have the potentialof reducing unemployment. OECD's analysis suggests that training can lower structural unemploymentthrough two main routes. First, it can enhance the ability of so-called "outsiders" (the long-termunemployed or first-time job seekers) to compete more effectively for jobs, thereby weakening thebargaining strength of "insiders" in wage formation. Second, it can promote more efficient matchingbetween job-seekers and available vacancies.

2.13 Studies have been carried out in several countries of the employment effects and economic returnsof retraining. As for retraining programs in reforming socialist economies, available information onoutcomes is still limited to the anecdotal. A Bank-commissioned study of the Mishkolc Training Centerin Hungary showed a 45% job placement rate one month after training, and 60% after six months; thiswas after retraining of an average duration of 4.5 months, in an area with 20% unemployment. A largeBank-supported retraining program in Mexico has been extensively evaluated by the Bank. Theevaluations show that for unemployed, well-educa.ed adults with prior work experience, the averagemonetary benefits of the retraining more than outweighed not only the direct training cost, but also thecosts of the several times larger cost-of-living allowance. The economic return to the program was

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mainly in the form of shortening of the period of unemployment, although for adult males eamnings alsoincreased significantly. The conclusion is that targeting retraining on suitable individuals is the key tocost-effectiveness. The project's training component would target adults of characteristics similar to thosementioned.7

2.14 Another feature which has been consistently demonstrated as being of critical importance forretraining to be cost-effective and efficient is the establishment of strong and sustained institutional linksbetween retraining systems and employers, in order to ensure that retraining programs develop and adaptin response to labor market needs and avoid inappropriate investment in training. The linkage must bedirect, with employers involved in the identification of training needs and the design of courses, as wellas providing indtustrial exposure opportunities for teaching staff and placement for trainees for on-the-jobtraining. In the proposed project, the establishment and training and support of industrial advisorycommittees for training. at the central and local levels, would be a major strategy to ensure such linkages,and would be covenanted in the credit agreement.

2.15 There are no clear precedents for training interventions in the kind of situation likely to be facedin the Kyrgyz Republic and elsewhere in the FSU, where the collapse of output has been unmatched, andwhere unemployment is likely to be large and endemic. In addition, with a limited number ofindependent employers as yet operating in a market environment, anticipating labor market demand ismade particularly difficult, and there is a risk of investing in training for skills which will not be needed.At the same time, studies undertaken for project preparation have identified some areas of clear skillshortage (para. 1.33). In addition, much of the training to be provided would consist of preparingworkers for a new experience in a labor market where they carry some individual responsibility for jobsearch and skill acquisition. The main lesson for this project is for training to be limited carefully bothin total numbers and in skill focus to those for which there are realistic prospects, and for an emphasison skills for self-employment.

World Bank Exverience in Institutional Development

2.16 OED analyses of past Bank-supported institutional strengthening operations have revealed mixedresults and have emphasized the importance of the following factors: (i) Government commitment to theproject; (ii) clarity of objectives and procedures; (iii) careful design of staff training programs; and (iv)close supervision by the Bank.

2.17 Direct project implementation experience is limited in the Department. In the case of a somewhatsimilar operation in Russia, processing was accelerated to respond to expectations of a rapid growth ofunemployment. This led to a lack of time and attention to promoting understanding and "ownership" ofthe project among local staff below the most senior level of the Employment Service. In the KyrgyzRepublic, the limited experience so far gained with implementing technical assistance under the

7/ While conditions in the Kyrgyz Republic are significantly different from those in Mexico inthe late 1980s, there are also obvious similarities: a major economic restructuring and enterpriseprivatization program which caused mass layoffs at large loss-making state enterprises was undertakenby the Mexican Government at the time, and was exactly what prompted the retraining program; theMexican economy was in a deep depression; and effective unemployment was estimated by the thenleading Labor Ministry employment specialist at about 20%.

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Rehabilitation Credit will be used to help avoid possible problems with the proposed project.Commitment to the project's objectives is believed to be strong at all levels of the Government.Collaboration between the Government and social sector missions has been very good, the Governmenthas shown itself willing to make policy changes, and is clearly looking for advice and financial supportin the areas concemed. The teams which have provided technical assistance for project preparation havebeen very well received and the results of their work are being given very high-level consideration bythe Government: and proposed changes are being carried out in all areas related to the proposed project.

2.18 Clear and mutually consistent objectives have been agreed for the project components, assummarized below; their acceptance by local officials and staff at different levels has been ascertainedthrough a number of actions including thorough information seminars carried out by the pre-appraisalmission. A significant amount of training of Goverunent staff will also be needed for projectimplementation activities. In this context, the project will benefit from earlier training activities carriedout in connection with the ongoing rehabilitation project, for which a week-long project launch workshopwas held for a large number of officials, including several from social sector ministries. Various othertraining seminars (for example on disbursement) are being organized during the next few months for localofficials and staff involved in the proposed project. Finally, priority will be given to project supervision,particularly during the early stages of project imnplementation.

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III. THE PROJECT

Proiect Origin and Evolution

3.1 Project identification was based on the findings of the sector report mentioned in para. 1.42. Toassist the Government in project preparation, the Japanese Government (through the Japanese Policy andHuman Resources Development (PHRD) Fund) and the Swiss Government made available to the KyrgyzGovernment grants totalling about US$2.9 million. These grants have been used to fund technicalassistance for preparation of three of the project's components. which has started the process ofinstitution-building in a very practical and effective fashion. The PHRD grant is now virtually exhausted.Consultant Trust Funds have also been used for preparatory activities.

Project Objectives

3.2 The general objective of the proposed project is to strengthen the Government's capacity (a) toreduce the social costs of the transition by making social assistance more efficient and better focused onthose most in need, and (b) to facilitate the transition to a market economy by removing barriers to labormobility and improving the use of human capital. The project is therefore mainly a capacity buildingoperation, and while it is designed to assist the Government in addressing immediate needs such aspoverty and unemployment, its main benefits will materialize in the medium termn. The specific aims ofthe project are: (i) to establish methods to identify the poor and make existing welfare programs moreeffective and efficient in providing necessary social protection, especially to the most vulnerable groups,and (ii) to make the employment services and the tiaining system more efficient and effective in assistingthe unemployed and promoting the redeployment of labor.

Rationale for IDA Involvement

3.3 The Kyrgyz Republic is at the forefront of FSU republics in terms of its program for transitionto a market economy, but lacks the institutional capacity to carry out necessary reforms in the socialsectors on its own at the pace necessary to support the transition. As described in the Memorandum ofthe President on the Rehabilitation Credit, strengthening the social safety net to protect vulnerable groupsduring the reform process, assisting in labor force restructuring and developing the human resource skillsand institutional capacity needed to support a market-based economy are key Association medium-termobjectives. These objectives are all served by the proposed project.

Donor Coordination

3.4 Active coordination has taken place among donors with respect to social sector issues in theKyrgyz Republic. In addition to the expected cofmancing of the proposed project by the SwissGovernment (para. 1.42), several donors have already committed themselves to financing andimplementing activities which are parallel and complementary to the project, namely:

The European Union's TACIS Program will provide technical assistance to MLSP toundertake the reform of social insurance, including the establishment of the Social(insurance) Fund;

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o Germany's GTZ will provide advisory services to MLSP and SCT complementary tothose provided under the proposed IDA project for the development of labor market andpre-employment training policy; and

o ILO will provide, with UNDP financing, technical assistance to assist MLSP in (a) thepreparation of an occupational classification system based on the international ISOCsystem and corresponding ILO experience in Russia, and other labor market studies, and(b) the development of a standby public service employment program.

3.5 These agreements on parallel activities by other donors have made it possible to simplify theproposed IDA project. Financing is already secured for all of these activities, and GTZ technlicalassistance is already in the field. The main uncertainty of this parallel assistance relates to the possibletinting of EU-TACIS activities.

Project Description

3.6 The proposed project would, over four years, support the reform of social assistance (total cost$7.5 million), poverty and unemployment monitoring ($3.7 million), employment services ($2.9 million),and training ($5.8 million). The project would also finance coordination, monitoring and evaluation ($0.9million). Total base costs are estimated to amount to $18.9 million which brings total project costs toabout $20.8 million including contingencies.

Social Assistance Reform Component

3.7 This component would introduce a targeted social assistance scheme based on means-testingthroughout the Kyrgyz Republic, including staff training and reorganization of the MLSP and theDepartment of Social Protection (DSP) to formulate policy and deliver social assistance. This componenthas been prepared by a team of social security consultants and by an anthropologist/gender specialistusing funds from project preparation grants provided by the Japanese and Swiss Governments.

3.8 The objectives of the component are:

(a) to protect vulnerable groups during the tiansition period from undue hardship caused bylarge price increases, unemployment, and the reduction of social service provision throughenterprises;

(b) to introduce targeting into the existing social assistance system;

(c) to separate out and rationalize the insurance component of the social securitysystem;

(d) to ensure the necessary human and financial resources for the operations of MLSP at theoblast and raion levels. The institutional capacity of the MLSP would be strengthened in orderto administer these extra responsibilities; and

(e) to promote and coordinate external donor funding and link such funding with localprojects.

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3.9 The strategy for achieving these objectives includes six main elements:

(a) The establishment and implementation of a viable means-testing mechanism for targetedsocial assistance cash payments,

(b) The establishment of a Special Grant Unit within MLSP which would coordinate in-kindprovision of social assistance vis-a-vis local projects and foreign donors in consultation andcollaboration with national and international NGOs and foreign Govermnents.

(c) The simplification. rationalization, and computerization of the contributory socialinsurance system. reducing processing time, freeing social insurance personnel for redeploymentin the area of social assistance, as well as making the delivery system less expensive.

(d) The strengthening and reorganization of the MLSP aims to enable it to plan, implement,monitor, control and revise the new consolidated and means-tested social assistance scheme withingiven financial limits.

(e) A program for computerization and office automation, and upgrading of raion-levelProtection Departments geared to support all functions related to the above four core areas of theproject efficiently and reliably.

(f) An intensive programt for training and retraining of relevant staff of MLSP for planning,implementing, monitoring, coitrolling, and revising the new and consolidated means-tested socialassistance program as well as productively applying new technical equipment and software to thecore tasks of the project.

3.10 1mvlementation of a means-testing mechanism for social assistance. The mechanism would bestructured to target assistance to those most in need regardless of work history, categorical status or howpeople came to be in their current circumstances. Need would be measured by developing an incometest, including formal and informal cash income, and using disc] sed income (wage income and pensionincome) combined with a set of social indicators such as the number of children in the household and theavailability of family support. Under such an approach, a person's (or family's) access to income fromprivate agricultural plots would be assessed, and then if income is found to be low, a range of socialindicators would be used to further assess need. A standard single rate and a standard married rate forpayment would be enforced, and various add-ons to a basic social assistance payment would be developedfor those who pay a high proportion of their income in rent, and for low-income families with children.This system would ensure that a consistent approach is used to measure need across the country, andwould strive to (a) provide adequate levels of support; (b) provide work incentives to those of workingage who are able to work; (c) be affordable to the Republican budget; (d) be easy to understand andadminister.

3.11 During the project preparation period, a technical assistance team has worked closely with theMLSP staff to begin to target social assistance benefits to the most needy. As a result of this work, theMinistry has created a separate unit within the MLSP to focus specifically on designing a targetedprogram of benefits. Together with the MLSP staff, the assistance team has already identified interimcost-effective options to impro to targeting in order to provide increased levels of assistance to the verypoor. The project would build on this extensive work, and would concentrate on an introduction of aworkable system of targeting of social assistance benefits.

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3.12 Thirty-six person-months of technical assistance would be provided with respect to theestablishment of this means-testing mechanism. The following assistance would be carried out on thecash benefit side of the social assistance scheme:

(a) Design of a workable method of mean-testing social assistance payments including (i)review of the targeting mechanisms already in place; and (ii) analysis of poverty survey findingsto identify and refine key poverty indicators and their relative importance.

(b) Modelling of budgetary implications of alternative eligibility and benefit formulae.

(c) The preparation, piloting and implementation of a simplified and reliable delivery systemincluding: (i) final drafting of a plan for the consolidation of social pensions. family allowances,and bread compensation; and (ii) preparation of computerized accounting and disbursementmechanisms for the calculation, payment, and control of social assistance benefits.

(d) The drafting and implementation of a computer assisted monitoring system to overseepolicy performance, including statistical indicators such as, for example, time series on fractionof families with family allowance; number/share of families below the poverty line according tooperation of the scheme as compared to poverty line defined by survey methods; expendituredevelopment as from baseline; revenue/expenditure ratios; changes in processing time; changesin delivery speed; regional distribution of the above indicators; questions about receipt of socialassistance benefit in Family Household Survey to identify the take-up rate (number of actualclaimants of entitlements).

(e) Analysis to determine the extent of incorrect payments within the social assistance systemand development of a strategy to minimize fraud.

(f) Development of an extensive information program to disseminate benefit entitlement andeligibility rules within all regions and in all main languages (particularly Russian, Kyrgyz,Uzbek).

(g) Revision of social assistance legislation and its delivery system based on results from (i)monitoring and reporting system (including poverty identification by survey methods); (ii)auditing; (iii) input from training program; (iv) financial indicators, and (v) the results of the pilotstudy of office upgrading.

3.13 Establishment of Special Grant Unit. A special unit within the MLSP would be established tocoordinate and target in-kind social assistance as a supplement to the cash component of the socialassistance scheme for those who are very vulnerable. Such a supplement is necessary because (a) certaingoods can not at present be acquired on the open market (e.g. c"al); (b) some people are not receivingpensions and family allowances regularly because of delays due to recalculation of entitlements, and banksrunning out of cash; (c) the real value of pensions and allowances is being quickly eroded by rapidir.tlatiun, (d, there is a significant local variation in the level of in-kind social assistance provisionprovided by local budgets. About twenty person-months of technical asgistance would be provided to putin place mechanisms to target, to disburse, and to monitor grants. Grants will be used for specialprograms such as school feeding programs, delivery of coal to the poorest, nutritional programs in healthcenters, provisions of shelters.

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3.14 This special unit would be staffed by officials released by the proposed reform of the pensioncalculation process. Its main function at the central and local levels would be to raise external andinternal grants and oversee their administration. The funds collected would finance the provision oftargeted in-kind social assistance through grants offered by the Special Grant Unit to local organizations.The tasks of this unit would be to serve as a secretariat for local grant management committees whichwould be set up on the basis of existing raion offices of Social Protection to assess all grant applicationson the basis of agreed upon types of grants and specified criteria concerning grant applications. Thesecommittees would oversee the administration of grants at local level, and would include representativesfrom each of the funded organizations, raion health workers, NGOs, and any other interest groups. Inaddition, this unit would coordinate with NGOs, local health personnel, teachers, and local SocialProtection Department the preparation of lists of areas which need special support for in-kind assistance.This unit will be equipped to manage external donors funding emergency assistance. This unit within theMLSP would also be responsible for monitoring and evaluation of funded projects.

3.15 Under this sub-component, a set of criteria would be developed against which grant applicationswould be assessed. Present in-kind assistance criteria would be substantially modified, since some partsof the population do not get assistance. Operational guidelines and a mechanism for regional targetingof the in-kind component of the social assistance scheme would be developed for this purpose and wouldinclude: (a) obtaining raion data on need and assistance already provided, (b) analysis of data providedand follow up on gaps, (c) identification of priority areas, (d) drafting a procedures manual for obtaining.assessing, awarding and evaluating grants.

3.16 Reform of the social insurance system. A new Social (insurance) Fund (SF) has been created tobe responsible for contributions collection and record maintenance, while all social policy, including thesocial insurance legislation and the delivery of social insurance benefits remains the responsibility of theMLSP. The EU/TACIS project objectives are aimed at the medium to long term and will primarily focuson the revenue and record maintenance aspect of social insurance and will -involve a major effort tostrengthen the institutional capacity of the SF. An auditing program would be established to ensureaccountability and the financial integrity of the Social Fund, i.e. that no transfers of money between thesocial insurance scheme and the social assistance scheme shall occur. There would be regular review andmonitoring of these arrangements. The EU/TACIS project will also develop a new social insurance lawand a plan for the phasing out of the old pension system and phasing in a modern social insurancelegislation.

3.17 To complement the EU/TACIS project, the present sub-component will consist of progressivedevelopment of the delivery side of the social insurance system, including the procedures for (a) theapplication of benefits; (b) the award of benefits; (c) the distribution of benefits, and (d) the developmentof an adequate reporting system.' Because of considerable overlap in the delivery of social insuranceand social assistance benefits, it would be expensive and difficult to administer two completely separate

8' The social assistance component is based on the view that it is both possible and necessary tomake a clear separation between social insurance on the one hand and social assistance on the other.The former refers to benefit rights derived from either employee and/or employer contributions,whereas the latter are non-contributory and paid by public budgets, either central or local. While, thecore of the social assistance component addresses social assistance, i.e. means-tested benefits, theproject will also partly address the issue of social insurance through the present sub-component. Thiswill be carried out in close cooperation with the EU/TACIS project.

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delivery systems in the short term. Therefore, a unified delivery structure will be maintained until asignificant separation of the two schemes takes place.

3.18 While improving the delivery of social insurance, the main short-term priority of thissubcomponent is to simplify and rationalize the pension system to allow significant human resources tobe reallocated to administer the targeted social assistance scheme where extra staff is required. In thecurrent budgetary climate, it is not possible to employ more ministry staff to work in the area of socialassistance. Meanwhile, a large number of staff in raion offices of Social Protection concentrate theirentire time on complicated calculations and recalculations of pension payments due to the complexity ofpension eligibility. In addition, high levels of inflation in the past two years hiave required tha pensionsbe recalculated many times over.

3.19 During the period of project preparation, a technical assistance team has made considerableprogress in advising the MLSP on the need to simplify pension categories and to rationalize the existingscheme in order to free up staff to work on targeting of social assistance benefits. As a result of thiswork, pension calculations have been simplified through indexation and a variety of other measures.Under the project, the work to make the social insurance system more transparent and to improve thedelivery mechanism would continue, and would require a total of 11 person-months of technicalassistance. During this period, however, there would be significant collaboration between the technicalassistance team of this project and the EU/TACIS technical assistance team in order to ensure thatmaximum transFarency exists between the two projects, and that all potential overlap conflicts areresolved.

3.20 The following technical assistance would be provided under the present sub-component, andwould concentrate on: (a) preparing operational guidelines for the administrative and financial separationof social insurance and social assistance payments, within a unified delivery system; (b) assisting inimplementation of reallocation of staff from social insurance to social assistance; (c) advising anddeveloping policy options for the rationalization of pensions. This would involve the collection ofdemographic data and other research activities in order to explore options by cost and numbers affected;the goal would be to reduce the number of recipient categories, substantially reduce the number ofworking pensioners, and prepare and implement moves towards a flat rate social insurance scheme; (d)finalization and implementation of a plan for the simplification of benefit calculations and recalculations;and (e) developing a comprehensive information and marketing strategy toward both the general publicand MLSP staff at all levels, and devising a training plan and instructions to promote the reform of thepension system and enhance its operation.

3.21 Technical assistance would also support a staged computerization program for benefit applications,eligibility determination, calculation and indexation of benefit amounts, financial management, monitoringand reporting, as well as control and audit functions. Substantial simplification and rationalization shouldoccur before full-scale computerization.

3.22 Redesigning and stren&thening MLSP functions. To be able to ensure that social policy asformulated by MLSP is consistently implemented nationwide so as to provide adequate and equaltreatment of social assistance clients, the Ministry needs to have the authority and resources to standardizeand control administrative practices and costs at the local level as well as to transfer funds amonglocalities. This is not currently the case. Instead, the administrative funds for running of oblast and raionMLSP offices are financed directly by the oblast and raion administrations from their taxation revenue.Since the ability of different oblasts and raions to collect taxes varies from region to region, the amounts

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allocated to the local MLSP offices are dependent upon the resources available to a particular oblast orraion. As a result, there is inccnsistency within the overall MLSP structure, with the central ministrylacking control over the administrative costs of the benefit and service delivery network and of theoperations of its local offices. The existing situation, and a proposed improved principle with regard tothe financing of operations within MLSP's area of competence are illustrated in Annex 7.

3.23 While the decision to recentralize revenue collection remains the prerogative of the Kyrgyzgovernment, this component would seek to strengthen and streamline the MLSP structure in order toallow the MLSP to gain greater control over the administrative and operational functions of the ministryfrom central to raion level. The new structure of the Social Protection Department within the MLSPentails the following changes: (a) creation of a Strategic Planning Division which would produce, reviewand evaluate plans for social security; (b) creation of a Human and Financial Resources Division whichwould monitor and control financial estimates, as well as make appropriate allocations and pay salaries:(c) creation of a Social Assistance Legal and Policy Division which would be responsible for overallpolicy analysis for family allowances, cash and in-kind benefits, and pensions: (d) the improvement ofthe Social Inspectorate with regional representation at the oblast level, and responsibility for adequatedelivery of benefts and services through its Operations and Service Delivery unit; (e) the formation ofa Computer Services and Training Division. responsible for support, training and maintenance. The in-kind special grant unit as described above would also be established as part of this reorganization.

3.24 Twenty-six person-months of technical assistance would be provided for the preliminarydevelopment of each of the divisions mentioned above, and would focus on specification of tasks andeventual sections, number of staff needed, recruitment and funding of staff, allocation of tasks, divisionof authority, the development of performance indicators, specification of working relationships andclarification of roles to suit the new operational environment. To achieve this, revised forms, operationalmanuals, intra-unit training programs would be developed. Technical assistance would also advise theKyrgyz government and assist in the development of a strategy for the financial management of the MLSPadministrative budget, including a review of various methods to transfer local resources to centralauthority for allocation to oblasts and raions, Clearly, there will be need for additional staff at theMLSP; however, it is expected that this increase of the central ministry can be met in full by thereallocation of personnel released as a result of pension simplification and rationalization, as well as initialcomputerization. In connection with this, a human resources management strategy would be developed.including staffing models, salary and conditions for staff, and incentives for staff (see paras. 3.28 - 3.33).

3.25 The computerization and office automation program. The current level of computerization of theMLSP is low and the majority of computers are located within the pay centers in Bishkek and Osh. MAostof the computers are used as word-processors rather than for record keeping. benefit calculation oranalytical purposes. Computerization would speed up and improve the accuracy of pension calculationand recalculation which will significantly free up resources which can be redeployed to the administrationof the targeted social assistance programs.

3.26 The plan for computerization proposed here uses a phased approach. This is important due to thevery low levels of experience with computerization within MLSP, for instance, the abacus is still inwidespread use among Ministry staff. Such an approach will allow the Ministry to build up its expertiseand skill levels in computer system applications on the job over a period of time and become as selfsufficient as possible in this area. Currently, under a Swiss Grant agreement, the MLSP is beingprovided with hand held calculators for all processing staff, which is the first step to make a significantboost to productivity. Under the project, the MLSP would be computerized to simplify the calculation

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process; once this computerization is in place, computers could be used to facilitate and accelerate thestrategic functions of the MLSP such as budgetary planning, analysis of financial implications of policyinitiatives, program evaluation and monitoring, and finally general office tasks such as electronic mail,word processing and spreadsheets. The whole process of computerization would be supported by atraining program and provision of technical support. Each raion and oblast office would identify amember of staff to be trained as a computer support officer.

3.27 The first part of the computerization program would be to organize all necessary steps for thepurchasing of some basic office equipment such as printers, photo-copiers, fax machines and supplies ofconsumables such as printer ribbons, paper, etc. in order to strengthen the link between the centralministry and the local levels. This equipment would be financed under the project. Work tasks requiringtechnical assistance are: (a) acquisition of equipment; (b) installation and distribution of equipment incenter and oblast/raion levels; and (c) forming and training of the Computer Support Group. UJnder thissubcomponent, 21 person-months of technical assistance and substantive amounts of equipment would beprovided to assist the MLSP to carry out these functions. Assistance would also focus on the constructionand testing of databases, and implementing these in all of the oblasts, starting with the city of Bishkekand the Osh oblast. In addition, administrative and statistical programs would be developed andimplemented in the areas of finance, management, resource monitoring, and control. Lastly, funds wouldbe provided for an office renovation project in order to modernize and improve operations of raion andoblast administrations.

3.28 The training program. The adoption of a strategic focus in the future work in MLSP would bestrongly encouraged to supplement its traditional operational functions. MLSP would assume the roleof policy planning and control of policy performance based on valid empirical evidence, and its staffwould acquire enhanced analytical skills and the ability to put carefully considered options into actualoperation.

3.29 The training program will identify training needs in the central ministry and its different SocialAssistance Departnent divisions, as well as training needs at oblast, raion, and pay center levels. Basedon this it will develop plans for such training and assist in implementing the training program. Thisprogram will consist of both foreign technical assistance (21 person-months), as well as 20 study tripsabroad for the MLSP staff working in the social assistance area. It will also support the costs of in-country training courses and training materials.

3.30 The types of training will vary depending on the level of management. Staff at the executive,senior and middle management levels of the MLSP will require extensive training in strategic planningand managing outcomes against stated objectives. Management training will be necessary for Departmentheads and managers of pay centers and raions; particularly in the areas of planning, time management,needs evaluation and performance standards. Likewise training will be given to supervisory staff at alllevels. People management skills is another important area that will require extensive training. Inaddition, these staff will require training to strengthen analysis and policy development skills.

3.31 During the first 12 month period technical assistance would support the MLSP to: (a) set up atraining structure within the Ministry, continue the process of trainer training and ensure the acceptanceof training within the organization; (b) ensure the implementation of strategic and business planningtraining for senior managers and also general management and supervision training across the Ministry;(c) ensure the training of oblast, pay center and raion staff involved in the technical changes, i.e. pensionscalculations, family allowance payments, and the new processes of targeted social assistance; (d) support

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the implementation of computerization within MLSP by providing computer training for all necessarystaff, and ensuring that there are appropriate staff with specialized computer knowledge in programmingand in software and hardware support.

3.32 Technical assistance would also help to establish a training infrastructure at the local level withtwo or more staff from oblast and Payment Centers who would take on the responsibility for organizingand running courses for new staff, as well as for organizing training seminars for experienced staff ona regular basis. An additional person from each raion would be nominated to be responsible for theadministration of training and information dissemination within the raion.

3.33 After the first year, the MLSP training program would: (a) develop skills and knowledge needsof staff across the Republic, and setting performance indicators; (b) ensure consistency of training inprocedures across the Republic; (c) ensure maintenance of quality trainer skills over time; (d) monitorand evaluate the impact of the training structure; (e) adapt the training structure following evaluation; (f)ensure that there are staff capable of policy development and implementation within the centraladministration; (g) develop higher educational qualifications in social policy, policy design andimplementation, social work and other related areas through local universities or colleges; and (h) ensurethat each oblast and raion office has staff capable of maintaining both computer hardware and softwarefor the long term computerization.

3.34 The following actions concerning this component would be subject to dated covenants in theCredit Agreement:

o reorganize the central MLSP in accordance with the agreed new structure and establishcentral Ministry control over the administrative and financial operations of MLSPservices at oblast and raion level, by June 30, 1995;

* Prepare a redeployment plan, acceptable to the Association, to strengthen socialassistance staffing by December 31, 1994, and implement this plan by June 30, 1995.

' Define a poverty line based on a new consumption basket by December 31, 1994.

* Implement a single consolidated social assistance benefits and the new system of targetingby June 30, 1995.

Poverty and Unemployment Monitoring Component

3.35 The goal of this component is to strengthen the capacity of the State Committee for Statistics(Goskomstat) to develop and conduct representative surveys of poverty and unemployment country-wide.The component will be undertaken by Goskomstat, in collaboration with the Ministries of Labor andSocial Protection, the Ministry of Health and others concerned with the social sector (e.g., componentsof the Ministry of Finance) to ensure they are able to utilize fully the data collected by this new surveysystem and ensure that the tables and reports produced by Goskomstat meet the needs of Ministries andother government bodies who will utilize these data.

3.36 The strategy for the component is as follows:

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(a) utilize the baseline survey implemented in 1993 to facilitate the development of a new surveysystem;

(b) enable Goskomstat to reform and restructure its household survey system itself, particularlythrough improvements in the sampling procedure to insure that all members of the population,all occupations, all sources of income are accounted for;

(c) strengthen the institutional capacity and arrangements for poverty and unemploymentmonitoring through the provision of technical assistance, computers, other related equipment andtraining;

(d) combine the social statistics and unemployment departments and restructure the workundertaken by staff in the new unified department within Goskomstat.

3.37 The resulting revised system would allow Goskomstat to monitor changes in the distribution ofincome and wealth, the patterns of unemployment and underemployment, and especially the level anddimensions of poverty in the country. Dietary intake and nutritional and health status would also bemonitored.

3.38 An initial baseline survey of 2,000 individuals, households, communities and food markets inthese communities has been completed, and provides a set of data and a set of questionnaires which willserve as the core of the initial new household survey system. The national sample frame and thequestionnaires developed by a Russian/American team in collaboration with Kyrgyz colleagues, as wellas the training materials and other materials, will enable Goskomstat to fulfill the new project toundertake more quickly its role in monitoring social conditions in the Kyrgyz Republic. The four-yearproject will use and build on the experience of this baseline survey.

3.39 During the project period, four national turveys (and potentially seven) of approximately 2,000households and all the individuals living in them and their communities and food markets will beundertaken by Goskomstat, using a panel approach. The core survey to be used for all surveys willinclude the components measured in the baseline survey, though there may be additions or minor changesin wording and sequencing of the questions. The first survey will be undertaken in year one andcompleted by the end of that year, followed by one to two surveys in each subsequent year. Threeadditional modules on family planning, agriculture and energy would be added to the main survey, andconducted during the second, third, and fourth project years. For each survey, a set of detailed tableson income, poverty, unemployment, and related factors will be prepared. These reports will bedistributed to all goverunent agencies and also prepared in English for distribution to the World Bankand other international bodies.

3.40 The effort of Goskomstat to revise its household and community survey system will be assistedby an outside organization which would provide te hnical assistance at a high skill level in the wide rangeof survey activities. This outside organization would provide a long-term consultant who will live inBishkek for the period of this project and medium-term and short-term consultants with the skills neededto carry out all phases of this work. Technical assistance (106 person-months) would provide guidanceon sampling procedures, questionnaire development, interviewer training, proper data review throughfield work, data entry, coding, cleaning, and generating reports and tables.

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3.41 In addition, technical assistance would assist in the development of an advisory users group(Goskomstat, Employment Service, Ministry of Labor and Social Protection, Ministry of Health, Ministryof Finance, Ministry of Economy, and the Prime Minister responsible for questions of social assistanceand poverty monitoring). These members would receive the data in tables, but also be provided with thecapacity to use these data (work stations, software, and training). This would enable them to provideinput on questionnaire design, table design, analysis, and to offer advice to Goskomstat on relevantissues. This group would have two one week retreats during every year of the project to discuss thefindings of the surveys and to consult on the design of meaningful policies and interventions to fightpoverty and unemployment in the country.

3.42 Besides technical assistance, this component would provide Goskomstat, the Ministries of Laborand Social Protection and the Ministry of Health with equipment and training. To ensure that thegovernment will be able to carry on poverty monitoring after the four-year project has ended, the focuswill be on providing funding for computer equipment, local training, and training in Europe or the UnitedStates as well as in other republics in the FSU. Training would be focussed on three main areas of dataentry, supervisor training, and interviewer training, and would also contribute to concentrate onimproving sampling procedures, survey research, questionnaire design, variable construction, tabledesign, and use of data and analysis.

3.43 '2oskomstat has already agreed to merge the Departments of Social Statistics and Employment.However. for the component to be implemented efficiently, there will be major shifts in the structure ofGoskomstat and the job descriptions of many staff. Many persons now involved in clerical worktabulating data and tables would be moved to those activities needed by a large scale survey, and betrained to use the new technology. Only one or two staff per oblast and in the central Goskomstat officewill be required to undertake clerical work in handling the data from the family budget survey and theemployment records. Additional staff needed for the collection, computerization, and checking of thenew data will come from positions which can be either eliminated or considerably reduced in number.Duplicate functions served by the social statistics and employment departments of Goskomstat would beeliminated and the scope of work and staff of the current social statistics office would be expanded.Technical assistance would be provided to assist in this restructuring.

Emplovment Services Component

3.44 In order to enable the Government, and especially the Employment Service under the MLSP,to respond to the major challenges facing it as a consequence of anticipated enterprise restructuring(including reform and liquidation of loss-making large state enterprises), this component would aim tostrengthen the capacity of the ES to (a) process and pay unemployment benefits to laid-off workers, and(b) accelerate the redeployment of unemployed workers to productive activity. The component strategytakes full account of the locations and characteristics of major enterprises which are expected to berestructured, and which are concentrated in Bishkek, Chui Oblast, Djallal-Abad and Osh. It wouldinclude equipment and staff training to improve employment service delivery capacity; strengthening ofcounseling, job search and placement activities; development of an outreach program for firms wheremass lay-offs are expected to occur, combined with specific strengthening of the regular employmentservices in the regions most affected. The detailed design of this component has been largely completedwith assistance from a team of consultants specialized in employment services. As described in thefollowing paragraphs, the comnponent would address these objectives through a two-pronged strategy ofstrengthening of ES delivery systems and management systems support.

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3.45 For the component to be implemented as planned, the staffing of the Employment service wouldneed to be substantially strengthened and the organization of the Department of Employment improved.Specifically, in four oblasts where the employment service and the social protection offices are combined,these offices need to be separated organizationally (see para. 3.48 below).

3.46 Strengthening the Employment Services Delivery System. Service delivery needs to be improvedas a matter of urgency, particularly in areas expected to be affected by enterprise liquidations andrestructuring. Based on work already performed by consultants, a manual operational system would berevised so as to be able as necessary to accommodate automation. Several labor market exchangefunctions needing greater assistance would be provided with additional support, including: employeroutreach and job development; job matching and placement; and improved linkages witlh job trainingprograms. In addition, support would be provided for implementing the mass layoff response programin close coordination with the enterprise restructuring program, including the early installation of on-siteemployment services within enterprises with prospects of large-scale labor shedding. Computers andother equipment as well as local office renovation and upgrading would be financed together with a majormanagerial and general staff training effort, including: (a) the development of a model office network inBishkek; (b) the replication of model offices in other major labor markets; (c) the provision of limitedcomputer support and other assistance to selected other sizeable local employment offices; and (d) thestrengthening of the manual systems in the remaining small offices including development of specialapproaches in offices serving rural areas. The project would provide about 66 person-months oftechnical assistance, office automation, furniture and equipment and short-term study tours as follows:

(a) a model integrated employment office network in Bishkek would be developed, includingcomputerization in the district office and five local offices, building on the initial strengtheningof local offices already achieved, and a comprehensive design for a computerized local officenetwork for the Bishkek labor market would be undertaken. Local office policies and procedureswould be revised: (i) local office manual procedures for computerization would be adapted; (ii)operational forms and other documents adjusted; (iii) procedures and processes would becomputerized; and (iv) staffing requirements would be identified and staff training courses andmaterials developed and conducted for seven offices in Bishkek. Training is needed on intakeand registration, client assessment and counseling, job development and order-taking, jobmatching and referral, employer services and support including advisory councils, referral to jobtraining, public works/temporary public service employment and provision of unemploymentbenefit services (eligibility determination, benefit calculation and payment notification tobank/disbursement entity);

(b) following implementation of the Bishkek model, model offices would be replicated inother major labor markets adopting similar restructuring and computerization in Chui Oblast andin other two major urban labor markets in the Kyrgyz Republic -- Osh and Djallal-Abad -- whichare also affected by the restructuring program. These offices would be more modest than theBishkek office as they serve smaller labor markets with fewer local offices;

(c) outside the major urban markets, and with priority given to localities expected to beaffected by restructuring of major enterprises, particularly in Chui Oblast, limited computersupport and other restructuring assistance would be provided to selected sizeable employmentoffices (about 20 local offices and the six oblast offices - e.g. Issyk-Kul and Cholpon-Ata)through provision of automation to calculate benefits and assist in general benefit managementand perhaps perform other programmatic and administrative functions.

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(d) limited assistance would be given to strengthen the manual systems in remaining smalloffices and develop special approaches for serving rural areas, again with particular attention tothe expected effects of the enterprise restructuring programl.

3.47 Management Systems Support. Another requirement to be addressed by the component is to buildadequate management systems support to enable the national leadership of the ES to de%Jop and carryout effective employment policies and programs through the provision of technical assistance and relatedsupport in five key national office functions: (a) policy analysis and development; (b) program planningand budgeting systems; (c) financial management and audit systems; (d) employment service directionand oversight; and (e) computer systems development and support. In addition, training would beprovided to senioL management and staff to give them an understanding of the basic principles andpolicies of the labor market as it functions within the economy. This project component is directed atcreating a general understanding of a functioning labor market and the policy, program and administrativesystems required. The project would provide about 18 person-months of short-term technical assistance,personal computers and office equipment and training, both on-the-job and through short-term study toursabroad, as follows:

(a) establish an effective policy and program development structure within the DOE throughbuilding capacity to identify and analyze employment issues supported by the collection of labormarket and economnic information and develop appropriate policy responses;

(b) develop a structured program planning system supported through a strengthened budgetprocess including improved expenditure reporting by establishing procedures for efficient resourceallocation to meet identified needs and support policy and program objectives, and enhancelinkages between financial allocations and program objectives;

(c) develop an improved financial control system including accounts, reports and auditcapacity to manage resources effectively;

(d) strengthen a field operations support unit in the DOE with a structured policy andadministrative guidance system and improve employment service performance monitoringcapacity; and

(e) establish an operational computer system service support unit and provide additionalcomputers and supporting equipment, together with reference and technical materials.

(f) The effort would also include a review of organizational structure of the DOE to provideadvice concerning the required restructuring of its functions and reallocation of staff, and areview of the Employment Law to advise on needed improvements.

(g) The employment component also includes an impact evaluation of the effectiveness of thetechnical assistance and related support in creating improvements in the providing of employmentservices to assist the unemployed and improving the functioning of the Kyrgyz Republic's labormarket. The evaluation of the project effectiveness will identify any adjustments needed in thetechnical assistance effort as it is being implemented as well as to provide guidance to futuretechnical assistance to the DOE/ES.

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(h) A major part of the technical assistance effort would be to provide senior managementand staff training. Short-term study tours abroad would provide access to technical informationand provide a broader understanding of labor market policies.

3.48 The required strengthening of the Department of Employment and the Employment ServiceOrganization and Staff, which will be covenanted in the Credit Agreement, includes action to:

o increase the staff of the DOE to a total level of 61 positions by October 31. 1994:

o reorganize the DOE based on the management systems changes developed during projectpreparation technical assistance by December 31, 1994;

° modify the overall employment service staffing distribution to better support local officesin areas of high unemployment by December 31, 1994; and

e separate the employment service oblast offices from social protection offices in Naryn,Issyk-Kul, Osh and Djallal-Abad by December 31, 1994.

3.49 Assistance to the Divestiture of the Social Assets of Enterprises. An amount of $0.5 million hasbeen allocated under the project to fund technical assistance and training to (a) assist the State PropertyCommittee and enterprises with the process of divestiture, especially of those assets which do not haveimportant social externalities and therefore could be privatized, such as vacation homes and canteens; and(b) assist oblast government in planning for the takeover of those social assets which do have importantsocial externalities and which would have to be run by the local governments. The technical assistancedescribed under (a) above would be provided in close cooperation with PESAC and tne proposed Post-Privatization Project. The preparation of a detailed plan for the implementation of this subcomponentby December 31, 1994 would be covenanted in the Credit Agreement and its approval by the Associationwould be a condition for disbursement under this subcomponent.

Training ComDonent

3.50 Government's Training Strategy. The Government's strategy to address the training issuesreferred to in para. 1.37 above comprises the following elements:

O to assist SCT in determining areas of effective labor market demand for training and helpdefine objectives and contents of training programs so as to respond to enterprises' needs,curriculum advisory committees are being set up, with strong representation ofemployers;

o to diversify sources of financing and improve training effectiveness, cost recoverythrough tuition fees has been introduced for adult and higher education and training;

* increased efforts will be made to inform the public about available opportunities fortraining and employment, including opportunities for small enterprise development andself-employment;

* to reduce costs and improve efficiency, curricula for pre-employment training of skilledworkers are being rationalized by reducing the number of specializations, particularly

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those in low demand, and by reducing course durations to the minimum necessary foreffective training;

e to encourage private provision of training, training information including new curriculaand training materials obtained and developed by the SCT will be made available to allinterested parties at cost;

o SCT will make its training capacity available to train trainers for private and corporateproviders at cost:

0 to facilitate the redeployment of redundant workers and provide skills needed in the labormarket, retraining opportunities are being expanded by increasing the number of SCTcourse offerings in areas of market demand;

° retraining services will be procured from public, corporate, and private providers undercompetitive procedures: and

O continued advice and assistance will be sought from the Association and other donors inorder to further develop training policy and strategy.

3.51 Component Objectives. To assist the Government in developing and implementing its strategyfor reforming the training system into one capable of responding flexibly and efficiently to changing labormarket requirements, and especially to support its efforts to broaden and improve training opportunitiesfor adult workers displaced by restructuring and enhance their potential for self-employment, the trainingcomponent would have the following objectives:

(a) to develop a comprehensive policy and strategy for adult training and retraining to ensurethat training is demand-driven and coordinated, within a modern system of lifelong retraining andupgrading, with the policy for youth pre-employment training being developed with the assistanceof GTZ. This would include the establishment of curriculum advisory committees with strongemployer representation, to ensure that training programs and investments are guided by informedestimates of the effective demand for skills in the labor market;

(b) to strengthen the capabilities of SCT, and particularly those of its Methodology and StaffTraining Center, to collect, adapt, and develop training programs and materials and train trainersfor priority skill areas identified by the advisory committees, particularly programs aimed towardsself-employment and small enterprise development, and to make these materials available totraining clients, providers, and other interested parties; and

(c) to assist in the establishment of a minimum necessary, modem training capacity in sixselected areas of training which meet the criteria of demand for skills and absence of othertraining provision. This would be done through the equipping of six model training centerstentatively devoted to the areas listed below:

o mechanical maintenance, including motor vehicle maintenance;

0 electrical equipment installation and maintenance;

32

0 electronic apparatus and systems installation and maintenance:

o building and civil works maintenance:

* hotel and tourism sector training; and

a small farm teclhology and management, and agricultural and anitnal husbandryproduct processing.

3.52 Component Activities and Inputs. The component would be supported by a total of 127 personmonths of technical assistance. This would provide advice on: training policy and organization;curriculum and training materials adaptation and development tor adult training, including skills for self-employment and small business development: the organization of an Information Center/clearinghousefor curricula and materials with adequate capacity to serve training providers; training of trainers; trainingarrangements, facilities and equipment for the specific areas of training mentioned above; and anextensive program for monitoring and evaluation of training, including a system of regular tracer studies.The component would also include substantial training for SCT staff through local seminars and courses,training courses and study tours abroad. It would provide media and training equipment and materials,for administrative, curriculum development, and direct training purposes; and limited civil works tomodify facilities at training centers to accommodate new equipment and methodology. In particular,SCT's Methodology and Staff Training Center would be strengthened and equipped to develop curriculaand materials and introduce training in adult training methodology. This would require its staff to besubstantially increased by at least 12 positions, which could be achieved through the realloca*ion ofteaching positions made redundant by the recent fall in youth enrollments.

3.53 The training component has been prepared by a team of specialists in retraining organization andmanagement, sectoral training, and adult education curriculum and methodology. The six priority areasfor training to be supported through selective investment in facilities and equipment as listed above wereidentified by SCT in collaboration with representatives of employers and sectoral training expertsspecializing respectively in industry/infrastructure, services, and agriculture and agricultural productprocessing, and have been approved as areas of priority by the national training advisory committee.Centers to be supported have been selected based on agreed criteria which are listed in Annex I andinclude suitability of specialization and location in relation to those of potential employers, managerialcapacity, and adequacy of staff and facilities. All six model centers have been identified and have beenassessed as suitable by the respective training experts and in four cases, also by the appraisal mission.A list of the selected model centers is also included in Annex 1.

3.54 Alternative Interventions. The following alternatives to the proposed project interventions werenot considered suitable or implementable:

(a) direct support to private training institutions. The possibility was considered of assistinga small number of emerging private training providers through, for instance, provision of modemcomputer equipment for training in word processing and other applications. However, this wasdeemed impractical in view of the weak organization and prospect of financial instability ofavailable private providers; the legal problems of making state property available to private firms;and foreseeable problems of implementation and supervision in a difficult environment; and(b) direct support to training in enterprises. This is an attractive option in principle but hasproblems under present conditions in the Kyrgyz Republic and was discarded as an alternative

3

because most existing enterprise in-house programs are either directly geared to products orproduction processes which are not viable in the new economic situation, or very specialized soas not to offer the benefits offered by broader training programs. In fact, direct support toenterprise training in the present situation would most likely contribute to preserving inefficientindustries than contribute to change. On the other hand, reforming enterprises could be assistedin training a new workforce through the regular retraining prog, am supported by the project, andsuch training could be subsidized from the Employment Fund if trainees qualified for it.

3.55 As part of project appraisal, a more complete statement of policy and strategy for training wasdiscussed with the Government. This statement was agreed upon at negotiations and is attached (Annex1). It seeks to enunciate a strategy which establishes the incentives and institutional mechanismsnecessary to guide the transition of the training system into one whose production and development isguided by the demand for skills in the labor market, and which is capable of continuously adapting itsprograms to changing demand; within which public, corporate, and private training providers can competeon equal terms and are subject to suitable quality controls and market tests; and in which the sharing offinancing of training among individuals, enterprises, and the public purse is guided by sound economicprinciples. The statement includes policies mandating cost recovery for publicly provided adult trainingand retraining courses and other policies to encourage the development of a competitive market fortraining, including an undertaking to provide information on available curricula and training materials toall interested parties at cost. Provisions are also included for improved monitoring and evaluation oftraining, including graduate tracer studies, as is an undertaking on the part of the Employment Serviceto make continued funding for any kind of training contingent on satisfactory results in terms of theemployment of graduates.

3.56 Conditionality. The following actions would be subject to dated covenants in the CreditAgreement:

0 establish training advisory committees with employer representation at the selectedtraining centers by December 31, 1994;

o strengthen the staffing of SCT's Methodology and Staff Training Center through thereallocation of at least 12 staff positions by December 31, 1994; and

O inmplement a system of monitoring and evaluation of training, satisfactory to theAssociation, including regular graduate tracer studies, by June 30, 1995.

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IV. PROJECT COSTS, FINANCING, MANAGEMENT AND IMPLEMENTATION

Cost of the Project

4.1 Sununary of Project Costs, Total project costs including contingencies are estimated at aboutUS$20.8 million, $1.1 million of which would be local cost. The costs for the different components areshown in table 4.1 and are presented in detail in Annex 1l

Table 4. 1: SUMMIAR Y OF PROJECT COSTS BY PROJECT ITEM

(in US$ million) % Of % of %f ofl . . Base Foreign Local

Local Foreign Total Costs Costs Costs

1. Social Assistance .4 6.3 6.7 36 37 21.1

2. Poverty and Unemployment .5 2.9 3.4 18 17 26.3Monitoring

3. Employment Services .2 2.5 2.7 14 14.6 10.5

4. Training .5 4.7 5.2 28 27.8 26.3

5. Coordination, Monitoring, .3 .6 .9 i 3.6 15.8Studies

Total Base Cost 1.9 17.0 18.9 100.) 100.0 100.0

Physical contingencies .1 1.1 1.2

Price contingencies" - .7 .7

Total Project Costs2' 2.0 18.8 | 20.8

1/ Contingencies are based on standard inflation estimates and physical contingencies are 5% for TA and training, and 10% for equipment and civil works.2V Costs do not include duties and taxes. Numbers may not add exactly due to rounding,

4.2 A summary of project costs by category of expenditure is given in Table 4.2. Additional dataon costs and expenditures are contained in Annex 9.

Basis of Cost Estimates

4.3 The costs for equipment and material have been based on current prices. Technical assistancecosts have been estimated on the basis of recent fees paid and the zost of accommodation and subsistencein the Kyrgyz Republic. The person-month costs for specialists include housing, relocation costs,salaries, subsistence, office services, fees, overheads and recruitment costs. Base cost estimates reflectprices as projected at the time of negotiations (May 1994).

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Table 4.2: PROJECT COSTS BY CATEGORY OF EXPENDITURE'

EXPENDITURES US$ thousands % % TotalForeign Base costs

Local Foreign Total exchange

Technical Assistance 0 9,335 9,335 100 50

Foreign training 0 1.160 1,160 100 6

Local training 400 0 400 0 2

Civil works 90 510 600 85 3

Supplies and Equipment 0 5.666 5,665 100 30

Vehicles 0 170 170 100 1

Divestiture Subcomponent 350 150 500 30 1.3

Recurrent costs 1.017 0 1.017 0 5

Total Base Costs 1,857 16,990 18,847 90 100

Physical Contingencies 99 1,140 1,239 90 7

Price Contingencies 0 688 688 92 4

TOTAL PROJECT COSTS 1,956 18,818 20,774 91 110

" Numbers may not add exactly due to rounding.

Customs Duties and Taxes

4.4 Project costs do not include any estimates for taxes and duties. The Government has confirmedthat equipment and goods imported directly for use by Government ministries are exempt from duties andtaxes. Reimbursement for locally procured goods and services under the credit would be made on thebasis of 100% of local expenditures (ex-factory cost) and 75% of local expenditures for items procuredlocally.

Contingency Allowances

4.5 Price contingencies have been based on standard dollar inflation forecasts. Physical contingenciesare set at 5% except for equipment and civil works (10%). Project costs and contingencies are estimatedin US dollars only, since inflation rates in local currency (the Som) are difficult to forecast with anyprecision.

Foreign Exchange Component

4.6 The foreign exchange component was estimated as follows: (a) training equipment and materials,computers and related equipment - 100%; equipment - 100 %; (b) international specialist services andstudy tours - 100%, and (c) civil works - 85%. These percentages have been determined by: (a)

36

assuming that almost all equipment would be imported: and (c) assuming that all project financedspecialists would be foreign unless otherwise specified (e.g.. interpreters). Including contingencies, theresulting foreign exchange component is estimated at US518.8 million, or about 91 7 of total costs.

Project Financing

4.7 The total project cost of about USS20.8 million equivalent would be financed by an IDA creditof SDR12.0 nijillion (USS17.0 million equivalent), by a grant from the Swiss Government in an amountof Swiss Francs 4.0 million (USS 2.7 million equivalent)). and by Si.1 million equivalent KyrgyzGovernment counterpart funds. IDA would finance $0.9 million of local costs and 81.75% of total projectcost. The Swiss Government would finance 13.0 7 of total project costs, bringing total donor financingto 94.7% of total project costs. This is justified on the grounds of the country's poverty and fiscalefforts, and to ensure that the project's size is sufficient to produce impact. Project financing would bein accordance with Table 4.3. The Swiss cofinancing grant would be administered by the Association.The fulfillment of the conditions of effectiveness of the Swiss cofinancing grant would be a condition ofeffectiveness of the IDA credit (cross-effectiveness clause).

Table 4.3: Financing Plan

Local Foreign Total

(in USS million)

Government of Kyrgyz Republic 1.1 0 1.1

Government of Switzerland 0 2.7 2.7

IDA 0.9 16.1 17.0

Total 2.0 18.8 20.8

4.8 Possible Additional Cofinancing. Efforts to obtain cofinancing for the project in addition to theSwiss cofinancing grant have not been successful, but will be continued in close coordination with theGovernment.

4.9 Recurrent Cost Implications of the Project. Incremental recurrent costs would relate mainly toincreased expenditures for consumable office and training materials, and selective increases in staffingfor instance, for the Employment service. The cost of consumables would be partly offset by includinga base supply of such materials with the equipment procured. Adequate staffing of implementing agencieswould be achieved mainly by reallocating positions within the Government, so that the net cost increasewould be very limited and largely, if not entirely, offset by staff reductions implicit in reorganizationsagreed as part of the project. Assurances would be sought at negotiations that adequate counterpart fundswould be budgeted to meet administrative recurrent costs, and compliance would be monitored as partannual project reviews.

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Overall Project Management and Implementation

4.10 While project components would be implemented by the respective implementing agency ordepartment, overall coordination and common implementation functions (project accounting, procurement,and disbursement) would be entrusted to a Project Coordination Unit (PCU). The PCIJ would report tothe First Vice Prime Minister (who is responsible for social protection at the highest policy level of theGovernment) and would be staffed with a Director/Project Coordinator, an accountant, a secretary, atechnical assistance administrator, a procurement specialist, and a disbursement specialist. During thefirst 24 months of project implementation, a full-time procurement consultant will be supporting the PCU.A "Component Coordinator" (CC) for each component has been selected from existing staff in eachparticipating agency. The CCs would function as the focal points for all activities related to the projectfor their respective components, and would report directly to the Minister or Head of each agency.Selective strengthening and reorganization of implementing agencies (the strengthening of the SocialProtection Department in MLSP and the creation of a Social Sector Division in Goskomstat) would beincluded in project conditionality. The PCU Director has been selected and is being appointed, andcandidates for the other PCU positions are being identified. The Director was previously the head of theProject Implementation Unit for the Rehabilitation Project and brings much needed implementationexperience to the PCU, and will be able to liaise with the Rehabilitation PIU for assistance onprocurement and disbursement as well as other issues until such time as his own staff is fully trained.The experience of initial implementation of the Rehabilitation Project is being carefully reviewed in orderto incorporate the lessons learned in the detailed terms of reference of the Unit and the support providedto it. The establishment of the PCU in accordance with agreed terms of reference and the appointmentof its Director were conditions for negotiation of the Credit. these conditions have been met. Theappointmenit of an accountant, a secretary, a technical assistance administrator, a procurement specialist,and a disbursement specialist would be conditions of effectiveness. The maintenance of the PCU fullystaffed throughout the project imiplementation period will be covenanted in the Credit Agreement.

4.11 A Project Council (PC) has been created to oversee project implementation. The PC is chairedby the First Vice Prime Minister in charge of Social Policy and includes the Minister of Labor and SocialProtection, the Chairman of the State Committee for Training, the head of the State Committee forStatistics and the President's Advisor for Social Sectors. The PC will meet once every three months ormore often if deemed necessary by its chairman. Components coordinators will be invited to PCmeetings and the PCU will serve as its secretariat. The PC will review and discuss all issues linked toproject implementation that cannot be resolved by the implementing departments and the PCU.

4.12 To support effective and efficient implementation, a detailed Implementation Manual (IM) is beingprepared for the project. The IM will include detailed implementation plans and schedules for eachcomponent with benchmarks for monitoring of implementation progress, and draft terms of referencefor all technical assistance to be provided under the project. Technical assistance to develop specificmonitoring and evaluation pro, rams for each component is being provided as part of preparationassistance financed from grant :unds.

4.13 Each implementing agency would be responsible for implementing the actions related to thatagency, prepare the technical specifications of the equipment and materials to be procured and draw upthe terms of reference for any additional consultant services needed. The CCs, with support from thetechnical assistance, will be expected to ensure that the relevant units in the each implementing agencycontribute to the tasks to be carried out under the project.

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4.14 The PCU would develop a reporting system with quarterly technical assistance progress reportsto the Government and the Association. These reports would be prepared by the PCU on the basis ofimplementing agencies' progress reports. There would also be periodic financial reports to theAssociation based on the Association's existing requirements and procedures. A comprehensive set ofkey performance monitoring indicators is contained in Annex 4 and will be used for monitoring of projectimplementation and impact by supervision missions. In the Credit Agreement, provisions will be madefor annual and mid-term reviews of the project. The annual reviews would be carried out in connectionwith regular supervision missions in September each year, and would focus on the budgeting requirementsfor social protection for the forthcoming fiscal (calendar) year. This review would be based on estimatesprepared by the MLSP, with support from contracted technical assistance. and formal consultation withthe association would be required before submission of the budget request to parliament. At the mid-termreview, to be implemented by October 31, 1996, in formal consultations between the Government andthe Association, the experience of the ann ual estimate exercises would be evaluated in order to assess theeffectiveness of the process, and to identify necessary improvements. There would also be a review ofthe methodology used for assessing those in need of social assistance, and options for providing supportto them. Also, the Government's progress in fulfilling covenants in the social assistance area, particularlyas regards targeting and consolidation of benefits, and the staffing of social assistance activities, wouldbe reviewed, together with the results of the regular monitoring of the effectiveness and impact of socialassistance which is being built into the component and the terms of reference of technical assistance forall project components. The Government would be required to prepare and submit to the Association byDecember 31, 1996, an action plan and timetable to address the shortcomings in funding orimplementation identified during the mid-term review.

Social Assistance Reform Component Implementation

4.15 As this component is the most complex and costly one of the four components, it will require astrong and greater management effort. In order to enhance project implementation, the MLSP will beassisted by an expatriate team that will provide technical assistance during the duration of the project.This team will consist of a locally based specialist during the four years (two years full time and twoyears half time) of the project, as well as a senior advisor who will provide overall policy advice andrecommendations on a short term basis. Other short-term consultants will also provide support in specifictechnical areas. This entire team will work closely with the CC, who would also ensure that technicalassistance teams are provided with necessary and adequate logistical support and interpretation services.The management team will be provided with an office, office equipment, a secretary, and a full-timedriver.

4.16 The locally-based specialist's main duties would include: (i) coordination of technical assistance;(ii) overseeing that implementation arrangements are carried out according to schedule; (iii) workingclosely with the CC; (iv) monitoring and ensuring that the social assistance component is implementedat the local level; and (v) assist the MLSP project coordinator with the provision of interpretationservices, and providing advice on other logistical issues.

4.17 The senior advisor would advise the Minister of Labor and Social Protection on major policy andtechnical issues in the field of social assistance and monitor the overall work of the technical assistanceteam. He/she will carry out two to three short missions per year to the Kyrgyz Republic and communicateregularly with the social assistance specialist to be kept informed of all major project developments.The senior advisor will also be responsible for overall evaluation of the project's success and will liaisewith supervision missions.

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Poverty and Unemployment Monitoring Component fmplementation

4.18 Goskomstat would be responsible for implementing this component; however, it will be assistedby an expatriate technical assistance team which would consist of two consultants who would be recruitedto assist in project implementation: a senior advisor on a part-time basis, and a survey specialist whowould work in the Kyrgyz Republic full time during the four year project period. The senior advisorwould have solid experience with the types of data and analysis to be undertaken and would spend at leasttwo months per year in the Kyrgyz Republic. He/she would also monitor and evaluate projectimplementation. The locally-based survey specialist would serve a management function for thiscomponent and work closely with the CC.

4.19 Goskomstat would provide project office space adequate for a separate office for this managementteam, and provide a full time interpreter, a full time local assistant to the project manager, and asecretary. In addition, one staff vehicle and a driver would be provided.

Employment Services Component Implemnentation

4.20 This comnponent would be implemented by DOE of MLSP and its operative arm, the EmploymentService. A high level DOE official has been identifiedi as the project component coordinator to provideliaison with the PCU. In addition, a DOE project management committee would be established. Thiscommittee composed of senior DOE/ES officials, each with responsibility for specific activities of thecomponent would oversee the carrying out of the specific technical assistance and related activities. Itis anticipated that the effective working relationships and support which was developed during thepreparatory technical assistance effects will provide a sound basis for the implementation of this projectcomponent. DOE would provide the consultants with office space, equipment, reproduction and generaloffice services as well as in country travel support. A senior international advisor would also be engagedto periodically review and assess the project components implementation, and would carry out anevaluation study at the end of the project period.

Training Component Implementation

4.21 SCT would implement the training component. SCT has appointed a five-person Project WorkingGroup which is led by the component coordinator for the training component and reports directly to theChairman of SCT (effectively, the Minister of Vocational Training). The Group includes the Directorof the Methodology and Staff Training Center, SCT's Director of International Affairs, and twoexperienced training center directors. The Group members will function as counterparts to the technicalassistance to be provided under the project and each member will have specific coordinatingresponsibilities for subcomponents, such as staff training and equipment listing and specification. Inaddition, an expatriate senior management advisor will work closely with the Project Working Group.He/she will be based in the Kyrgyz Republic for eight months for the first two years, and for threemonths during the last two years. There is no need to reorganize SCT for project implementation, butas mentioned above, the staffing of the Methodology and Staff Training Center needs to be reinforcedwith 12 additional staff. Specific technical assistance will be provided for the monitoring and evaluationof training, including setting up the graduate tracer system.

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Implementation Schedule

4.22 A detailed implementation schedule for each component will be included in the ImplementationManual and is summarized in Annex 3 (Project Implementation and Supervision Plan). A key task ofthe PCU would be to assist CCs in ensuring tha. the project is in ensuring that the project is implementedthe project in accordance with the schedule. The terms of reference for consultants and the technicalassistance contracts would clearly identify the tasks to be performed; the products to be delivered; andset out performance timetables. The Implementation Manual will contain the detailed benchmarks andother information through which project progress can be tracked.

4.23 Implementation Support. Goskominvest, which is carrying out the on-going IDA financedRehabilitation Project, has established an implementation unit with procurement and disbursementsub-units. The procurement sub-unit is supported by specialized procurement consultants. Thedisbursement functions of the unit are being carried out by a disbursement manager and two assistants.The PCU for the proposed project will be able to rely to a limited extent on the Unit in Goskominvestfor advice on procurement and disbursement work.

Procurement

4.24 The Project Coordination Unit (PCU) established under the project will be responsible formanaging overall project implementation, including procurement of equipment and materials andacquisition of consultant services for technical assistance programs. The PCU will be headed by aDirector who was previously Head of the Project Implementation Unit for the IDA Rehabilitation Credit.An experienced procurement adviser funded from the Credit will assist the PCU during the initial twoyears of project implementation. The terms of reference and terms and conditions of the adviser shallbe subject to prior review by the Association. The procurement of equipment and materials, and selectionof consultants shall be in accordance with World Bank Guidelines and the World Bank's standard biddingdocuments shall be used, with project and country-related specific modification. Table 4.4 belowsummarizes the project elements, estimated costs, and proposed procurement methods.

4.25 The Association is considering providing technical assistance to the Kyrgyz Republic for thepreparation and introduction of an institutional and legal framework for competitive public procurement,following which the preparation of a Country Procurement Assessment Report (CPAR) would be initiated.A CPAR or a Country Procurement Strategy Paper is expected to be completed before the end of FY95.

4.26 Equipment and Materials. Equipment packages exceeding an estimated value of US$ 300,000 willbe procured through ICB, except office equipment and some proprietary procurement software packages,and items required for standardization and emergency procurement, including vehicles. Most of thecomputer and training equipment, of a total estimated value of US$ 3.70 million, would be procuredthrough ICB, using the Bank's standard bidding documents. Some of the software packages which couldonly be supplied by a limited number of suppliers worldwide, and some related minor items of totalestimated value not exceeding US$ 1.60 million, would be procured through LIB.

4.27 Minor items of computer software and hardware, training equipment and vehicles at an estimatedcost of US$ 50,000 or more for each contract and of an aggregate amount not exceeding US$ 1.33million shall be procured through International Shopping, based on comparison of at least three quotationsfrom three different eligible countries. Some minor items of equipment and consumables available locally

41

of a value not more than US$ 5,000, each contract and total cost not exceeding US$ 100,000 shall beprocured through Local Shopping on the basis of at least three quotations from eligible suppliers.

Table 4.4: Summary of Proposed Procurement Arrangements(US$ million equivalent)

Procurement Method

Project Element ICB Other Not Total Costfinanced

.___________________ ._______ by IDA

1. Civil Works .

1.1 Building 1.00 1.00Renovations (1.00) 11 -00)

2. Goods

2.1 Supplies and 3.70 3,03t 6.73Equipment (3.70) (2.33) (6.03)

2.2 Vehicles . 1 92! .19(.19) 1.19)

3. Consultanc -zs___ _ _

3.1 Tee' ical 10.073' 10.07As stance (8.37) (8.37)

3.2 Foreign Training 1.273' 1.27(.97) (.97)

3.3 Local Training .444' .44(.44) (.44)

4. Recurrent Costs 1.07 1,07(0) (0)

Totals 3.70 16.00 1.07 20.77(3.70) (13.30) (0) (17.00)

Notes: Figures in parenthesis are the respective amounts financed by the IDA Credit. Numbers may not add exactly due to rounding.

" Includes LIB purchases for limited-source computer and software procurement (US$ 1.60 million), IS for off-the-shelf items (USS 1.33million) and Local Shopping for training equipment and supplies (US$ 0.1 million), in accordance with World Bank Guidelines.

u Vehicles shall be procured through Intemational Shopping.

" Services shall be procured in accordance with World Bank Guidelines: Use of Consultants, 1981.

v Training anrangements will be subject to prior Association approval.

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4.28 Civil Works. Civil works under the project are of small value (no contract is expected to exceedUS$15,000 equivalent), consist mostly of office renovations and repairs, and are scattered all over thecountry. Therefore, they are not likely to attract the participation of foreign contractors and major localcontractors. For this reason, civil works contracts in an aggregate amount of about US$ 1.00 million willbe awarded through local shopping by obtaining and comparison of at least three quotations from qualifiedlocal contractors.

4.29 Prior review. All contracts for procurement of equipment and materials of an estimated costexceeding US$ 300,000 and LIB contracts shall be subject to prior review by the Association. Contractsfalling below the prior review threshold shall be retained by the PCU and shall be subject to selective expost review by supervision missions.

4.30 Technical Assistance. The selection of consultant firms and individuals tc provide technicalassistance and training services at a total estimated cost of US$ 11.78 million shall be through competitiveprocess in accordance with the World Bank's Guidelines for use of Consultants (August 1981 edition).Terms of reference for all consulting assignments will be subject to the Association's approval. Firrns willbe selected on the basis of a short list and individual consultants on the basis of comparison of at leastthree curricula vitae. Major contracts expected to be awarded to firms include technical assistancepackages for the development of social assistance reform, poverty monitoring, and for the strengtheningof employment services and the development of training. Individual consultants would be contracted,inter alia, for the social assets divestiture subcomponent and for evaluations of major technical assistanceinputs. Terms and conditions of contracts for all technical assistance assignments, and invitation packagesand evaluation reports of assignments estimated to cost more than US$ 100,000 each for firms, and US$50,000 each for individual consultants will be subject to prior review by the Association.

4.31 The list of individual packages for procurement of equipment and materials as well as ofconsultant contracts for technical assistance, indicating the mode of procurement, estimated value, andtime frame, appear in Annex 8. The Project Implementation Expenditure Schedule is indicated in Table4.5. This Schedule has been used as the basis for the disbursement forecast (Annex 5).

Disbursements

4.32 The proposed credit would be disbursed over a period of about four years. No standarddisbursement profile exists; the disbursement forecast in Annex 5 is therefore based entirely on anticipatedproject expenditures. The forecast reflects an understanding reached with the Kyrgyz and SwissGovernments at negotiations that Swiss grant funds would be disbursed for eligible expenditures underthe employment services and training components, and that at least an amount equivalent to US$1,450,000 would be disbursed from the Swiss grant by January 15, 1995 and that remaining grant fundswould be disbursed before June 30, 1996 (Table 4.5). The detailed allocation of the grant is describedin Annex 9, Table 4. Disbursements would be made against the following expenditures, excluding anyduties and taxes:

(a) technical assistance, fellowships, translations and training - 100%;

(b) civil works - 100%

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(c) computers and training equipment and materials - 100% of foreign expenditures fordirectly imported items and 100% of local expenditures (ex-factory) for items manufacturedlocally and 75% of local expenditures for other items procured locally.

Table 4.5: PROJECT IMPLEMENTATION EXPENDITUREEstimated Annual Contractual and Other Commitments

(US$ Million equivalent)"

Association Fiscal Year 1995 1996 1997 1998 TOTAL

Technical Assistance 5.04 2.31 1.21 .78 9.34

Foreign Training .79 .16 .14 .07 1.16

Local Training .13 .15 .06 .06 .40

Equipment and Materials 2.97 2.46 .12 .12 5.67

Civil Works .60 .60

Vehicles .17 .17

Divestiture Subcomponent .13 .13 .12 .12 .50

Recurrent Costs .26 .26 .25 .25 1.02

Total Baseline Costs 10.08 5.47 1.90 1.40 18.85

Physical Contingencies .69 .39 .09 .07 1.24

Price Contingencies .17 .27 .13 .12 .69

Total Project Costs 10.93 6.13 2.12 1.59 20.77

IDA Financed 9.14 4.67 1.86 1.33 17.00

Swiss Government Financed 1.50 1.20 - - 2.70

Kyrgyz Government Financed .29 .26 .26 .26 1.07

" Numbers may not add up exacdy due to rounding.

4.33 Disbursements from the proposed credit are expected to take place on an averagt about threemonths after incurring the expenditure. For the social asset divestiture component, the Association'sapproval of an implementation plan will be a condition for disbursement. Disbursements are expectedto be completed by late 1998. For expenditures relating to fellowships and contracts for goods eachvalued at less than US$50,000 equivalent, reimbursements would be made on the basis of Statements ofExpenditures (SOEs). Disbursements for all other items would be made against full documentation.Documentation supporting the SOEs would be kept by the PCU and be made available for review byAssociation missions. To facilitate timely project implementation, the Government would establish,maintain and operate, under tenns and conditions satisfactory to the Association, a US dollar SpecialAccount in a bank acceptable to the Association. The authorized allocation to the Special Account would

44

be US$1.0 million, representing estimated average expenditures to be paid from the Special Account overa four-month period. Applications for replenishment of the Special Account would be submitted monthly,or bi-monthly if necessary. Replenishlnent applications would be supported by appropriatedocumentation. The Special Account would be in the name of the Borrower and would be administeredby authorized staff of the PCU. This includes in particular the preparation of withdrawal applicationsand the disbursement of funds from the Special Account. The credentials of banks considered for theSpecial Account will be carefully reviewed in view of the Russia experience, taking into account theexperience with the Rehabilitation project.

4.34 The detailed procedures described in the disbursement handbook would be followed.

Accounts and Audits

4.35 The PCU would set up and maintain separate accounts for the project and would prepare quarterlydescriptive and financial reports, beginning from effectiveness. Project accounts including the SpecialAccount (para. 4.34) would be audited in accordance with the World Bank Guidelines for FinancialReporting and Auditing of Projects Financed by the World Bank (March 1982). Similar to arrangementsmade for the Rehabilitation Credit, an international accounting and auditing firm would be appointed toperform project audits. The Association would be provided within six months of the end of each fiscalyear with an audit report of such scope and detail as it may reasonably request, including a separateopinion by the auditor on disbursements against certified statements of expenditures.

Association Supervision

4.36 Frequent supervision missions would take place at least during the first two years of projectimplementation, when many of the institutional changes in the MLSP will take place and most of theequipment for the project will be procured. A local consultant contracted by the Association to supportproject preparation would be involved in supervision and facilitate day to day contact with the PCU. 4detailed scheduled for proj=ct supervision is included in Annex 3, Project Implementation and SupervisionPlan.

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V. BENEFITS AND RISKS

Benefits

5.1 The proposed project specifically aims to help the poorest and most vulnerable in the period oftransition. It would also benefit women in particular, since a disproportionate percentage of the poor andunemployed are women. By facilitating the removal of barriers to labor mobility and reorienting humancapital development towards sectors with prospects for growth, it would also help remove constraints toprivate sector development. In addition, the project would improve economic management in the socialsectors. These benefits would be achieved in ways consistent with fiscal realities, and would helpmaintain popular support for reform.

Risks

5.2 There are two main risks. The first concerns the Government's ability, if a shortfall occurs inbudgetary allocations for social security expenditures, to maintain strict targeting of such expenditures,including an adequate balance between allocations for social assistance and eventual supplementaryfunding of social insurance benefits. This risk will be addressed through annual consultations overbudgetary allocations and through a mid-term review. The second major risk concerns weakimplementation capacity and possible inadequate coordination between implementing agencies anddepartments. The project's technical assistance inputs and the reporting relationships and responsibilitiesof the Project Coordination Unit have been designed so as to minimize this risk, which would also begiven particular attention by future Association missions.

Environmental Impact

5.3 There are no environmental issues deriving from this project and it has been classified as acategory "C" operation.

46

VI. AGREEMENTS REACHED AND RECOMMENDATION

Agreements Reached

6.1 The following specific conditions would be attached to the proposed project:

(a) as conditions for credit effectiveness:

(i) the appointment to the PCU of its agreed staff complement (para.4.10); and

(ii) a cross-effectiveness condition with regard to the Swiss cofinancing grant (para.4.7).

(b) as dated covenants:

by October 31, 1994:

(i) an increase of the staff of the DOE to 61 positions (para 3.48);

by December 31, 1994:

(ii) preparation and submission of a staff redeployment plan for MLSP, acceptableto the Association, to strengthen social assistance staffing (para. 3.34);

(iii) reorganization of the function of the DOE based on management systems changesdeveloped during project preparation technical assistance (para. 3.48);

(iv) modification of the overall employment service staffing distribution to bettersupport local offices in areas of high employment (para. 3.48);

(v) separation of employment service oblast offices from social protection officesin Naryn, Issyk-kul, Osh and Djallal-Abad (para. 3.48);

(vi) establishment of training advisory committees for training with employerrepresentation at the selected training centers (para. 3.56);

(vii) strengthening of the staffing of SCT's Methodology and Staff Training Centerthrough the reallocation of at least 12 staff positions (para. 3.56);

(viii) defnition of a poverty line based on a new onsumption basket (para. 3.34);

(ix) preparation and submission to the Association of an implementation plan for theactivities to be undertaken under the social asset divestiture subcomponent(para. 3.49);

by June 30, 1995:

47

(x) implementation of a single consolidated social assistance benefit and the newsystem for targeting (para. 3.34), and

(xi) reorganization of the central MLSP in accordance with the agreed new structureand establish central Ministry control over the administrative and financialoperations of MLSP services at oblast and raion level. by June 30, 1995 (para.3.34);

(Xii) implementation of the redeployment plan to strengthen social assistance staffing(para. 3.34);

(xiii) implementation of a system of monitoring and evaluation of training, satisfactoryto the Association, including regular studies of the employment characteristicsand performance of graduates (para. 3.56);

by October 31. 1996:

(xiv) implementation of a mid-term review (para. 4.14 ), and

by December 31, 1996:

(xv) submission of an action plan, including a timetable for its implementation, toaddress the issues, if any, identified during the mid-term review (para. 4.14).

(c) as general covenants:

(i) adequate budgetary provision for the project's recurrent administrative costs(para. 4.9);

(ii) ma;ntenance of the PCU and full-time Component Coordinators throughout thepr( =ct implementation period (para. 4.10);

(iii) provisions for annual reviews of budgetary allocations to social security,including social assistance and eventual budgetary supplements for socialinsurance, by September 30 of each year of implementation (para. 4.14); and

(iv) provision for annual audits by independent auditors acceptable to the Associationand audit reports to be fumished to the Association within six months after theend of each fiscal year (para. 4.35).

The Association's approval of the implementation plan for the social assets divestituresubcornponent (para. 3.49) would be a condition for disbursement under this subcomponent. Astatement of training policy has been agreed (para. 3.56).

Recommendation

6.2 Subject to the agreements and conditions listed above, the proposed project provides a suitablebasis for an IDA credit of SDR12.0 million (US$17.0 million equivalent) to the Kyrgyz Republic.

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KYRGYZ REPUBLICSOCIAL SAFETY NET PROJECT

ANNEX 1. STATEi3ENT OF POLICY CONCERNING TRAINING

1. This statement of policy will be implemented by the Kyrgyz Government through its StateCommittee for Training (SCT) and Employment Service (ES) as part of the implementation of theSocial Safety Net Project. While the Statement is of particular relevance to the retraining ofunemployed persons, it will be valid, as applicable, for all type of training and information servicesprovided by SCT, whether or not promoted by ES with or without financing from the EmploymentFund (EF).

2. The ES will:

(a) Assess and counsel clients, seeking employment, and refer to EF-financed trainingonly those who are or have been employed and have at least six month's work experience andpossess an adequate level of education to b=nefit from the training envisaged;

(b) select providers of training based on cost-effectiveness ci iiria, and contract trainingprovision with any agent, public or private, assessed by ED' to be capable of providing therequired skills with adequate quality. Based on criteria for the selection of training providersagreed with the Association and listed below in page 3, ES will develop a registry ofapproved training providers;

(c) make arrangements to monitor the employment outcomes of training programs towhich it has referred clients, and will discontinue financing of any training courses which donot result in the productive employment of a majority of graduates within a period of sixmonths; and

(d) discourage the creation of training centers operated by, or under the control of, ESoffices countrywide.

3. The SCT will:

(a) implement by June 30, 1995, a system of graduate tracer studies acceptable to theAssociation, designed to determine the effectiveness of all its individual training courses inenhancing the employability of graduates as well as to provide feedback on the suitability ofthe methodology used the adequacy of facilities and equipment used, and the performance ofstaff;

(b) develop and expand its offering of short courses suitable for retnaining of unemployedpersons and persons at risk of becoming unemployed;

(c) increase its efforts to inform the public about available opportunities for training andemployment, including opportunities for small enterprise development and self-employment;

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(d) improve and augment the information it provides to the ES, at he central and locallevels, concerning the training it can provide for ES clients to improve their skills foremployment, including information required by ES for its registry mentioned above in para2 (b), and the fees charged for such training;

(e) implement programs to train SCT staff and teachers in the administration andmethodology of adult training, and enable other interested training providers to have staff andtrainers trained in such programs against fees based on SCT's costs for implementing;

(f) assemble, develop, and adapt training curricula and materials suitable for providingthe skills needed for development in a market economy, and make such curricula andmaterials freely available at cost to any interested party, whether employer, employee,training provider, or other;

(g) take no action to limit the free and fair competition of training providers for availabletraining opportunities in the Kyrgyz Republic; and

(h) charge tuition fees for all training courses for adults, based on the actual costs oftraining including fixed costs and depreciation of buildings and equipment.

4. In addition, ES and SCT will fulfill all of their other responsibilities in accordance with theCredit Agreement for the Social Safety Net Project. As part of the Project, SCT will develop theModel Training Centers listed in page 4 below, which have been selected in consultation with arepresentative group of employers as providing skills expected to be required in the labor market andbeing suitably located to serve the unemployed, and will establish local/sectoral training advisorycommittees with employer and ES representation at these centers by December 31, 1994.

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CRITERIA FOR THE SELECrION OF TRAINING PROVIDERS TO PROVIDE TRAININGFINANCED BY THE EMPLOYMENT SERVICES (ES)

1. Proof of adequate financial resources on the part of the Provider to implement the agreedtraining programs, including the ability to fund rent, the provision of utilities, and consumablematerials during training.

2. Documented availability to the Provider of suitable training facilities, equipment, and trainingmaterials suitable for the type of training to be provided, and proof of the existence of a program andcapability for the maintenance of such facilities and equipment.

3. Documented availability for the duration of the training of adequately trained and experiencedadministrative and teaching staff.

4. Documented experience of adult training or alternatively, proof of the availability, in adequatenumbers, of teaching staff trained in adult training methodology.

5. Suitable location of training facilities in relation to that of prospective participants in training,with particular attention to the needs of unemployed trainees.

6. Tuition and other fees within an acceptable range, based on the estimated actual cost of thetraining to be provided.

7. Documented capability on the part of the Provider to monitor, evaluate, and provide adequateinformation to ES concerning the performance of trainees during training, as well as the performancein employment of an agreed sample of graduates during at least six months following the completionof training.

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LIST OF SCT TRAINING CENTERS SELECTED AS MODEL CENTERSFOR THE SOCIAL SAFETY NET PROJECT'S TRAINING COMPONENT

Specialization Training Center

1. Agriculture and Agroprocessing No. 1, Djallal-Abad

2. Construction and Building Maintenance No. 5, Bishkek

3. Services, Hotel and Tourism No. 91, Bishkek(with sub-center No. 14, Issyk-Kul for hoteltraining)

4. Mechanical Maintenance, including No. 23, BishkekAuto Mechanics (with sub-center No. 27, Tokmak, for heavy

vehicle maintenance)

5. Electrical installation and Maintenance No. 100, Bishkek

6. Electronics Installation No.93, Bishkekand Maintenance

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KYRGYZ REPUBLICSOCL4, SAFETY NET PROJECT

ANNEX 2. TERMS OF REFERENCE FOR PROJECT IMPLEMENTATION

I. THE ROLE OF THE PROJECT COUNCIL

1. The Project Council (PC) will oversee the coordination of project activities. All majordecisions concerning project implementation will be discussed by the Project Council.

2. The Project Council was created by Goskominvest resolution N 2 of February 10, 1994. Itis chaired by the First Deputy Prime Minister and composed of the Minister of Labor and SocialProtection, the head of the Employment Service, the head of the State Committee for Training ofWorkers and Entrepreneurs, the head of the State Committee for Statistics, the Director General ofthe Social Fund, and the President's Advisor on Social Policy.

3. The Project Council will meet once every three months, or more often if its Chairman sodecides. Heads of project implementing agencies which are not represented on the Council, and theComponent Coordinators in the implementing agencies will be invited to the PC meetings. TheProject Coordination Unit (PCU) will serve as the secretariat of the Project Council. The PCUDirector will prepare minutes of PC meetings and monitor that decisions taken by the PC are carriedout by the implementing agencies.

The project council has the following responsibilities:

e To review the periodic project implementation reports prepared by the PCU and thequarterly implementation schedules. Discuss reasons for delays and approvenecessary actions to be taken to solve problems in project implementation.

e Discuss and resolve issues linked to project implementation that cannot be resolved bythe implementing agencies and the PCU and decide, in consultation with theAssociation, on all policy issues linked to project implementation.

o Facilitate coordination with other projects relevant to the areas of employment, socialassistance, poverty monitoring and training, and in particular, with the Privatizationand Enterprise Sector Adjustment Project (PESAC).

II. THE ROLE OF THE PROJECT COORDINATION UNIT

The Project Coordination Unit was established through the Government's Decree No. 266dated April 29, 1994. It will be headed by a Director who will report to the First Deputy PrimeMinister, and will be staffed with a procurement specialist, a disbursement officer, an accountant, atechnical assistance administrator, and a secretary. During the first two years of implementation, apermanent technical assistant based in the PCU will provide support primarily in the area of

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procurement. The PCU will also receive support from Goskominvest on procurement and accountingissues and will hire short term technical assistance as needed. The PCU will be responsible for thefollowing tasks:

o Monitor overall progress of the project and help in the coordination between thevarious project components and ongoing projects in related areas, particularly theproposed PESAC. The PCU will set up a computerized Management InformationSystem (MIS) for this purpose.

o Manage the project's Special Account, prepare Statements of Expenditure, andmaintain project accounts.

o Review lists, specifications and terms of reference provided by implementing agenciesfor procurement of equipment and civil works and contracting of consultants toensure consistency of presentation and adherence to World Bank guidelines.

Prepare tender documents for procurement of equipment, civil works, and technicalassistance services. Send tender documents to the Association for approval, advertisetenders and establish review committees to analyze and evaluate bids. Participate inthe selectien of contractors together with Heads of implementing agencies.

e Prepare draft contracts, review them with implementing agencies and submit them tothe Association for approval. Co-sign contracts with the relevant implementing Head.

o Support implementing agencies in coordination of technical assistance missions andother project activities as requested.

o Pay contractors and suppliers after having reviewed their performance withComponent Coordinators and after the approval of the Heads of implementingagencies.

a Upon approval by the Heads of implementing agencies, prepare withdrawalapplications for transmission to the Association.

o Prepare periodic and yearly project implementation reports based on informationprovided by component coordinators.

o Revise quarterly implementation schedules and transmit these to the Association.

v Serve as the secretariat of the Project Council, prepare agendas and minutes ofmeetings.

HI. THE ROLE OF COMPONENT COORDINATORS

The implementation of each project component will be coordinated by a ComponentCoordinator (CC). The CCs will report directly to the Head of the relevant implementing agency.The CC is responsible for the following tasks:

o Ensure coordination within the implementing agency of the actions to be undertakenunder his/her component. Ensure that each unit of the implementing agency has aclear understanding of its role and responsibilities under the project.

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Ensure the efficient and effective implementation of the component and that theproject implementation schedule is respected. Inform the Head of the implementingagency and the PCU Director of any slippage in implementation and propose actionsto correct the problems.

Bring any issues of policy or donor coordination linked to the implementation of thecomponent to the attention of the Head of the implementing department and the PCUdirector.

Prepare, in coordination with relevant units of the implementing agency and withsupport from technical assistance provided under the project, lists and specifications ofequipment to be procured under the project and terms cf reference (TOR) foradditional technical assistance. Transmit these lists, specifications and TORs afterapproval by the Head of the implementing agency, to the PCU.

Forward contracts for goods and services to the relevant Head of implementingagency, who will co-sign these contracts with the director of the PCU.

After having ensured that goods and services have been provided according to theterns of the contract, prepare and forward documents to the Head of theimplementing agency to enable him/her to authorize the PCU to pay contractors forgoods and services under the project component.

Prepare regular implementation reports on component implementation for signature bythe Head of the implementing agency and transmission to the PCU. Update quarterlyimplementation schedules. Hold freqvent meetings with the PCU to discussimplementation issues.

IV. TERMS OF REFERENCE FOR THE DIRECTOR OF THEPROJECT COORDINATION UNIT

The Director of the PCU will have responsibility for the following tasks:

* Organize and prepare procurement contracts. Ensure that administrative tasks forprocurement and disbursement are undertaken in a timely fashion. Ensure thatbidding documents and procedures are consistent with World Bank guidelines and theregulations of other donors, as applicable. Participate in the evaluation of bids andthe selection of contractors for major contracts. Oversee the preparation of contracts.Co-sign contracts with the Head of the relevant implementing agency.

* Manage the project's Special Account. Prepare and co-sign withdrawal applicationswith the PCU accountant upon approval of Heads by implementing agencies. Ensurethat payments to contractors and providers of services are made in a timely fashion.

* Prepare periodic reports on project implementation, based on regular reports providedby the implementing agencies. Present drafts of such reports for comment to theHeads of the implementing agencies, forward the revised reports and theimplementing agencies' comments to the Project Council for discussion and approval,and transmit the approved reports to the Association and other donors participating inthe project.

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o Coordinate project activities undertaken under the four components. Organizemonthly, or more frequent if necessary, meetings with all Component Coordinators todiscuss implementation issues. Ensure that implementing agencies receive thenecessary support from the PCU in the resolution of implementation issues. Bring tothe attention of the Project Council and the Association any issues that can not beresolved at the level of the implementing agencies.

o Serve as secretary of the Project Council. Prepare, in consultation with the Chairmanof the Project Council and the Heads of the implementing agencies, agendas forProject Council meetings. Prepare minutes of Project Council meetings and monitorthat its decisions are implemented.

e Contract, in accordance with World Bank Guidelines and in consultation with theAssociation, necessary short term international consultants to assist the PCU inaccomplishing its mandate in a professional and timely fashion.

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KYRGYZ REPUBLICSOCIAL SAFETY NET PROJECT

ANNEX 3. PROJECT IMPLEMENTATION AND SUPERVISION PLAN

Implementation Plan

1. The project will be implemented over four years beginning at effectivenesswhich is expected about September 1994. The employment services component wiU beimplemented in about 21 months beginning in 1994. A mid-term review will be held for theemployment services component in July or October, 1995, depending on progress inimplementation. A mid-term review for the three other components will be held in October,1996. The summary project implementation schedule is appended to this Annex. Detailedimplementation plans for each component are included in the implementation manual.

Supervision Plan

2. The first supervision mission will take place immediately following Boardapproval of the project, which is expected by mid-1994. This will be a fully staffed mission,as shown below, in order to review all implementation arrangements. However, no formalproject launch workshop will be held, in view of the substantial preparation andimplementation readiness assistance already provided to the implementing agencies withfunding from the Japanese and Swiss Governments, and the extensive briefings provided byAssociation staff during project preparation and appraisal. In view of the country's lack ofimplementation experience, relatively intensive supervision will be necessary during firstyears of project implementation. The plan for supervision missions is as follows:

DATE Character of mission Mission staffing

1994 July First supervision mission TM(TS). SAS, PMS, ES, IS/PS, DS(see above)

September Second supervision mission TM, SAS(small mission followingeffectiveness)

December Third supervision mission TM, SAS, ES,(final evaluation and report onSwiss grant utilization)

1995 March Fourth supervision mission TM, SAS

I/ TM = Task Manager; DS = Disbursement Specialist; EC = Economist; SAS SocialAssistance Specialist; ES = Employment Services Specialist, PMS = Poverty Monitoring Specialist; TSTraining Specialist; IS = Implementation Specialist; PS = Procurement Specials.

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FY95 Summary Total mission staffweeks 34HQ SPN staffweeks 12Total SPN staffweeks 46

1995 July Fifth supervision mission and TM, EC, TS, ISmid-term review of employmentservices component (see above)

1995 October Sixth supervision mission TM, SAS, PMS, TS

1996 March Seventh supervision mission TM, SAS

FY96 Summary Total mission staffweeks 20HQ SPN staffweeks 8Total SPN staffweeks 28

1996 October Eighth supervision mission TM, SAS, PMS, ES, TS, IS(project mid-term review, andimplementation completion reviewof employment services component)

1997 March Ninth supervision mission TM, SAS

FY97 Summary Total mission staffweeks 16HQ SPN staffweeks 06Total SPN staffweeks 22

1997 October Tenth supervision mission TM, T'S

1998 March Eleventh supervision mission TM, SAS(dmft implementationcompletion report)

October Twelfth and final supervision TM, SAS, PMS, T'S, ES, ISmission and implementationcompletion review for project

FY98 Summary Total mission staffweeks 20HQ SPN staffweeks 10Total SPN staffweeks 30

Project Summauy Total mission staffweeks 90(average per FY, 22.5 sw)HQ SPN staffweeks 36(average per FY, 9 sw)Total SPN staffweeks 126(avetage per FY, 31.5 sw)

IMPLEMTATION SCHEDULE FOR THE SOCIAL ASSISTANCE REFORM COMPONENT

Association Fiscal Year 1995 1996 1997 1998

Semesters of Project Implementation 1 2 3 4 5 6 7 8

I. ESTABLISH A MEAN-TESTING NECHANISM

Identification of options/modeling

Develop mechanism

Pilot system1. legislation2. operational guidelines3. adminlstration of benefits (system)

Implement system1. operations2. policy

Review & Develop1. operations2. policy3. poverty survey coordination

II. CREATz SPECIAL GRANT UNIT

Creation of unit

Identification of priority areas

Draft procedures

Coordination with NGOo

Information campaign

Review and Develop - -.1. Monitor progress2. Revise procedures3. Liaise with donors _ ._

1995 1996 1997 1998

1 2 3 4 5 6 7 8

III. REFORM THE SOCIAL INSURANCE SYSTE!

Operational guidelines

Redeployment analysis

Develop options for the rationalization ofpensions

Simplify the calculation of pensions (developstrategy and implement)

Renegotiate 4.2% service delivery charge

Information campaign

IV. REDESIGN THE MLSP STRUCTURE

Create units/draft operational plans

Develop the human resources strategy

Create the Inspectorate (develop fraudprevention techniquep)

Information campaign

Develop financial management model

Design/draft oblast and raiLn procedures

Revise procedures

Implement office upgrading/model office trials

Assess model office trials

1995 1996 1997 1998

1 2 3 4 5 6 7 8

V. COMPUTERIZATION AND OFFICE AUTOMATION

Computer support training

Application development/database implem.

Deliver and install in MLSP, Bishkek and oshoblasts

Triallreview _

Implementation/training in other oblasts

Develop and install other programs

Review

VI. TRAINING PROGRAM

Develop training staff (including initial andon-going technical training)

Management training1. central administration2. oblast and raion administration

Inspectorate Unit Training

Training for the targeted/means-testingspecialists

Training for in-kind unit staff

Pensions staff training

Computerization training

1. programmers2. basic computer skills3. computer system pilot4. implementation training _

IMPLEMENTATION SCHEDULE FOR THE POVERTY MONITORING COMPONENT

Association Fiscal Year 1995 1996 1997 1998Semesters of Project Implementation 1 2 3 4 5 6 7 8I. SAMPLING

Check baseline sample

Develop approaches for resampling

Develop a system for reweighting sample

II. QUESTIONNAIRE DEVELOPMENT AND REVISION

Review survey forms

Develop family planning module questionnaire

Develop energy module questionnaire

Develop agriculture module questionnaire

Ill. INTERVIEW TRAINING & SUPERVISION

Develop video tapes of training exercises and trainingmaterials

Develop survey research training video tapes

Develop nutritional/health training video tapes

IV. FIELD WORK

Develop guidelines and training materials

Develop methods for checking of data quality

Carry out quality monitoring studies

1995 1996 1997 1998

1. 2 3 4 5 6 7 8

V. DATA ENTRY & CODING

Develop software

Assist in Computerising data _

Training of data entry staff

Dietary and health data collection & updating of dietentry program

Develop food composition table and recipe file

VI. DATA CLEANING

Checking data entry process and basic cleaning

Check quality of selected key measures

Check nutritional data

VII. VARIABLE CONSTRUCTION

Assist in creating new variables

Train staff in measuring income, expenditures,employment, dietary intake, nutrition

VIII. REPORT GENERATION

Train staff in use of software and hardware to prepare _tables

IX, FILE DEVELOPMENT & DATA ANALYSIS

Train staff in in-depth analysis

Train programmers to undertake in-depth analysis

1995 1996 1997 1998

1 2 3 4 5 6 7 8

X. COORDINATION OF DATA USE

Review and discuss survey data

XI. TRAINING OF GOSKONSTAT STAFP

Data entry training (20 staff)

Supervisor training (15 staff)

Inteviewer training (30 staff)

Modern survey work-survey research (8 staff)-questionnaire design (2 staff)-sampling (1 staff) _

Data processing & analysis-variable construction (2 staff)-report generation (2 staff)-analysis (8 staff)

Labor economics training (1 staff)

IMPLEMENTATION SCHEDULE FOR THE EMPLOYMENT SERVICES (ES) COMPONENT1

Association Fiscal Year 1995 1996 1997 1998

Semesters of Project Implementation 1 2 3 4 5 6 7 8

I . &rRENGTHENING THE EMPLOYMENTSERVICE DELIVERY SYSTEM

Model office network in Bishkek _ _ S

Replication of model office in Chui oblastand other labor markets

Provision of limited computer support toselected employment office

Strengthening of manual systems in smalloffices/rural areas

II. STRENGTHENING DOE MAAGEMENTSYSTEM

Policy analysis and development S

Program planning and budgeting S

Financial management and audit systems S

ES direction and management S S S

Computer systems development and support

III. IMPACT EVALUATION STUDY

IV. EQUIPMENT PROCUREMENT

8/ S Study Tour

IMPLEMENTATION SCHEDULE FOR THE TRAINING COMPONENT'

Association Fiscal Year 1995 1996 1997 1998

Semesters of Project Implementation 1 2 3 4 5 6 7 8

I. CENTRAL STRENGTHENING OF OCT

Strengthening of Methodology and Staff S s S S sTraining Center =____.___

Establishment of Information Center S S S

Strenghening of SCT Management S S

Technical assistance (TA) for curriculum MS Sand materials development

Technical assistance for teacher training - s S

Procurement and installation of office andcommunications equipment

II. DEVELOPMENT OF MODEL TRAININGCENTER INTERVIEW TRAINING ANDSUPERVISION

TA for specialized curriculum development S

Procurement and installation of training - =______equipment

Civil works/workshop refurbishing

Training of center managers S S

Specialized teacher training & upgrading S S aS

l/ S = Study Tour

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KYRGYZ REPUBLIC

SOCIAL SAFETY NET PROJECT

2UMNEX 4. KEY PERFORMANCE MONITORING INDICATORS

ISSUE INDICATOR TARGET DATE

SOCIAL ASSISTANCE

Establish a means- Otraining of stafftesting mechanism in central ministry 15 staff Jan. 1995

in oblasts 30 staff Mar. 1995in raions 200 June 1995

Oselecting offices and 10 offices Mar. 1995implementing pilotsystem

June 1995Oimplement system

Jan. 1996Odrafting of legislation

Jan. 1996*drafting of guidelines

Establish a Special Screate unit 1 Jan. 1995Grant Unit

Oestablish bank account 1 Jan. 1995

*identify priority areas 6 oblasts June 1995

0train staffin central ministry 4 Jan. 1995in oblasts 20 Mar. 1995in raions 200 June 1995

Oform local raion grant 66 (raion) June 1995management committees

Odraft procedures June 1995

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Reform the Social Odevelop options Jan. 1995Insurance System

Osimplify pensions Mar. 1995

Odraft guidelines Mar. 1995

Orenegotiate 4.2% charge Jan. 1995

Otrain pension staff 200 June 1995

Oreallocate staff 300 Sep. 1995

Reorganization of MLSP OCreate units 6 Jan. 1995

ORecruit staff for units 50 Jan. 1995

Otrain staffin center 50 Mar. 1995in oblast 60 Mar. 1995in raion 200 June 1995

300 Jan. 1996

Odraft procedures Sep. 1995

Computerization and OPurchase/deliverOffice Automation computer equipment

for center, Bishkek,Osh Jan. 1995for other oblasts 5 oblasts Mar. 1995

OUpgrade offices 70 offices June 1995

OComputer trainingfor center 10 staff Mar. 1995for oblasts and raions 200 staff June 1995

POVERTY MONITORING -

Carry out household Ocomplete a total of 7 1 June 1995surveys surveys 2 Jan. 1996

3 June 19964 Jan. 19975 June 19976 Jan. 19887 June 1988

Ocarry out 3 modulesfamily planning 1 Jan. 1996energy 2 Jan. 1997agriculture 3 Jan. 1998

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Analysis of data OForm a users committee 6 members Jan. 1995(MLSP, Ministry ofHealth, Ministry ofEconomy, Ministry ofFinance, Vice PrimeMinister for SocialProtection, Goskomstat)

OHold seminars 7 seminarsone every June 1995-six months June 1998

Training of personnel *Train (two weekssession)

supervisors 15 persons Jan. 1995-

interviewers 30 persons Jan. 1998

TRAINING l

Strengthen SCT's OSelect and procure Sep. 1994central functions office and communication

equipment

OEstablish Information Dec. 1994Center

OStrengthen Methodology 12 Dec. 1994Center additional

staffODevelop new curricula 100 new July 1995for adult retraining curricula

OTrain management staff 23 staff Sep. 1994 -of SCT July 1995

OTraing trainers for July 1995 -adult training July 1997

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Develop Model Training $Set up advisory 6 Dec. 1994Centers committees at selected committees

centers

ODevelop new curricula Sep. 1994 -

and training materials Sep. 1996for model centers

OSelect basic equipment Sep. 1994for selected centers

OSelect advanced July 1995equipment for centers

OProcure training Sep. 1994 -equipment Sep. 1995

lInstall and commission Jan. 1995 -equipment March 1996

OTraining center Sep. 1994 -management and staff July 1995

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KEY PERFORMANCE MONITORING INDICATORS

E4PLOYMENT SERVICES CObMPONENT

ActivitY Benrhmark Start/Comofetion

Project implementation and - Appoint project coordinator August 1, 1994 -management to provide liaison with September 1,1994

MOLSP project coordinationunit (PCU) and completeproject orientation.- Appoint individual projectcomponent managers and August 1,1994 -other DOE counterpart staff September 1,1994and complete projectorientation.- Develop in coordination withPIU the required performance August 1,1994 -and financial reporting September 1,1994procedures and requirementsincluding procurementprocedures.

Project components:

(1) StrengtheningEmployment Servicedelivery system

(a) Model office network - Complete the adaptation of September 1,1994 -in Bishkek the manual based October 1,1994

procedures to accommodatecomputerisation.- Procure the computers and September 1,1994 -other equipment supportive of October 31,1994the automated system.- Install the computers and Oct 1,1994 -Jan 31,1995make them operational.- Implement the automated Oct 1,1994 - Jan 31,1995ES/UB delivery system.- Development of trained Nov 1,1994 - Jan 31,1995managers and staff

(b) Replication of model - Install and make them Nov 1.1994 - Feb 28,1995office in Chui oblast and operational.other major labour markets - Implement the automated Nov 1,1994 - May 31,1995

ES/UB delivery system- Development of trained November 1,1994 -managers and staff. May 31,1995

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Activitv Benchmark StartlComDletion

(c) Provide limited computer - Install the computers and June 1,1995 -July 31 1995support! assistance to make them operational.selected employment offices - Implement the automated June 15,1995 - July 31,1995

ES/UB system.- Development of trained June 151995 - Aug 31,1995managers and staff.

(d) Strengthening manual - Develop special approaches March 1, 1995-systems small offices/ serve to meet the delivery of ES/UB August 31,1995rural areas. services in rural areas

(2) Strencithenina Dept ofEmolovrnent manaaementsystems

(a) Policy analysis and - Complete analysis of policyDevelopment development capacity and

needs.- Provide report proposingrevised policy makingframework including Ongoingprocedures and staffing by GTZrequirements.- Provide assistance inimplementation of policy unitand process.

(b) Program planning and - Complete analysis of September 1, 1994 -budgeting program planning and October 1, 1994

budgetary capabilities andneeds.- Design revised program October 1, 1994 -planning and budget system November 15,1994staffing and requirements.- Provide assistance in October 1, 1994 -implementation of revised November 30,1993system incoming stafftraining

(c) Financialmanagement and - Complete analysis of September 1, 1994 -audit systems financial control capabilities October 1, 1994

and needs.- Design revised financial October 1,1994 -control system including November 15,1994audit capacity and staffingrequirements.- Provide assistance in October 1,1994 -implementation of revised November 30,1994system including stafftraining.

- 72 -

Activity Benchmark Start/Comoletion

(d) Employment Service -Complete analysis of September 1,1994 -direction and management system October 1,1994management. capabilities and needs.

- Design revised ES October 1, 1994 -management system December 31,1994including field directives andinformation procedures aswell as staffing requirements.- Provide assistance in October 1, 1994 -implementation of revised December 31,1994procedures including stafftraining.

(e) Computer systems - Complete analysis of September 1,1994 -development and computerisation support and October 1,1994support service capabilities.

-Provide expanded September 1, 1994 -capabilities computer November 1, 1994applications and supportservices.- Provide assistance in November 1,1994 -imolementation including January 31,1995staff training.

(3) imDact EvaluationStudy

Conduct impact evaluationof - Design study and establish Oct 1,1 994- Nov 1, 1994project effectiveness data base

- Participate in WB six month Feb 1, 1995 -project supervision review, Feb 28,1995collect interim data, carry outselected assessment andprepare interim report withpossible recommendationsfor project adjustments- Undertake indepth March 1, 1996 -assessment, prepare April 30, 1996evaluarion report withfindings andrecommendations

- 73 -

KYRGYZ REPUBLICSOCIAL SAFETY NET PROJECT

ANNEX 5. DISBURSEMENT FORECAST

ASSOCIATION FISCAL YEAR

FY95 FY96 FY97 FY98

(in US$ Millions)

Annual 3.8 7.0 3.9 2.3

Cumulative 3.8 10.8 14.7 17.0

- 74 -

KYRGYZ REPUBLICSOCL SAFETY NET PROJECT

ANNEX 6. ALLOCATION OF CREDIT PROCEEDS

EXPENDITURE CATEGORIES AMOUNT OF THE CREDIT % OF EXPENDITURE TOALLOCATED (SDR) BE FINANCED

1. Technical Assistance and Training 6,300,000 100 %

2. Civil Works other than Category (4) 400,000 100 %

3. Computers, Training Equipment and 3,600,000 100% of foreignMaterials, and Vehicles expenditure, 100% of local

expenditures (ex-factorycost) and 75% of localexpenditures for other items

._______________________________ .__________________procured locally

4. Technical Assistance, Training and 350,000 100 %Civil Works for the DivestitureSupport Subcomponent

5. Unallocated 1,350,000

TOTAL 12,000,000

KYRGYZ REPUBLICSOCIAL SAFETY NET PROJECT

ANNEX 7. CURRENT AND PROPOSED CASH FLOW PROCESS OF THE MLSP

a) Current Process

MLSPCENTRE

U U

Funds for Administrallon Costs

MLSP TAOBLAST .. |ADMINISTRATION

0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Funds for Administration Costs

MALSP ADORAIO ADMNINSTRATION

TAX

b) Proposed process

SOCIAL

MLSPJCENTRE .

OBLAST- -. [A ADMWNISIRAT1ON|

r-~ ~~~~~~~~~~ ^ N

MLSP UOBLAST -

RAION FUNDS , . ADMINISTRATION

MLSPRIAON

- 77 -

KYRGYZ REPUBLICSOCIAL SAFETY NET PROJECT

ANNEX 8. PROCUREMENT IMPLEMENTATION

1. Equipment, Vehicles, and Works

Procurement Method Critical ImplementationCategory (USS million) Dates

ICB LIB IS L S Subtotal

Computer Contract No. 1 2.00 2.00 Septemnber 1994Computer Contact No. 2 0.50 0.50 March 1995Software 1.60 1.60 Septeaber 1994Peripherals 0.19 0.19 October 1994

Subtotal 2.50 1.60 0.19 4.29

Training Equipment Contr. 1 0.70 0.70 September 1994(basic equiprmnt)Training Equipment Contr. 2 0.50 0.50 July 1995(advanced equipment)Complemetary equtpmert 0.95 0.10 1.05 September 1995

1.20 0.95 0.10 2.25

Vehicles 0.19 0.19 September 1994

3.70 1.60 1.33 0.10 6.73

-_1.00 1.00 September 1994_________ September 1995

- 78 -

2. Technical Assistance/Consultants and Training

Contracts TA Contracts Total ImplementationContract with Firrs with Individuals (US$ milGion) Starting

(US$ million) (US$ million) Dates

M|ain TA and Training Contract 3.35 3.35 September 1994Individual TA Contracts 0.50 0.50 July 1995

Subtotal 3.35 0.50 3.85

Main TA and Training Contract 2.29 2.29 September 1994Individual TA Contracts 0.30 0.30 May 1995

Subtotal 2.29 0.30 2.59

Main TA and Training Contract 1.20 1.20 September 1994Individual TA Contrcts 0.20 0.20 December 1995

Subtotal 1.20 0.20 1.40

~~.. ,.. ~ ~ . . ..

Main TA and Training Contract 2.70 2.70 September 1994Individual TA Contracts 0.28 0.28 September 1995

Subtotal 2.70 0.28 2.98

Procurement TA Contract 0.80 0.80 September 1994Individual TA Contracts 0.16 0.16 July 1995

Subtotal 0.80 0.16 0.96

TOTAL Technical Assistance 10.34 1.44 11.78

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KYRGYZ REPUBLIC

SOCIAL SAFETY NET PROJECT

ANNEX 9 ° DETAILED COST ESTIMATES

TABLE 1: PROJECT COST SUMMARY BY COMPONENT

TABLE 2: EXPENDITURE ACCOUNTS BY COMPONENT - TOTALS

TABLE 3: PROJECT COMPONENT EXPENDITURES BY YEAR - TOTALS

TABLE 4: FINANCING BY PROJECT COMPONENT AND FINANCIER

ANNEX 9: TABLE 1

KYRGYZ REPUBLIC

SOCIAL SAFETY NET PROJECT

PROJECT COST SUMMARY BY COMPONENT(US$'000)

(US$ '000)X FOREIGN %TOTAL BASE

LOCAL FOREIGN TOTAL EXCHANGE COSTS

1. Social Assistance 420.0 6,310.1 6,730.1 94 36

2. Poverty Monitoring 467.0 2,883.4 3,350.4 86 18

3. Employment Services 19b.0 2,479.2 2,677.2 93 14

4. Training 500.7 4,709.0 5,209.7 90 28

5. Project Coordination Unit 271.0 608.6 879.6 69 5

TOTAL BASELINE COSTS 1,856,7 16,990.3 18,847.0 90 100

Physical Contingencies 98.8 1,139.5 1,238.4 92 7

Price Contingencies 688.3 688.3 100 4

TOTAL PROJECT COSTS 1,955.5 18,818.1 20,773.7 91 110

ANNEX 9: TABLE 2

KYRGYZ REPUBLIC

SOCIAL SAFETY NET PROJECT

EXPENDITURE ACCOUNTS BY COMPONENT - TOTALS INCLUDING CONTINGENCIES(US$'000)

SOCIAL POVERTY EMPLOYMENT TRAINING PROJECT TOTALASSISTANCE MONITORING SERVICES COORD. UNIT

I. Investment Costs

A. Technical Assistance1. Foreign TA 3,412.3 2,083.7 1,286.6 2,518.4 570.8 9,871.8

B. Supplies & Equipment 3,149.8 634.7 661.4 2,245.2 39.8 6,730.9

C. Training1. Foreign Training 330.7 382.8 91.3 419.8 41.2 1,265.82. Local Training 103.0 152.9 50.9 137.2 444.0

Subtotal Training 433.7 535.7 142.3 557.0 41.2 1,709.8

D. Civil Works 265.9 221.9 212.2 700.0

E. Vehicles 179.0 11.2 190.2

F. Divestiture Component 500.0 500.0

Total Investment Costs 7,261.7 3,433.1 2,812.1 5,532.8 663.0 19,702.7

II. Recurrent CostsA. Office rent 84.0 84.0 21.0 84.0 8.4 281.4B. Vehicle use/repair 63.0 63.0 15.8 63.0 10.5 215.3C. Communication expenses 76.3 76.3 44.6 76.3 263.6 537.1D. Misc. materials 10.5 10.5 2.6 10.5 3.1 37.2

Total Recurrent Costs 233.8 233.8 84.0 233.8 285.6 1,071.0

TOTAL PROJECT COSTS 7,495.5 3,666.9 2,896.1 5,766.6 948.6 20,773.7

ANNEX 9: TABLE 3

KYRGYZ REPUBLIC

SOCIAL SAFETY MET PROJECT

PROJECT COMPONENT EXPENDITURES BY YEAR - TOTALS INCLUDING CONTINGENCIES(US$ '000)

Association Fiscal Year

1995 1996 1997 1998 Total

1. Social Assistance 3,158.4 2,997.0 758.1 582.0 7,495.5 m

2. Poverty Monitoring 1,990.8 736.6 52S.1 414.4 3,666.9

3. Employment Services 2,406.6 214.4 135.6 139.5 2,896.1

4. Training 2,928.3 1,863.9 609.4 365.9 5,767.6

5. Project Coordination Unit 450.1 315.0 90.9 91.6 947.6

TOTAL PROJECT COSTS 10,934.3 6,126.8 2,119.2 1,593.4 20,773.7

ANNEX 9: TABLE 4

KYRGYZ REPUBLIC

SOCIAL SAFETY NET PROJECT

FINANCING BY PROJECT COMPONENT AND FINANCIER(US$'000)

IDA SWISS GOV'T1 KYRGYZ GOV'T TOTAL

AMOUNT % AMOUNT Z AMOUNT X A24OUNT X

1. Social Assistance 7,261.2 35.0 0 0 233.8 1.1 7,495.5 36

2. Poverty Monitoring 3,433.1 16.5 0 0 233.8 1.1 3,566.9 18

3. Employment Services 2,112.1 10.2 700.0 3.4 84.0 0.4 2,896.1 I4

4. Training 3,532.8 17.0 2,000.0 9.6 233.8 1.1 5,767.6 28

5. Project Coordination Unit 663.0 3.2 0 0 285.6 1.4 947.6 5

TOTAL DISBURSEMENT 17,002.7 81.9 2,700.0 13.0 1,071.0 5.1 20,773.7 100

l/ The Swiss cofinancing grant of Swiss Francs 4.0 million {US$ 2.7 million equivalent) would be used tofinance the following items:

(1) Training Componenta. Technical Assistance USS 1,350,000b. Foreign Training for Kyrgyz staff US$ 300,000C. Equipment US$ 350,000Subtotal US$ 2,000,000

(2) Employment Services Componenta. Technical Assistance USS 350,000b. Ea'.ipment USS 350,000Subtotal US$ 700,000

TOTAL US$ 2,700,000

Note: Out of this total, an amount equivalent to USS 1,450,000 would be disbursed befor, JTnuary 35, J995.

IBRD 249643R

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