101

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# Box 11: ARGENTINA MUNICIPAL DEVELOPMENT PROJECT (Loan 2920-AR)

Objectives and Descriptlon: A USS120 million to the municipalities on "harder" terms (max 10 years loan was approved for this project on 03/22/88, wIth repayment including up to one year of grace) with _the_ main purpose of contributing to more effective spreads of at least 1.5 percentage points over Interest public sector management at provincia! and municipal paid by the Provinces to the Central Government In level. Its speclfic objectives are: a) mobilizing order to capitalize Municipal Development Fund for external and internal resources to finance justified project replicatlon in each Province. Municipal local Investments In a non-deficitary and nonrepayment of subloans is guaranteed through the inflatlonary way; b) strengthening municipal capacities Province's retention of the municipality's debt to plan, finance and execute cost-effective programs of servicing obligations from provincial revenue sharing. capital lmprovements; and c) promoting structured, periodi **c** onsultations between municipal and provincial Benefits: Four main categorls of benefits authorities for the formulation and evaluation of are expected from the project: (a) financial, where investment plans. The project provides subloans to the project's design criteria assure that Incremental five of Argentina's 22 Provinces (Buenos Aires, resources are mobilized by limiting oniending to Cordoba, La Pampa, Neuquen and Santa Fe) and to municipalities which are creditworthy and wilIling to eligibl, municipalities of those provinces, financing recover costs substantalaly in excess of the loan up to **50%** of eligible costs for: a) physical amount and that partirepating municipalities are Investments, Including construction and rehabilitation financially strenghtened to provide other services not of infrastructure and community facilities and financed under the project; b) distributive, where purchases of vehicles and equipment; and b) technical long-term financing makes cost recovery affordable to assistance and training, In order to implement the poor, besides creating approximately 58 thousands effectively the project objectives, only creditworthy person/years of construction work; c) Institutional, municipalitles (having a balanced current account and through providing financial predlctability necessary debt obligations within acceptable limits) are eligible for subnational governments to plan and program to receive subloans for physical Investments, and their investments; and d) economic, with an average rate of annual capital Improvement plans must allocate at least return of 38 porcent on Infrastructure investments, In 65% of total proposed Investment to components for addition, it Is anticipated that the lessons learned which Investments costs will be fully recovered from from this operatlon will support replicatlon of the direct payments to the municipalities by direct project to other Argentine Provinces. beneficiaries (betterment charges, connection charges).

Risks and Safeguards: Possible risks Include Relending Terms: The Central Government Ineffective provincial management and lack of onlends the proceeds of the Biank Loan to the Provinces continuity In project support. The main safeguards for under the same terms and conditions (15 years, this are the spreading of risk among the five including three years of grace at the standard variable Provinces. This has been sought primarily through the rate of interest) except that the Central Government condition that, If implementation delays occur In some would assume the cross-currency exchange risk and pass provinces, the Initial loan allocatlon by province on the US dollar exchange risk to the Provinces with would be adjusted In favor of those provinces with the condition that any required adjustments In the demonstrated greater Implementation capacity. periodic, dollar-indexed debt service exceeding a plus or minus 10% deviation from the officlal Inflation rate Project Data: Total costs USS240 million of will be credited to/or capitalized in outstanding which 50 percent financed by the Bank, 13.3 percent by provincial debt. In addition, Provinces pay a service the Provinces and 36.7 percent by the municipalities. charge for financial Intermediation of up to I percent Infrastructure Investments are expected to amount to 69 of loan account disbursed. Except for an amount up to percent of total costs, community facilities to inother 5-10 percent of the loan financing technical assistance 9 percent and vehicles and equipment 12 percent. and training, all proceeds of the Bank loan are onlent Project design and administratioa **n** d technical from the provinces assistance and training each account for 5 percent. Foreign costs are estimated at 35 percent of total, An _____________ eight years disbursoment profile has been assumed as See IBRD-7093-AR: ARGENTINA: Municipal Development ARGENTINA: Municipal Development Municipal Development Development for the project.

See IBRD-7093-AR: ARGENTINA: Municipal Development ARGENTINA: Municipal Development Municipal Development Development Project, Staff Appraisal Report, February 26, 1988,