Report No. 23333-ME Mexico State-Level Public Expenditure Review The Case of Guanajuato July 30, 2002 Poverty Reduction and Economic Management Sector Colombia, Mexico and Venezuela Country Management Unit Latin America and the Caribbean Region Document of the World Bank CURRENCY EQUIVALENTS Currency Unit EXCHANGE RATE = US$1 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CEAG Comisi6n Estatal del Agua de Guanajuato CNA Comisi6n Nacional del Agua EDUCAFIN Education Financing Fund FISE Fondo para la Infraestructura Social Estatal FOVI Fondo de Operaci6n y Financiamiento Bancario a la Vivienda IERR internal economic rate of return IMSS Instituto Mexicano del Seguro Social INFONAVIT Instituto del Fondo Nacional de la Vivienda para los Trabajadores ISAPEG Instituto de Salud Puiblica del Estado de Guanajuato ISSEG Instituto de Seguridad Social del Estado de Guanajuato ISSSTE Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado IVEG Instituto de Vivienda del Estado de Guanajuato MMR maternal mortality rate OECD Organization for Economic Cooperation and Development PAC Programa de Ampliaci6n de Cobertura PACE Program for the Expansion of State Coverage PEMEX Petr6leos Mexicanos PER public expenditure reviews SCT Secretarfa de Comunicaciones y Transportes SDN Secretaria de la Defensa Nacional SEDESOL Secretarfa de Desarrollo Social SNTE Sindicato Nacional de Trabajadores de la Educaci6n SOP Secretaria de Obras Publicas SOTRIG Sociedad Operadora de Tren Rdpido Interurbano de Guanajuato SSG Secretarfa de Salud de Guanajuato Vice President: David de Ferranti Country Director: Olivier Lafourcade Sector Director: Emesto May Sector Manager: Mauricio Carrizosa Lead Economist: Marcelo Giugale Task Manager: Steven B. Webb TABLE OF CONTENTS EXECUTIVE SUMMARY ........................................................ I 1. MACROECONOMIC AND SOCIAL OVERVIEW ....................................................... 1 2. FISCAL MAGNITUDES AND BALANCES ....................................................... 5 REVENUE TRENDS ....................................................... 5 AGGREGATE EXPENDITURE ........................................................6 OVERALL BALANCE AND DEBT .....................7...................... 7 PENSIONS ...................9 CONCLUSIONS ........................................................ 1 3. THE SECTORAL ALLOCATION OF PUBLIC SPENDING .................................................... 13 PROGRAMMABLE SPENDING ....................................................... 13 NON-PROGRAMMABLE SPENDING ....................................................... 15 4. EDUCATION CHALLENGES, STRATEGY AND THE USE OF PUBLIC RESOURCES ...17 THE EDUCATION SYSTEM: AN OVERVIEW ....................................................... 17 FINANCE AND SPENDING ....................................................... 19 EDUCATIONAL ACHIEVEMENT ....................................................... 20 CHALLENGES AND ISSUES ....................................................... 21 EDUCATION IN THE GOVERNMENT PLAN 2000-2006 ....................................................... 23 CONCLUSIONS ....................................................... 28 5. THE HEALTH SECTOR: PERFORMANCE AND CHALLENGES ........................................ 34 HEALTH SYSTEM OVERVIEW ........................................................................................3.... ........ . 34 GUANAJUATO HEALTH CARE COVERAGE AND RESOURCES ............................................................ 34 SECTOR PERFORMANCE ............................................................ 35 CHALLENGES FOR THE FUTURE ............................................................ 40 6. TRANSPORT, WATER AND HOUSTING SECTORS ...................................................... 43 TRANSPORT SECTOR ...................................................... 43 WATER SECTOR ...................................................... 48 H OUSING SECTOR ....................................................... 53 STATE COORDINATION WITH MUNICIPALITIES AND THE PRIVATE SECTOR ........................................... 57 7. BUDGETING INSTITU TIONS AND FISCAL OUTCOMES .................................................... 59 AN INSTITUTIONAL EXPLANATION FOR FISCAL OUTCOMES ........................... ........................... 59 FISCAL STABILITY ............................................................. 60 DEFINING PRIORMES AND ASSIGNING RESOURCES ............................................................ 64 EFFICIENT RESOURCE MANAGEMENT ............................................................ 67 SUMMARY: ACHIEVEMENTS AND LIMITS OF FISCAL AND FINANCIAL MANAGEMENT ........... ............... 68 RECOMMENDATIONS ............................................................ 69 REFERENCES ............................................................ 71 APPENDIX TO CHAPTER 4 ............................................................ 72 APPENDIX TO CHAPTER 5 ............................................................ 86 APPENDIX TO CHAPTER 6 ............................................................ 102 NATIONWIDE APPENDIX ............................................................ 108 PREFACE Putting effective public expenditure management systems in place is a major objective to ensure that ... domestic resources and external assistance are used effectively for poverty- reduction purposes. We support the ongoing efforts by the Bank, the IMF and donors to help countries strengthen these systems.... Development Committee, April 2001 States and their municipalities now manage close to half of Mexico's public spending for programs, and the great majority of it in education. The states vary considerably in the way they manage their spending, in terms of fiscal balances, quality of results, and the institutional arrangements. While this happens in many federations, it is a little surprising in Mexico, because around 90 percent of the subnational resources come as transfers from the national level. The national government does not monitor closely the performance of most subnational spending programs, nor does it impose strong standards, even though it has ultimately a responsibility for assuring the programs deliver adequate services. This responsibility seems particularly confused in areas such as education, which the national constitution marks specifically as a government responsibility, but does not specify the level of government. Therefore, a better understanding of state-level spending is required. in order to design reforms not only to the federal system of intergovernmental relations but also to the key sectors where responsibilities have been decentralized to the state and local levels. Also, as the World Bank in Mexico does an increasing share of its lending program for the benefit of states-via the federal government and Banobras-it will need to have public expenditure reviews (PERs) for those states in which it is active. For the State of Mexico, which started an adjustment program in 2000, using the advice of the World Bank and its financing to Banobras, the essential components of a PER were included in the loan preparation. Guanajuato is one of several candidates for the first group of states in which the Mexican government would request the Bank's assistance to develop and finance (via Banobras) an infrastructure investment program. It will therefore be the first state for a self-standing PER. This is an appropriate choice, not only because the state government requested such a review already in 1999, but also because it is by reputation a well-run state, from which a PER would help set the standard for those to follow. The Guanajuato study has seven components: an economic and social overview of the state, analysis of fiscal performance, analysis of the sectoral distribution of state spending, three components on specific sectors-education, health and transport infrastructure-and a review of the institutional arrangements for developing and executing the budget. Except for the first section with background, each will contain recommendations for reforms to address some of the problems identified. These components, especially 2-6, will cover the three standard dimensions of public spending analysis: * Macroeconomic sustainability concerns the evolution of the fiscal balance-not just the total revenues and expenditures but also their principal economic components. For income, this would mean especially the breakdown between own revenues and transfers, but also some differentiation between type of transfer and type of own revenue. For expenditure, this means looking at interest payments (for various types of debt), transfers to municipalities (distinguishing automatic pass through of federal money and transfers of money from state sources), other transfers, investment (implying future spending needs), and salaries. Since salaries are the largest part, it is useful to examine at least 3 categories - federal teacher salaries that are still automatically funded by the states, state teacher salaries that are funded by the state but where raises are effectively determined by the federal level, and other salaries over which the state has control. Guanajuato is not running fiscal deficits at present, and their debt is small, so that will not be an important aspect of this PER. * Sectoral distribution of spending concerns whether adequate resources are going to poverty reduction, through social programs, and growth-enhancing social and infrastructure programs. We look at the balance across sectors and level in sectors, in comparison with other states. Obviously, a key issue in Mexico is how much control the individual states have and how much is determined at the federal level. * The efficiency and effectiveness of the spending (components 4, 5 and 6) focus on the. output indicators and the mix of inputs within each sector. The special considerations of each sector come into play here. The budgeting-institutions component concerns how the government manages the integration of the three previous concerns. This initial state-level PER also includes an annex with an overview of state spending across the nation, in order to provide benchmarks for the individual state studies.' Although the initial audience of the report is the state-level executive, it will eventually have wider circulation. Thus we include recommendations in areas that will require actions by the state congress or the federal government, in addition to those for the state executive. The team producing the report consisted of Eduardo Fernandez, Christian Y. Gonzilez, Gladys Lopez-Acevedo, Claudia Macias, Vicente Paqueo, Thakoor Persaud, Elizabeth Toxtle, Mariana Urbiola, and Steven B. Webb (task manager). Valuable inputs were also received from, Oscar Alvarado and- Anthony James. Marcelo Giugale is the Sector Leader and Olivier Lafourcade is the Country Department Director. Many people in the Government of Guanajuato; especially Rogelio Le6n and Jesus Avalos, provided excellent collaboration in the preparation of this report. The main mission was in May 2001. See also Cabrero and Martinez 2000, which reviews state level spending from the perspective of federal government policy. - i - Mexico: Guanajuato Public Expenditure Review EXECUTIVE SUMMARY 1. Guanajuato offers striking contrasts in both its private and public sectors. Some parts of the private sector have national and world renown - new General Motors, PEMEX, and agro- industry factories, tourism attracted from all over Mexico and North America, shoes exported world wide, and in former times the most important silver mines of the Spanish Empire. But the shoe industry is now declining rapidly, and the poor regions away from the industrial corridor are notable mainly for the extent to which the population, especially the men, are emigrating to find work in other Mexican states and in the United States. GDP per capita is only $2,500, well below the national average, and the extreme poverty index is 0.21 which is above the national average. Guanajuato ranks as the 13th poorest state, out of 32. 2. The problem from an economic and social development point of view is that the new growth private sectors are not as labor intensive as the declining sectors, and the international investments have not yet generated a full complement of small support firms, which are typically more labor intensive. Also the poorer regions away from the industrial corridor lack relevant education and transport connections to provide the population with steady employment while still in their home communities. The solutions will involve improved education, better roads, and busses or trucks to carry the people to jobs in towns and the products from rural areas to urban markets. Up to now, however, Guanajuato has not planned for an economic growth strategy with the corresponding public policies. Getting smallfirms to flourish is always a challenge for public policy. Further easing and simplifying the regulatory regime would help, although Guanajuato is already one of the best Mexican states in this regard. The standard to aim for would be the treatment granted to the large multinationals. 3. Guanajuato's public sector has exceptionally competent management, with no deficits, excellent credit ratings, and creative use of private sector participation in delivering public goods, but education coverage at the secondary and university levels is one of the lowest in the country, especially among the poor. Various agencies in the state have good ideas and some good programs for addressing the social and economic needs. But the programs are relatively isolated and not well coordinated or prioritized under the umbrella of the state's six-year development plan. Current expenditures in education and health have expanded in the last 5 years, only partly with ear-marked federal funding, which raises questions about fiscal sustainability in the medium term. Also, public investment has contracted in real terms. The state is therefore seeking financing for its investment program, and also for advice in reorganizing its procedures for developing such a program. Based on its stated objectives for economic and social development, a coordinated strategy would focus on both supporting economic growth in the industrial corridor and improving the ability of the poor to participate in that economy, through continued restructuring - ii - toward businesses with greater human-capital input. The strategy priority for public spending over the nextfive years seem to be the following: * Expanding educational coverage at the secondary level. * Making adult education more available and affordable, building on the current programs of student loans and grants * Improving transport connections from the northern part of the state with the industrial corridor. * Improving access to housing for the poor in the urban-industrial corridor. 4. Although many individual programs of the state show success, Guanajuato's economy is not growing as fast as the rest of the country and not strongly enough to keep the state's population employed at home. Part of the problem is the inadequacy of total resources. Another part has been the lack of coordination among different parts of the government and between the private and the public sectors, which left the investment activities of the state without a coherent link to the development plan. To improve coordination, the state passed a new planning law in late 2000 and created a Planning Council, with representation from all parts of the state and municipal public sector. The Secretariat of Social Development is the technical secretariat of the Council and is taking on the mandate and authority to perform a planning function for the state, starting with the 2002 budget. It aims to improve the coherence of the programs of the various spending ministries - education, health, and public works -and to ensure that they are explicitly and well financed, although it will take few years to achieve these goals. In his new role, the Secretary of Social Development seems to have authority from the Governor and cooperation of the Secretary of Finance in order to hold sway over the spending ministries. Time will tell if this new arrangement lives up to its promise to improve the quality of the government's program. With a stronger economic and social development program, the government could go to Congress and ultimately the citizens and win approval of the taxation and borrowing necessary tofinance the program. FISCAL MANAGEMENT 5. The fiscal situation in Guanajuato is exceptionally healthy for the short term. During the last five years they have run surpluses, except for a small deficit in 1999. Consequently, the state has very low debt and has a large stock of financial assets (cash available and short-term investment), for the purpose of cushioning revenue shocks. The assets, even if not needed for fiscal management, would not suffice to finance substantially increased investment programs in education, health and basic infrastructure, which the state recognizes as essential to meet pressing social needs. Expanding those programs will require a combination of increased own revenues and a well-managed borrowing program. 6. Revenues. The main income source of all Mexican states is federal transfers, and Guanajuato is no exception. Its own revenue is six percent of its total revenue and comes mainly from annual fees, capital revenue, and collection of federal car taxes that are 100 percent "shared"; there are also three state taxes but their collections are less than 0.5 percent of total revenue. Unlike most Mexican states, Guanajuato does not use the payroll tax, which is the most - lii - important source of own revenues for Mexican states. Transfers from the federal government to the state are mainly composed of aportaciones (54 percent) and participaciones (44 percent). As aportaciones are earmnarked resources by the federal government, the state only controls the allocation of its share of participaciones (four-fifths of total participaciones received; the other fifth goes to municipalities). Guanajuato state revenues - about MxP 2600 per capita - were below the national average of MxP 3500 per capita in 2000, and 29th out of 31 states. (Only Estado de Mexico and Puebla were lower.) As noted below, if the state undertakes the programs that it is considering, and that this report recommends, it will need to increase its current resources. A reform of the National System of Fiscal Coordination might provide some of the necessary increase. If not, the state might also consider introducing the payroll tax, with the explicit purpose (but not earmarking) of paying for these new programs. Either route has the additional advantage of giving the state more control over its revenue. 7. Aggregate Expenditures. About 80 percent of state outlays are actual expenditures on goods and services. Mandatory pass-through of transfers from the federal government to municipalities account for about 20 percent of total outlays; transfers and subsidies chosen by the state are 3 percent. Interest payments are negligible, a fraction of what the government earns on its financial assets. 8. Approximately 48 percent of the state's outlays are for the payroll, and keeping this ratio low is a key objective and achievement of the Secretary of Finance. Much of the state's wage bill depends on union negotiations at the federal level, especially in education, and automatic adjustment of federal transfers pays for only about 68 percent of the effect. The state has few options with which to deal with this source of uncertainty, except to restrain hiring other than for positions automatically paid for by the federal government, which it has done with some success. 9. Capital expenditure has been criticized for being inadequate; it accounts for only five percent of total expenditure. Raising the investment ratio is not a matter of aggregate targets, however, but rather of choosing in each sector the efficient mix of capital, labor and other inputs to achieve the government's strategy, while keeping a macroeconomically sustainable level and mix of expenditures. 10. Transfers to municipalities through aportaciones and participaciones account for 23 percent of current outlays. Most of this is automatic pass through of federal transfers, over which the state has no control. Part of the transfers however, result from a voluntarily decision of the state to give its Fund for State Social Infrastructure (FISE, a part of Ramo 33) to the municipalities to augment the Fund for Municipal Social Infrastructure. These resources could be given in a way that gives the state more influence on local expenditures. While all of the investment of the municipalities is within the state and benefits it, they are not likely to take into account the state-wide benefits (externalities) when they choose investments. Nor in practice do they render accountability to the state for these expenditures, or for their public finances in general. So the state is also left without adequate information to do its own planning. The state could partly remedy these problems if it distributed the FISE and perhaps some of its own funds in the context of performance agreements with the municipalities - voluntary on both sides. Municipalities would get some of the additional funds only if they provide timely and accurate iv - reporting of fiscal and financial data specified by the state. The funds would be available as matching grants (part-passu) for projects that fit into the state priorities, derived from its development plan. 11. Borrowing and Debt. Guanajuato has run fiscal surpluses in recent years, (only a small deficit in 1999). The state's debt stock at the end of 2000 was about MXP 167 million, about one percent of the state's current revenue and less than three percent of the state's participaciones, which are used to guarantee the debt service.2 This debt dates from the 1980s and was rescheduled into ITDIs in 1995, with low servicing cost. Furthermore, the state has liquid financial assets of about 2,500 million pesos, which it invests well to earn a good return and has as a buffer against any unexpected shock to income or costs. It is evaluating how large this buffer needs to be. The state also has considerable untapped borrowing capacity, which it is interested in using to finance infrastructure and education investments. It has an MxAA- credit rating from Standard and Poors and Aal.Mx from Moody's (Baal on the global scale) - good enough to be investment grade and to get the lowest (most favorable) possible capital-risk weighting. 12. The laudable fiscal conservatism in Guanajuato has put the state in a strong financial position, with substantial liquid assets, and it might not need to run further surpluses to increase its cushion against negative fiscal shocks. The report can only lay out the implications of various choices, leaving the ultimate decision to the policymakers. As a benchmark for fiscal shocks, we take the year 1995, when participaciones dropped by 22 percent from the previous year, or 14 percent from the trend of the previous 5 years. By using as needed the current stock of liquid assets, and starting from a situation of balanced budget, the state could endure 3.6 years of 1995- type downturn in participaciones without having to make any reduction in expenditures (other than reductions of education and health personnel spending that would match reductions in the aportaciones). If the state used a combination of cutting investment by half and drawing on liquid assets, it could survive seven years like 1995 without having to borrow. Guanajuato must decide for itself how much it values additional financial security and when the value of additional development expenditures becomes greater. Analytic simulations, with specific borrowing plans and projections of revenue and spending growth, can show the potential trade offs. As it considers how to possibly spend more for social and economic development, two dimensions are critical: the balance of increased spending between investment (flexible) and wages (inflexible), and the use of borrowing, which expands the state's investment opportunities now but increases the inflexible outlays in the future for debt service. 13. Pensions. Guanajuato has one of the better run pension programs for its employees, but the present rate of contributions will not sustain the currently promised benefits for the long term. With current trends the benefit payments would exceed contributions by 2004-07, reserves would be fully depleted early in the next decade, and the government would need to subsidize the pension fund with an amount on the order of one-fifth of ordinary revenues. The state has 2 Almost all the debt of the state central government has been contracted in UDIs (inflation indexed debt) with at a real rate of 7.5 percent. The municipalities and other decentralized entities have debts of about MxP 400 million, legally guaranteed by the state, but collateralized with the participaciones of the corresponding municipalities, which minimizes the chance of calling the state's guarantee. proposed some good reforms, however, moving toward a contribution-defined scheme and making the remaining benefit-defined scheme sustainable. The state should proceed with its plan to move to a contribution defined scheme. It should consider using the national AFORES, rather than creating its own system, in order to save on administrative overhead and to expand opportunities for diversification of investments. SECTORAL ALLOCATION SPENDING 14. As in other states, over half (58 percent) of the state's outlay (egresos) is a pass-through federal funds (for federal teachers, health workers and municipal participaciones). This lack of control on the spending side, as well as on the revenue side, runs contrary to the growing political prominence and sectoral responsibility of the states, calling for some reform from the federal level. The state is also putting some of its own disposable or discretionary resources into education, health, and municipal transfers, along with the federal monies. This indicates that the earmarking by the federal government is not necessary in order to motivate the state to allocate resources to these areas. 15. The sectoral composition of spending in Guanajuato is similar to other Mexican states, as far as the available data (on other states, mostly Estado de Mexico) reveal. Education is by far the largest spending function, with half of total spending and over half of the federally mandated and funded spending. EDUCATION 16. The state has important achievements in the education sector, mainly at the primary level, where the coverage in Guanajuato is over 90 percent and almost equal to the national average. While this meets the objective of generating potential students for the secondary level, it does not prepare a workforce that can earn an adequate wage in the 21st Century. To get a technical education for modern manufacturing and service businesses or to be able to get a university degree in business, engineering, etc., students need to complete the secondary level. Technical education usually begins at the secondary level and often continues afterward. The state has essentially full responsibility for supporting technical education, without federal help, and wishes to expand that role. 17. For the secondary and post secondary levels, the coverage in both urban and rural households is often significantly lower in Guanajuato than the national average, which also drops off sharply compared to the primary level. For all Mexico, 60 percent of 12-14 year olds were enrolled in lower secondary school (1998), but only 51 percent in Guanajuato, and only 35 percent from poor rural families. At the upper secondary level, enrollment was only 27 percent for all Guanajuato and 3.5 percent for poor rural families, compared to 33 and 7.3 percent nationally. In urban areas the problem is an undersupply of places, whereas in some rural areas existing facilities are underutilized, indicating the need for measures to increase the perceived relevance and improve motivation. The average number of years of schooling completed by persons 15 years old and over is only 6.3 years in Guanajuato, a year less than the national average. Students in Guanajuato score below the national average on achievement tests. Thus, - vi - Guanajuato's problems of quality and coverage at upper levels are similar to the rest of Mexico, but more severe. 18. While the best paid jobs in the modem sector go to those who finish secondary and post- secondary schooling, the educational strategy must build from the bottom up, for two reasons. First, the value and pay of university graduates in large numbers depends on having a well- educated workforce below them. In countries that have churned out relatively large numbers of college graduates without a corresponding (larger) complement of secondary school graduates, the result has been a brain-drain exodus of the university graduates. Second, producing a larger number of lower (and upper) secondary school graduates not only increases the value of higher education, it expands the number of students ready to move up and distributes income-earning capacity more equally. Improving educational attainment-one of the five basic objectives in Guanajuato's development plan-needs a specific plan and targets for implementation: * Raise the lower secondary enrollment rate by 20 percent by 2010, which would put Guanajuato ahead of the current national average and would meet a major education sector goal that Mexico joined in endorsing at the 1998 Summit of the Americas. * Increase the quality of lower secondary school curriculum and instruction, both to make them more attractive to students (increasing demand) and to prepare the students betterforfurther study. * Expand Guanajuato's program of scholarships and the PROGRESA program's education component to enhance the motivation forfurther education. * Increase the supply of secondary-school and technical education places to match increasing demand, with particular attention to assure access in rural areas and to avoid locally excess capacity. 19. While education takes the largest share of the state's spending, the majority is not fully under control of the state. The formerly federal schools still have their own administrative structure and personnel rules, and the federal transfers (Ramo 33) are set to cover their salaries. Furthermore the federal negotiations for teachers' salaries effectively apply to state teachers as well, but without a federal transfer to cover the cost automatically. State accountability for education outcomes requires that the federal government reduce its involvement in the sector, focusing on setting standards and supplementing state resources for assuring access and motivation to students from low-income households. HEALTH 20. Guanajuato has comparatively good health outcomes, especially considering that GDP per capita is below the national average and that medical resources per capita in Guanajuato (doctors, nurses, hospital beds and clinics) are only about two-thirds of the national average. Like all of Mexico, several systems operate in parallel, each serving a separate population. The expenditure and resources per client differ widely across systems, with the resources and spending per capita being much lower in the Institute of Public Health of Guanajuato, which is - vii - the only system run by the state itself and which has responsibility for the "open" population, mainly those working in the informal sector and thus not covered by any of the social security programs. These include most of the poor and marginalized population. Percet of Number of Agency Participant Population Percent of Healthcare population Personinel Institute of Public Health of Persons not covered by any other 42.6 6,853 Guanajuato (ISAPEG), agency Mexican Institute of Social Security (IMSS) Workers in formal private sector 48.5 11,281 Federal workers Social Security Federal, state and municipal 7.6 1809 (ISSSTE) workers PEMEX PEMEX workers 547 National Defense (SDN) Armed forces and employees 1 332 Source: secretafa ae salud- 21. Despite the limited resources with which to cover the open population, ISAPEG has an efficient organization and focused mandate, enabling it to assure that virtually all the population - 99.8 percent according to the World Health Organization - has access to a package of high- priority basic health' care. Several programs in the past five years have helped achieve this excellent coverage - construction of 66 health centers and five hospitals by the state, the state and federal programs for Expansion of Coverage (PACE and PAC), and the federal PROGRESA program, which provides a subsidy to eligible poor rural families if they go to get basic health care services. Three steps seem appropriate to improve further the health care for the poor: * Expand to a financially sustainable extent the range of services included in the basic package guaranteed to the open population. This would include measures to prevent and control urban pathologies, like alcohol abuse, drug addiction, violence, and HIVIAIDS. * Strengthen the system for identifying the communities and areas especially needing improved healthcare. More investigation is needed to ascertain whether the health outcomes are satisfactory among the open population where the state has the main responsibility. * Develop and implement a plan to upgrade or replace outdated health facilities and to build new ones in the areas of highest need. 22. In Guanajuato, as in the rest of Mexico, each healthcare system is relatively isolated and vertically integrated with financing and provision at all levels. The multiplicity of agencies financing and providing healthcare is not itself a problem, for it opens the possibility for competition. The problem is that each household is assigned to a single agency according to employment status (or lack there of), with no competition and limited sharing of facilities across systems, although Guanajuato has more coordination across systems than some other states. - viii - To improve both efficiency and quality of service, Guanajuato could move toward a system where the existing agencies - State Health Institute, (national) Social Security, etc. - focus on providing financing or insurance to their participants, while the (groups of) hospitals and clinics operate as relatively autonomous cost/revenue centers that provide service to patients from various groups and receive the corresponding payments. As a transition, each agency would separate the accounts for their provision and financing, and the hospitals and clinics would sell (increased amounts) services across agencies. The state Secretary of Health would focus bn system-wide planning, regulatory and supervision functions. Into this context, the state could arrange public financing for the open population to get services from private-sector providers in cases where it is cost-effective. TRANSPORT AND URBAN INFRASTRUCTURE. 23. Transport. Roads are the most important area of state spending on infrastructure, while water and housing have considerable state involvement without as much spending. State expenditures for road investment and maintenance have varied considerably in recent years, with a peak in 2000, perhaps for political reasons. Roads in Guanajuato compare favorably with the national averages for density and per capita mileage, and for quality and cost of maintenance. State roads are typically better maintained than federal roads With the investments planned for 2001, every municipal capital will have all-weather access to the federal highway network. That still leaves many rural communities without adequate links to the wider economy, however, especially where most households cannot afford their own vehicles and depend on public transport. 24. In addition to the free roads provided by the various levels of government, Guanajuato has six toll roads, all in or near the industrial corridor. The state runs one, a short distance between the capital and highway 17 along the spine of the industrial corridor, and has plans for a longer one to connect the industrial corridor with the main city in the northwest, an underdeveloped part of the state. To finance the road, the state is using a combination of bond issues and land transactions - using eminent domain to purchase undeveloped land around the road and then reselling it at post-development prices. This tactic made profits on the Guanajuato-Silao route, and, while it does tie up the state's capital, it may be a more secure means of financing than relying on increased property tax returns, which would in any case go to the municipalities. To improve its road planning, the state needs to work from a unified economic and social development strategy. With stronger planning, more spending might well be justified, and (only) then should it seek resources from a combination of borrowing and additional current resources. The government's plan indicates three priorities in the road area: (1) Maintenance (2) Roads connecting the northern part of the state to the industrial corridor (3) Private concessions for toll-roads in the industrial corridor. - ix- The road planning and maintenance model, already better than in most states, needs to take account of the potential gains from improved property values and social-development considerations. The role of govemment to expand the extent and quality of roads for rural areas is clear, but not the division of responsibility between the federal, state and municipal levels. State matching grants and technical assistance programs to municipalities would help to stimulate municipal effort in maintenance of local roads. Also unclear is the appropriate role (if any) of government in promoting public transport services. Large firms already provide some service for their workers, and perhaps regulatory changes or modest cash incentives could get them to expand the availability of the services to other workers. 25. The state is considering giving a concession to a private consortium to build a light rail line along the length of the industrial corridor. The consortium predicts that fares will cover the capital as well as operating costs. The forecasts appear to be based on optimistic assumptions about ridership, however, and the suppression of competing bus lines. The consortium is requesting a government guarantee for the bonds to finance it. Given the uncertain basis of the projections, and the damage that a call of the guarantee could do to state finances, the state should not support the project with a guarantee. A good regulatory framework for private-sector operators and a program of mortgage (or leasing) financing of modern buses will improve public transport more quickly and efficiently. 26. Water. Water scarcity in Guanajuato is severe and worsening. Poor allocation and inefficiencies exacerbate the situation; over four-fifths of water is used for irrigation, free of charge, mostly for cultivators of high water-consuming crops. In urban areas, high connection levels mask widespread system inefficiencies; two-thirds of water is unaccounted for, due to physical and commercial reasons. As in most Mexican states, municipal and federal agencies do the operational activity, and Guanajuato's State Water Commission (CEAG) focuses on planning, technical assistance and coordination roles. Only two percent of the state's discretionary spending goes to the water sector. A few companies (Leon, Guanajuato) show high efficiency, but most require intensive strengthening to make service adequate. Tariffs are on average below operating costs, and there are no provisions for replacement of the aging infrastructure and related facilities or for system expansion. A federal monopoly on regulation of water pricing and allocation has been sending the wrong signals and contributing to the inefficiencies. While the National Water Commission (CNA) manages the allocation of water resources, the state could work with CNA on programs that focus on water conservation and more efficient use, rather than increasing use by building more infrastructure such as dams, and deeper wells. Rationalizing agricultural demand through more efficient canals and irrigation systems, and cultivation of high-price crops with lower water needs will avoid more painful and costly adjustments in the future. For potable water, high priority should be given to promoting greater efficiency and financial and administrative autonomy of municipal companies. They need to curb high losses of water, adjust the tariff structure to reflect the true service cost, and improve collection. The state's regulatory framework should be streamlined and strengthened, with clearer operating rules and pricing regulations, minimum water quality standards, and performance targets. Apart from improving operation in the sector with greater access for the poor, a sound regulatory and supervisory framework will also increase private-sector participation in the sector. CEAG is doing a commendable task in keeping statistics and other infornation on the water and sanitation sector. With some incremental effort, this database could be upgraded into a useful benchmarking tool and a model for other utilities in Mexico. Benchmarking would also promote greater accountability of water entities, since their results would be accessible to both users. and the national and state governments. In rural areas, more emphasis should be given to forming cooperatives among beneficiary clusters. Instead of displacing existing private water vendors, the state should work with them to ensure minimum standards for water quality, service reliability and prices, which will reduce the state expenditures for new tanker trucks, operators and maintenance and will encourage private-sector initiatives. 27. Housing. While lack of housing is not an active constraint to economic growth, because of slow population growth and considerable out-migration, it is a latent constraint that would come to the fore if demand for new workers accelerates. Guanajuato follows the usual practice in Mexico of facilitating housing development, rather than financing it, which is commendable. Thus state spending there is low, only about half of a percent of discretionary spending. While the limited role of the state makes sense overall, it needs to be integrated with the wider strategy of economic and social development. Instead of buying and urbanizing land, the state should start reforming the system that limits land-accessibility and contributes to dependence upon state intermediation. The state should target its funding to upgrade the infrastructure in existing neighborhoods and assist households to improve their existing units with a wide range of programs, depending upon the current living condition of the target households. PLANNING AND BUDGETING INSTITUTIONS 28. The institutional strengths of the planning and budgeting in Guanajuato are responsible for its successes in spending and finances since the mid 1990s. The effective control over expenditures and the surplus result from several features of the budgeting and spending process: The Secretariat of Finance starts the budget process by setting first the resource envelope on the basis of conservative revenue assumptions. The Congress has always in recent years left unchanged the overall spending envelope determined by the executive, but it does review and sometimes revises the details of individual programs, projects, and their performance targets. The fiscal information system is excellent, allowing the Secretariat to maintain control over the execution of the budget and to have no spending in excess of what was budgeted, and not even - xl - any expenditure in excess of the inflow of resources. The government continues to refine its cash management procedures, to keep spending during each month closely in line with revenues already realized. Given the originally conservative revenue estimates, the usual outcome in recent years has been a surplus, even though the spending budgets have been essentially fully executed. Any modification to the budget requires the approval of the Secretariat of Finance, and then also of Congress for substantial changes. These valuable institutions for control and transparency should be maintained. The persistent bias toward a surplus could be remedied with improvements to the planning function, so that unanticipated revenues could be put into pre-approved investments. 29. The state has also used its information system to support a serious program of auditing and ex post evaluation, managed by the Secretariat of Control, which has technical capacity and authority to decide on audits and impose sanctions when it discovers irregularities. Strengthening the authority and technical capacity of the Secretariat of Control should continue. 30. Until recently, planning has not linked investment plans with the government's action plan and has lacked coordination across sectors and among municipalities, as noted earlier. The six-year development plan of the government has not been costed out and linked with a financial plan. The establishment of the Planning Council, under the leadership of the Secretary of Social Development, aims to address these problems. The Planning Council should continue to develop the authority and capacity to decide what programs of the line secretariats fit within the government's plan and, in coordination with the Secretariat of Finance, should approve funding only for the appropriate programs. Medium- and long-term planning with revenues and financing are needed to support the planning for spending. 31. The state has in recent years transferred funds to municipalities without any earmarking or conditionality, in addition to the funds that the municipalities already get from the federal government as participaciones and aportaciones. There are, however, unmet needs that span more than one municipality, and the state has the perspective and responsibility to recognize them. With the municipalities, a state planning agency will have less legal authority, but it can still earmark transfers of state resources and set conditions in order to motivate harmonization of the municipal programs with state-wide priorities. Cofinancing programs can leverage the state's resources by bringing in municipal resources for projects with benefits perceived at both levels of government. 1. MACROECONOMIC AND SOCIAL OVERVIEW 1.1 Guanajuato fell behind the rest of the country in GDP per capita in the 20th century, and in recent years has only held onto its relative position, with GDP per capita growing in the late 1990s at the same rate as the rest of the country. Manufacturing industry and agribusiness have fueled some growth, but less so than in the rest of Mexico. Part of Guanajuato's keeping up in per capita terms has come from reduction in the population, especially from emigration. While there is nothing wrong with some emigration, convergence of living standards with the rest of Mexico, not to mention the rest of North America, will require another strategy, one that emphasizes some combination of increased investment in physical and human capital. 1.2 Guanajuato is a middle size Mexican state with a population of 4.6 million and growing at a 1.3 percent annual rate. It is situated in Central Mexico, and its neighboring states are Aguascalientes, Jalisco, Michoacan, Queretaro, and San Luis Potosi. The population of the state is predominantly urban (67.2 percent). Guanajuato has 46 municipalities; around 37 percent of the population lives in the cities of Celaya, Irapuato, Leon, and Salamanca, the largest industrial centers of the state. Population in this industrial corridor is growing rapidly, with the population rising from 143 persons per square kilometer in 1995 to 150 in 2000. 1.3 The preliminary results of the 2000 Census show that the structure of the population is almost 52 percent women and 48 percent men. The population in Guanajuato is predominantly young: 48 percent of the population is 19 years and younger, and 35 percent is 20 to 40 years old. The indigenous population in the state is only about 0.1 percent of the total. Guanajuato has one of the highest emigration rates of any state and accounts for about 12 percent of Mexico's emigrants, the majority of whom go to the United States. 1.4 Guanajuato has a GDP per capita of about 25,000 pesos and accounts for approximately 3.3 percent of the national GDP. During the last five years, Guanajuato's GDP growth rate has averaged five percent per year, slower than the national average by about as much as the population growth. Thus the GDP per capita in the state has grown at nearly the same rate as the national average, but the state's total GDP has declined as a share of the national total. Guanajuato still has the eighth largest state GDP, with strong manufacturing and services sectors. The manufacturing sector represents a little over one-fifth of the state GDP; the most important industries are food processing, textiles, shoes and apparel, and chemicals. Other industries include, automotive assembly, mining, metal-mechanics (machinery and equipment), and artisan crafts. Within the industrial corridor the cities grow at a faster rate than in the more agricultural regions to the north and south. - 2- Fig. 1.1. State Gross Domestic Product (1993 MxP thousands) 50,000,000 45,000,000 40,000.000 --- -- 35.000,000 30.000,000- -S-GDP Man. Sector 2 0 0GDP Shoe industry 20 0 GDP Agr. 15.000.0000 10,000,000 5,000,00 ;*- - Z - 2 ne A~~~~~~~~~~~~~~~~~A 0 1993 1994 1995 1996 1997 1998 Source: INEGI 1.5 During recent years foreign exports have increased dramatically, from 1.5 billion dollars in 1995 to 4.6 billion in 1999. Foreign exports represent 35 percent of the state's economy and 67 percent of these exports come from the General Motors plant in Silao. Most of Guanajuato's foreign exports- 85 percent- go to the United States, with much smaller amounts going to Canada, Saudi Arabia, France, Guatemala, Germany, Kuwait, Spain, and the Dominican Republic. Foreign imports were $U.S. 4.4 billion in 1999, so the trade balance of the state in that year had a surplus of $U.S. 200 million. Sales to the rest of Mexico equaled 46 percent of GDP in 1993. Table 1.1 Guanajuato's Foreign trade (millions of U.S. dollars) Concept 1997 1998 1999 Foreign Exports 3,676.1 4,199.8 4,600 Foreign Imports 1,816.8 1,982.2 4,400 Trade Balance 1,859.3 2,217.6 200 source: 1NI(J-C :E 1.6 Foreign investment to Guanajuato increased dramatically, from $U.S. 200 million in 1995 to 1,450 million in 2000. Around 90 percent of foreign investment comes from the United States , with 5 and 4 percent from Germany and Spain, respectively. Most of it is for the metal- mechanics and automotive industries, with 73 percent going to the industrial corridor, and only 15 and 12 percent going to the southern and northern regions, respectively. - 3 - 1.7 The shoe and textile industry are the largest employers (almost 10 percent of total employees) and used to represent the highest share of foreign exports of the state. Recently these two sectors lost competitiveness to other countries such as Brazil, China, Italy, and Spain, and many firms now face the decision whether to shutdown or not. Since these industries are much more labor intensive than the growing automotive and metal-mechanics industries, this shift creates a problem of sustaining labor demand and employment. For example, General Motors employs 10,000 workers but this represents only 13 percent of the workers employed by the shoe industry. Unemployment in the state dropped from 4 percent in 1995 to 1.1 percent in 1999, thanks to Mexico's general economic recovery and the high rate of emigration from the state. But this situation has likely worsened with the recession in both the U.S. and Mexico. Table 1.2 Value Added of Manufacturing Sector Industry Total Percentage Food 1,390.24 21.50% Textile and shoe 1,610.71 24.91% Wood and furniture 49.33 0.76% Paper 183.03 2.83% Chemical 25,202.19 34.05% Mineral products 257.26 3.98% Mining 61.49 0.95% Machinery and equipment 708.05 10.95% Other 4.81 0.07% Total 6,467.11 100% Sowre: Censo Econonrico IY94 1.8 The state's extreme poverty index is 0.21, which is higher than the national average, and according to INEGI Guanajuato ranks as the 13'h poorest state in the country out of 32, with a concentration of poverty in the northern and southern regions of the state. Nevertheless, the distribution of income in Guanajuato is more equal than the national average, although inequality has been increasing. Below-average school attendance, grade-level achievement, and graduation rates in secondary schools, as discussed in Chapter 4, seems to be an important contributor to inequality. People from the northern and southern regions often emigrate to the richer faster- growing areas of Guanajuato and the rest of Mexico, as well as abroad. Table 1.3 Indicators of Income Inequality National Gini Guanajuato's Gini (Household per capita income) (Household per capita income) 1996 0.52 0.46 1998 0.54 0.49 Source: World blank Stat Calculations. 1.9 In a global economy, the population needs the capacity to learn quickly and take advantage of current information and emerging technologies. In most of the firms of Guanajuato's shoe industry, the production time is longer than in other countries, and techniques such as just-in-time are uncommon. Education is critical to enhance the productivity of the - 4 - declining industrial sectors as well as to develop new competitive industrial clusters in the state. A little over half of the population is concentrated in the industrial areas, which have relatively good access to education, health, employment, housing and other public services. The population elsewhere, in dispersed settlements, often lacks adequate access to these services. 1.10 Shortage of water seriously constrains Guanajuato's economic development. The state is very arid, with approximately 700 mm of rainfall annually, and mountainous (average altitude of just over 1,800 m. above sea level). About 4.3 billion cubic meters of water enters Guanajuato's aquifers and drainage system annually. But wells take out about 5.8 billion of cubic meters annually-an overdraw of about 1.5 billion cubic meters. Water consumption goes: 88 percent for agriculture, 11 percent for domestic households, and only 1.3 percent for industry. While the high share for agriculture is common internationally and in other Mexican states, it is excessive for an extremely arid place. Sustainable development will need to take better account to the state's comparative advantage in activities that use little water. 1.11 Roads are strategic for economic and social development of rural regions. Nevertheless the authorities need to find a balance between 1) providing overly costly infrastructure to villages that may not exist by the end of the decade and 2) providing too little, so that the residents have no access to the transport system. 1.12 Mexico's integration into the global economy has changed Guanajuato's social needs and potential engines of growth. The state needs a strategic plan for developing industrial clusters. Government spending for social and physical infrastructure should then be targeted to fulfill the demands of this strategic plan and to allow Guanajuato to grow in a sustainable way in the 21" Century. - 5 - 2. FISCAL MAGNITUDES AND BALANCES 2.1 Guanajuato's fiscal outcomes in the last decade show positive overall fiscal balances, in contrast to the results of some other states in Mexico. Guanajuato has kept its debt at low levels, almost nil once the effects of the restructuring process of 1995 are taken into account. Moreover, the State has financial savings that now represent more than three times capital expenditures budgeted for year 2001. 2.2 This chapter highlights the main features of Guanajuato's fiscal structure that explain its fiscal balances and evaluates the sustainability of the present fiscal tendencies and their effects on the provision of public goods and services. It also considers the role for financial savings as coverage against the uncertainty of federal transfers and their cost in terms of forgone investment opportunities. Finally, it discusses the pension system for state workers, its potential to disrupt state finances, and the ongoing ideas for its reform.. REVENUE TRENDS 2.3 Like the other states in Mexico, Guanajuato depends on transfers from the Federal government for close to 95 percent of total revenues: aportaciones (55 percent) and participaciones (40 percent). These transfers have grown rapidly-aportaciones by one-third during the period 1998-2000 and participaciones by almost half since 1996, both in real terms. While aportaciones grew steadily, participaciones followed the unstable path of federal resources, mostly due to fluctuating oil prices and revenues (see Table 2.1). 2.4 The state's own revenues are low, as in other states, but have two particular characteristics-large financial revenues and no payroll tax. Among the state's revenues, financial products (earnings from its invested portfolio of liquid assets) are roughly half of own revenues - enough to pay for half of capital expenditures. The remaining revenues come from a long list of fees and user charges, mostly local, which correspond to 27 of the 33 articles of the tax law. In contrast to most states, Guanajuato has no payroll tax. A proposal for the tax was rejected by Congress under the previous administration. With a strong and popular justification, however, such as the goal of universal access to secondary school, passage of the tax might be politically feasible. Judging from the experience in other states, where the rate is usually around 2 percent, Guanajuato could expect to raise revenues equal to at least 0.2 percent of GDP, approximately 331 millions of pesos, which equals 17 percent of the state's current spending on education, and 70 percent of capital expenditures. Before choosing such a path, the state will presumably wait to see the outcome of the national fiscal reform, which may devolve additional tax bases and revenues to the states. - 6 - Table 2.1 Revenues (2000 MxP million) State's own Revenues 1996 1997 1998 1999 2000 2001 Taxes 40.2 47.4 81.9 63.7 71.7 87.6 Fees 238.2 274.8 364.1 312.2 347.7 537.1 Public Security Fund 19.3 Special contributions 0.03 0.15 Financial Products 357.6 315 476.1 584.4 381.9 250.2 Car Registration 335.8 339.2 332.9 ISAN 98 159.7 203.3 Gross Federal Transfers Participaciones 4,170.2 4,861.8 4,811.3 5,135.9 6,152.6 6,478.2 Aportaciones (1) 3,337.5 4,519.5 5,647.5 6,790.9 7,881.3 Total Gross Revenues 8,143.8 10,018.5 11,898.3 13,474.7 15,484.1 16,144.8 Net Federal Transfers (2) Participaciones 3,336.2 3,889.5 3,849 4,108.7 4,922.1 5,182.6 Aportaciones 3,337.5 4,519.5 1,404.5 1,593.9 1,881.8 Total Net Revenues (3) 2,171.7 2,687.6 2,975.7 3,274.4 3,775 (I) F-or 1996 and IV9I, tres ngure uclcUdes car registracon and Io AN (2) Net of tiransfers to municipalities (3) States Disposable Revenues Source: State Budget of Guanajualo. AGGREGATE EXPENDITURE 2.5 About half of the state's expenditure is with federal resources that are earmarked for education, health, and municipal transfers. While the state is spending more than these amounts in the corresponding sectors, as explained in chapter 3, the earmarked amounts are not at the state's discretion. The state's discretionary spending is with the resources it raised for itself and from the unearmarked transfers - participaciones. Expenditures have increased in real terms in the last decade, particularly the state government's share in education and health. In 1998-2000, state education outlays increased by almost 50 percent and health outlays by almost 90 percent. On the other hand, capital expenditures have declined, particularly for education infrastructure. Table 2.2 Programmable Expenditures (2000 MxP million) 1998 1999 2000 Programmable Expenditures 4,150.2 4,926.8 5,868.7 o.w. Education 1,787.6 2,131 2,684.9 o.w. Health 194.3 209.1 366.6 Capital Expenditure 629.1 534.6 556.6 o.w. Urban develop. and public infrastructure 205.4 219.1 342.2 o.w. Education infrastructure 249.2 29.7 -37.9 Total Expenditures 4,787.1 5,472.8 6,432.3 Norc:I Ihe expenaituir shown arc itose under thc contrd of tILe state government; alu tbe armiarke tecral govemrnt tianders ae bee un M out Source: State Budget of Guanajuato. - 7 - 2.6 Current expenditures other than for education and health have been controlled, although expenses for security, law and order and other public services have increased 30 percent in real terms since 1998, in response to the mounting pressures for these services. 2.7 Municipalities have taken the lead in providing public goods and services at the local level, as federal and state transfers to municipalities (Ramo 33 and participaciones) have increased three-fold in* real terms since 1996. The Ramo 33 transfers from the Federal government equal twice the amount of resources devoted by the State to capital investment. Although there is no direct evidence, the increasing transfers to municipalities seem to have decreased their willingness to collect own revenues, especially property taxes. OVERALL BALANCE AND DEBT 2.8 Basically, Guanajuato has no state debt, due to its long tradition against borrowing. The state debt, now about MxP 167 million, almost disappeared after the restructuring process of 1995. The debt service is negligible (0.001 percent of the expenditure budget). 2.9 Guanajuato has no legal debt ceiling, and has not needed one evidently. If it begins to borrow more, it might consider such a ceiling. Based on experience elsewhere in Mexico and Latin America, the ceiling should take account of the political cycle-being relatively loose at the beginning of a governor's term but tightening down at the end. In this way, each governor will have some opportunity to borrow to start his or her programs but will not be able to leave a huge debt load for the successor. Borrowing should have a public discussion and approval process, and for large loans perhaps even require a referendum and some increment to state taxes earmarked to pay debt service, as some states in the United States require. 2.10 Guanajuato' fiscal accounts show positive overall balances since 1996. It is an impressive record, achieved by adjusting current and capital expenditures to conform to the magnitude of the transfers from the Federal government. State authorities have accommodated major expenses such as education, health and bureaucracy payrolls, and municipal transfers, within the limits imposed by the availability of federal resources. In 1998-2000, State income grew by one fourth in real terms, and current expenditures grew more, by one-third, but capital investment, the adjustment variable, declined about one-tenth in real terms. Sustainability of Guanajuato's fiscal and financing structure 2.11 The positive fiscal balances-a major accomplishment-attests to the absence of any immediate problem of sustainability, but there are two long-term issues to watch: * The decline of capital investment is unsustainable for the long-term, given the increasing pressure to improve social indicators as well as the mounting requirements for better infrastructure. Without extra revenue effort by the state, perhaps to be facilitated by the national fiscal reform, imbalances may result. * While the state's debt and its service do not represent any problem for the overall balance, there is an increasing tendency for municipalities and autonomous organisms to contract debt, which may become worrisome in the future. The decentralized debt of municipalities (MxP 545 million) is manageable at present, as municipalities have enough revenue to - 8 - service it. But these debts might out-grow the federal and state transfers. Guanajuato lacks a clear institutional framework to establish the size and purposes of these loans and also lacks mechanisms to follow up the implementation and results of the capital projects. Financial savings and public expenditures in Guanajuato. 2.12 For the last eight years Guanajuato has successfully invested an increasing amount of public savings in financial assets. See Table 2.3. This year a special unit in the Secretary of Finances expects to manage an average portfolio of MxP 2,500 million. Returns on this investment, MxP 380 million, provide over half of own revenues and almost half of the resources needed to finance capital expenditures. The assets ensure liquidity to run the treasury and especially a smooth payment system. Table 2.3 Investment Fund of Guanajuato Year Average Balance Earnings Nominal Rate Real Rate (MxP millon, current) of Return of Return (MxP million, current) 1993 351 1994 356 1995 345 1996 570 213 37% 7% 1997 839 217 25% 8% 1998 1,295 389 30% 10% 1999 1,476 537 35% 20% 2000 1,527 382 25% 15% July 2001 2,295 aouwre: Scue Hudget ot (iuatajuato. 2.13 The roots of this fund trace back to the early nineties when the government wanted to avoid the impact of voluntary and involuntary changes in federal transfers and therefore decided on the strategy to smooth its fiscal operation. Since then the fund has grown steadily and unquestioned. The success of the fund in meeting its original objectives and the search for more resources to pay for social and infrastructure services raises the question of how large the fund should be. Box 2.1 analyzes how well the fund at its present size provides coverage against the risk of a drop in federal transfers, which is its stated purpose. Based on these scenarios, and considering that the state's finances recovered in one and a half years after the 1995 crisis, the level of assets now seems sufficient to guard against revenue fluctuations, unless the government expects something worse than in the 1990s. 2.14 The rate of return on the portfolio has averaged 11 in real terms since the mid 1990s, which provides a useful benchmark for judging the economic rate of return on public investment and spending in general. The focus of such comparisons should be, not to retain funds in the state's investment portfolio, but rather to identify and develop public investments with high social and economic returns. Chapters 4, 5, and 6 discuss some such projects. - 9 - Box 2.1: How much security do Guanajuato's Liquid Assets provide? This box aims to give policymakers some criteria for judging the size of the reserves needed to smooth out negative shocks to reserves. For Guanajuato and other Mexican states the main risk would come from a sharp fall in participaciones, 40 percent of total revenue. (While aportaciones represent an even larger share, most of them are earmarked for teachers' salaries and municipal transfers, so that the outlay varies automaticaly with the income, and vice versa.) In the past 15 years the largest negative shock to participaciones was the 14 percent drop in 1995, when the economic crisis hurt national revenues (see chart), so we take that as our benchmark. The table below shows two scenarios of different reactions to a decrease in participaciones of 14 percent, asking how long the state could live off of its assets. In the first scenario the state makes no cuts on expenditures (and no increase of own revenue), and in the second scenario the state would cut capital expenditures by one half. Under the first scenario, the state could finance expenditures by using its fund for over three and a half years. In the second scenario, the fund would last for over seven years. |Scenario 1 Scenario 2 Current Expenditures 11,193 11,193 Capital Expenditures 679 339 Total Expenditures 11,872 11,533 Participaciones 6,153 6,153 Participaciones received after shock 5,291 5,291 Drop in Revenues 689 689 Cut on Investment 339 Cut on Current Exp. Amount Needed from Reserves 689 350 Current Reserves 2,500 2,500 Number of Years 3.63 7.15 finance by reserves Soure: World Is a Sia CalCcutahOn. PENSIONS 2.15 Recent experiences in Argentina and Brazil show that subnational pension funds are important, and potentially dangerous, for state-level finances and even national macroeconomic stability. In Latin America, countries like Argentina, Bolivia, Chile, Colombia, Peru and Mexico have moved towards at least partial privatization of national pension schemes, but-in Mexico and some others the private funds do not include civil servants. 2.16 State and parastatal employees in Guanajuato (and the capital city) receive social security benefits through the Instituto de Seguridad Social del Estado de Guanajuato (ISSEG), based on the Law of Social Security that replaced the Law of Pensions in 1977. Apart from the provision of old age, disability and survivor benefits, ISSEG also provides loans and mortgage services. It also operates some pharmacies, but the health care and insurance are handle by the federal employees' social security institute (ISSSTE). Employers and employees each contribute 9 - 10- percent of wages to the ISSEG-18 percent in total, although only 8.14 percent is explicitly earmarked for pensions, less than one half of the total collection. The pension system has defined benefits, which commence at the age of 50 for individuals having at least 15 years of service. Or individuals can claim retirement benefits at any age provided they complete 30 years of contributions if male or 28 years if female. Benefits are not indexed to inflation or nominal wages, in contrast to many systems that erroneously index pension benefits to nominal wages. There are approximately 35,600 contributors and about 3,600 pensioners at present. The average contributor is 38 years old and has accumulated about 11 years of contributions, implying a young, but rapidly maturing system, as shown in Figure 2.1. 2.17 Like other state pension plans in Mexico, ISSEG provides generous benefits - based on final-year earnings. Although the dependency ratio (ratio of beneficiaries to contributors) is low (now about 11 percent), the large cohorts reaching retirement age soon will bring heavy and unsustainable fiscal deficits. The number of retirees will likely double in the next 7 years. Maturing of the system will necessitate costly resource transfers in the future unless the parameters change, and to some extent even if they do. In a wide variety of scenarios, simulations indicate that pension expenditures will exceed pension revenues in 2004-05; and these financing gaps will have exhausted the reserves by 2014-15.3 Thus, the system's financial reserves of approximately MxP 1,203.6 million provide only a thin veneer of financial solvency, not one to last. 2.18 Currently, a retiree may expect to receive benefits for over 20 years after retirement while having contributed for only 15 years by the age of 50. With increasing life expectancies, the situation is further exacerbated. Towards the end of the simulation horizon, a civil service retiree in Guanajuato may expect to receive benefits for almost 30 years. Clearly, any policy aimed at controlling government expenditures on pensions must address the growing dependency burden. 2.19 To address the emerging deficits and the funding problem, raising contribution rates is not a practical solution. Figure 2.2 shows the contribution rates that will be necessary to keep up the current retirement ages and benefit levels-on the order of 26-40 percent for pensions alone. (The amounts by which the necessary contribution rates exceed the current legal rates indicates the magnitude of impending deficits, as a percent of the wage bill, if the current parameters simply continue.) Such rates are not only politically infeasible, they also imply a huge fiscal burden, since the government is the employer and main contributor to the system. 2.20 The future liabilities of the state's pension system will create a huge fiscal burden to the state. According to the simulations, the deficit in the pension system will be between MxP 250 to 277 million, which would be the equivalent of 17.5 to 20 percent of the state's own revenues at present - clearly a major disruption to the state's otherwise rosy fiscal picture. The reform proposals in Guanajuato include increasing the retirement age and curtailing benefits in the PAYG pillar, while adding on a contribution-defined capitalized scheme. 3 The pessimistic case has no growth in the number of employees and only 3 percent real earnings on assets in the fund. The most optimistic case has employees growing at 2 percent per year and a real return of 5 percent on the fund. Our assumptions on the starting value for the pension fund balance was derived from actuarial surveys. - 11 - Figure 2.1 Distribution of current contributors by age JIAW *-__ 16W Dt/ 1400 100 rODD t:: el N 3 t 0 A A A 0 X 8 Si A Y ti S 2 S G S D l 8 Age Soure: World Bank Staff Calculations. Figure 2.2: Required contribution rates for pensions at current benefit levels 50.00°h Legal Conibulons 45.00°b --- - - - - Bass Case (A) x.x*xx*x*xx.xx 40.00YO Base Case (D) xxx X.X' x 35.00°h %X x 'X x I-x Xx x x m 30.00% X at i 25.00% at 20.00% - 15.00% x._ 10.00°h% 5.00%/ x 0.00% Source World Bank Staff Calculations. CONCLUSIONS. 2.21 Guanajuato is clearly a well-run state, as the public managers have learned to spend only what they can afford - thus running positive overall fiscal balances for the last five years while meet pressing demands, especially for education. Nonetheless, the suppression of capital investment as the adjustment variable and its continuous fall since 1997 is a warning signal. This is not a sustainable path for the future when there are pressing demands associated with the - 12- social indicators in the State being below national averages and the economic infrastructure and human capital being inadequate to confront economic opportunities and competition. 2.22 If the Guanajuato state government decides to increase social and economic investment it will need more resources, and a good plan for using them, as discussed in subsequent chapters. Some resources for capital investment could come from borrowing, which the state could readily do with its good credit rating. Others rnight come from a reform of the national system of fiscal coordination, which is still uncertain in magnitude and timing, or the state could introduce the payroll tax, as in most other Mexican states. For both political and economic reasons, the state should raise taxes on its own or in collaboration with the federal government only if it will pay for valuable additional public services, such as expanded education for the poor. - 13 - 3. THE SECTORAL ALLOCATION OF PUBLIC SPENDING 3.1 This chapter considers the sector allocation of public spending by the government of Guanajuato, both in relation to the state development strategy and in the context of overall spending for public services in Guanajuato. The latter is important because state government spending goes to only certain sectors or parts of sectors, with others being assigned to the federal and municipal levels. 3.2 The comparisons with other states focus on Estado de Mexico, because that is the only other state from which we have detailed data. One must bear in mind that the differences in the allocation of resources of these states might arise in part from their basic social and economic characteristics, rather than the nature of the government process for spending decisions. Also, governments in both states have much less resources per capita than the average for Mexico and than most other states, because they receive less per capita. 3.3 Spending allocation can be analyzed in several ways. This chapter looks at programmable spending and discretionary spending. Programmable spending goes for the programs of the state, and is thus net of interest payments and transfers to municipalities. The allocation of programmable spending indicates the areas of most importance in the state budget, but does not necessarily reflect directly the priorities of the state government. Discretionary spending may reflect more the priorities of the state, as they are programmable expenditures and transfers to municipalities that are not made with earmarked resources from the federal government. Table 3.1 below identifies programmable and non-programmable spending, and discretionary spending and that done with earmarked federal resources. PROGRAMMABLE SPENDING 3.4 In Guanajuato the state puts a considerable amount of its discretionary resources into each of the three areas with federally earmarked transfers - education, health, and municipal investment transfers. From this one may conclude that, to a first approximation, the federal earmarking does not constrain or alter very much the way that the state allocates spending. Thus the total allocations may be taken to reflect the priorities of the state. - 14- Table 3.1. Overview of public spending within Guanajuato (2000, MxP per capita) Guanajuato Estado de Mexico Ste Federal TtlFederal Tol State Direct TtlDirect Toa Spending Spending, Spending Spending, Spending Programmable 2,549 2,679.5 5,228. 2,381 1,817.5 4,198.5 Education 1,568.1 238.8 1,806.9 1,459 125.1 1,584.1 Ramo 33 1,000.1 847.1 Other Funding 568 611.9 Health 248.1 n.a. n.a. 245.1 n.a. n.a. Ramo33 169.6 194.4 Other Funding 78.5 50.7 Transport 83.6 45.9 129.5 42.2 23.2 65.4 Water' 30 n.a. n.a. 26.7 n.a. n.a. Housing2 7.2 n.a. n.a. 2.2 n.a. n.a. Security 49.8 n.a. n.a. 42.7 n.a. n.a. Auditing 8.7 n.a. n.a. 7.9 n.a. n.a. Other 553.5 555.2 Non-programmable 700.1 n.a. n.a. 706.3 n.a. n.a. Debt Service 5 n.a. n.a. 163.4 n.a. n.a. Transfers to municipalities 695.1 n.a. n.a. 542.9 n.a. n.a. States'govt.funds 91.1 n.a. n.a. 39.6 n.a. n.a. Federal's govt. funds 603.8 n.a. n.a. 503.3 n.a. n.a. I t.onUsiOn t statat de Agua 2 Instituto de Vivienda 3 Statistical Annex to Presidential Report, 2000. Sources: State Budgets of Guanajuato and Estado de Mexico, except as noted. 3.5 Education is by far the largest area of state spending-61 percent of programmable spending. The state government spends more in education per capita than the federal government in Guanajuato. Guanajuato has been investing at an increasing rate in this sector and in terms of the average level of education it has been catching up with the national average. Nevertheless, the state will need to devote more resources to this sector, if it wants to increase the supply as well as to incentive the demand in the lower secondary level. The population of Guanajuato has an average of 6.7 years of school while Estado de Mexico has 8 years; although some of this difference may derive from the sector's performance in the more distant past. 3.6 The second largest share of state spending is for health-ten percent of programmable spending. The state government provides coverage to about 40 percent of the total population, compared with over 60 percent in Estado de Mexico. Although both states have similar health indicators, the state of Guanajuato has a particular challenge in providing the service to the population in dispersed settlements. Nonetheless, the state already has essentially full coverage with a basic health package and may now consider how much to widen the basic package for which it provides full coverage. - 15- 3.7 The state's expenditure in roads is small relative to the overall budget - only 2.6 percent. As explained in chapter 6, the state should spend more on maintenance and thus improve the quality of the service. 3.8 Water is a critical sector in Guanajuato because of the increasingly dry climate, but the state government can do little about it because of the dominant and often disruptive role of the federal Water Commission. In contrast with other states, Guanajuato does not serve as an intermediary between the federal and the local govemments, that is it does not extract or sell any water. Most of the state expenditures are in programs of support to municipalities.4 Guanajuato does not regulate the prices of water as in Estado de Mexico. Although the Guanajuato law calls for tariffs to cover costs, it is not enforced. 3.9 Housing does not represent a big budget figure in either state. The government in both states promotes housing development with community groups, NGOs builders and others. Although that the state govemments play a minor role in the provision of housing, as discussed in chapter 6, the state should focus its role on the reduction of supply constraints. 3.10 Although the amount spent in security represents a small share of the government budget, Guanajuato has maintained good provision of this public good. In contrast with other states, Guanajuato has its own military units at the command of the governor, besides the traditional state police (judiciales). 3.11 Auditing represents a small budget item in both states. To improve the accountability in the state Guanajuato should probably increase the expenditure for this function, because the available resources are used effectively already, as explained in chapter 7. NON-PROGRAMMABLE SPENDING 3.12 Debt service is low, for the state has not borrowed since 1991, and the old debt was rescheduled into UDIs in 1995, along with the debt from all states. Although that the debt service is low, the state's strategy not to borrow has constrained its economnic development because of the limited resources allocated to investment. 3.13 Transfers to municipalities are the second largest category of outlay - 20 percent of participaciones and the aportaciones in five funds of Ramo 33 go automatically to the municipalities after the state receives them from the federal government. The state also transfers voluntarily to the municipalities all the Fondo de Invesi6n Social Estatal (FISE) resources it receives in Ramo 33, which are part of the state's own programmable resources. The rational and expectation is that the municipalities will handle more of the infrastructure needs in the state. 3.14 While most investment of the municipalities benefits the state to one degree or another, they are not likely to take into account all state-wide benefit nor coordinate with other municipalities. Nor are they presently accountable to the state for these expenditures, or for their public finances in general. So the state is also left without adequate information to do its own planning. The state could partly remedy these problems if it distributed the FISE (State Social 4 Estado de Mexico serves as an intermediary between the federal and local governments; although the budget amount is small, it only represents the amount of transfers from the state government to its autonomous agency. - 16- Infrastructure Fund from Ramo 33) and perhaps some of its own funds on a conditional basis. Municipalities would get the additional funds only if they provide timely and accurate reporting of fiscal and financial data specified by the state. Then the funds would be available as matching grants for projects that fit into the state's priorities- derived from its development strategy. The amounts and the matching ratios should depend on formulas based on population, with adjustments for things like unmet social needs and local tax effort. - 17- 4. EDUCATION CHALLENGES, STRATEGY AND THE USE OF PUBLIC RESOURCES 4.1 To sustain prosperity and reduce poverty in the coming years, Guanajuato can no longer rely on its natural resources and other traditional sources of income. Rather, it needs to transform itself into a modem state that attracts investors, develops competitive industries and, at the same time, ensures social stability. The educational development of its population is critical to such a transformation, as the Government of Guanajuato clearly recognizes. The extent to which persons ermigrate from Guanajuato after getting their schooling poses special challenges for education strategy and financing. Financing from the federal level, now over three-fourths of the total, is only part of the solution, which should also include cost recovery. 4.2 Guanajuato's vision of development highlights education as a central commitment to its people for three reasons. First, the development of well-educated citizens is critical to the long- term success of Mexico's young democracy and, hence, to its social stability. Good universal basic education enables citizens make informed social choices and participate effectively in the political process. Second, knowledge is rapidly expanding and is driving technological and economic progress. Given the international environment and Mexico's policy of economic openness, the ability of Guanajuato to compete and sustain economic growth depends critically on the capacity of its population to learn and take advantage of current information and emerging technologies. Third, improving access to good quality education is essential to ensure that the poor are not left behind and that their children will be able to reap the benefits from an open economy and technological advances. 4.3 Guanajuato has undertaken many important steps to improve the education of its population and its achievements are notable. But it needs to expand its knowledge base more rapidly, to invest efficiently in educating its people, and to take advantage of the new technologies for acquiring and disseminating knowledge. The urgency of those tasks cannot be overemphasized. As the 2001/02 World Development Report, Knowledge for Development, stresses, "countries that postpone those tasks will fall behind those that move faster, and the unhappy consequences for their development prospects will be hard to remedy." This admonition to countries fully applies also to subnational economies. 4.4 This chapter examines key educational development issues and discusses alternate ways for the state to address them. Given the central importance Guanajuato attaches education, it should set a more ambitious agenda and should ensure that the necessary resources are made available. THE EDUCATION SYSTEM: AN OVERVIEW 4.5 Basic education, the foundation of Mexico's educational system, has three parts: Early childhood education (or preschool), for which parents have a right to get public support for their children, al though education at this level is optional for 3- 5 year olds; - 18 - * Mandatory primary education, of which the official age at entry is 6 years old and completion time is 6 years ideally; and * Mandatory lower secondary education (secundaria), which is intended to last 3 years and cover children aged 12 to 16 years old. It comprises the general and vocational/technical tracks and includes telesecundaria, a distance education program designed to reach remote areas through the transmission of recorded lessons via television network coupled with tutors' assistance. 4.6 The three years of middle-level school (media superior) follow basic education. Students then choose between upper-secondary or technical education, where they can follow a general curriculum or technical studies. The upper secondary education, also called bachillerato, comes next and prepares students for tertiary or higher education. The tertiary level of education consists of: a system of federal technology institutes, state and autonomous universities, and teacher-training institutes. There is a least one university in each state, and the large universities have campuses in several cities. 4.7 Mexico's educational system was traditionally highly centralized in both financing and provision of educational services. Even then some states, including Guanajuato, financed and administered their own school systems, which operated in parallel to the federal system. In 1992, the federal and state governments, together with the National Union of Workers in Education (SNTE), signed the Acuerdo Nacional para la Modernizaci6n de la Educaci6n Bdsica. Today, the states implement all basic and secondary education and manage the Federal transfers for such purpose. In principle, states can allocate the transfers as they see fit, but in practice they are restricted by regulations agreed with the SNTE and the Federal Government regarding salaries and employment conditions. 4.8 Table A4.1 shows the broad dimensions of Guanajuato's educational sector. In 2000 there were 10,880 schools, of which 3,929 were preschool, 4,690 primary, 1,367 lower secondary (secundania) and 599 upper secondary (media superior). Of the total number of schools in 1998, 65 percent were Federal, 25 percent state and 10 percent private (Figure 4.1 and Table A4.2). The distribution of the number of students follows more or less the same pattern. - 19- Figure 4.1 Percentage Distribution of Students, Teachers and Schools by Administration 120 100 80 - 0 Private 60 _nSate 40 - - !__ 1l l_ _1 - X ~~~~~~~~~~~~~~0Federal 40 - 20 - Students Teachers Schools Soure: World Bank Staff Calculations. FINANCE AND SPENDING 4.9 Spending on education (Table A4:3) constitutes almost half of its 2000 total budget and almost two-thirds of programmable spending. It is financed two-thirds by Federal transfers and one third from the state's own resources (Table A4.3). In constant pesos, total education expenditure has increased in 1995-2000, as shown in Figure 4.2. During this period, it grew by about 12 percent per year on average. Given an annual growth rate of about of less than percent in the school age population (6-24 years old), this implies an increase in education spending per capita of about 11 percent. Figure 4.2 Guanajuato's Total Education Expenditure (Thousands of 1994 Pesos) 2,500,000 2,000,000 - o 1,500,000 -+-Total Exp. In Educatlon I- --- Sec. Of Educ. 1 1,000,000 Autonomous Org. 0) 500,000 0 Si 1996 1997 1998 1999 2000 2001 Year Souse: World Bank Staff Calculatons. - 20 - 4.10 About 90 percent of SEG's total expenditure goes for school operations and maintenance (Table A4.4a). The rest of the budget is used for adrninistrative cost (8 percent) and investment/special projects (3 percent). As usual, the cost per student (Table A4.4b) increases with level of education. For instance, primary education costs MxP 3,900 per student, whereas higher education for teacher training costs MxP 10,000. 4.11 In the distribution among levels of education, the bulk of education spending (Table A4.4c) goes to preschool ( lipercent), primary (50 percent), and secondary education (26 percent). Spending for post-basic education, research and training, largely by autonomous agencies, accounts for most of the rest of the state's education expenditure (12.1 percent). This pattern of spending is consistent with Guanajuato's basic education mandate. There does not appear to be any gross distortions in the distribution of education expenditures among various levels of education. Consequently, reallocation of resources from higher to basic levels of education is not an option for improving primary and lower secondary education. 4.12 Education in the state needs more resources. The share of education of programmable expenditure has declined from 69 percent in 1996 to 65 percent in 2000 (Table A4.2). Relative to number of students and school age population, the state receives only about three-fifths of the national average in Federal education transfers (Table A4.5). In 1999, Guanajuato received for all levels of education only about MxP 2,500 per school age person, compared to the national average of MxP 4,250. In basic education, Federal expenditure per student for the state (MxP 3,232) is only percent of the national figure of MxP 5,062. Even including the state's own financed education expenditure on basic education, spending per student is lower than the average Federal transfers for the country as.a whole (not counting expenditures financed by the other states' own resources). This disparity is particularly significant for primary and secondary levels of education, where the combined state and federal expenditure per student is about MxP 5,223; in contrast, the national average for federal expenditure alone is MxP 9,446. EDUCATIONAL ACIHEVEMENT 4.13 With its limited resources, Guanajuato has achieved notable progress in education and built a good foundation for further advances. Table A4.6 shows that the number of enrolled children as a percentage of 4 to 24-year old rose from 54 percent in 1992 to 67 percent in 2000, increasing faster than the national average. Whereas at the start of the period Guanajuato was 10 percent behind the national average; by 2000 it had caught up with the country average of 67 percent. Other educational indicators confm this: The percent of the population aged 6-14 enrolled in school increased from 82 percent in 1990 to 89 percent in 1997 (Table A4.7), bringing the state's primary education net enrollment rate up to the national average by 1998 (Table A4.8). The proportion of persons 15 years and older with post-primary education grew from 30 in 1990 to 40 percent in 1997 and their illiteracy rate fell between from 16.5 percent to 15.1 percent in the same period (Table A4.7). 4.14 Improvements in Guanajuato's primary education contributed to the progress in attainment of recent decades: (a) dropout and repetition rates declined and (b) a higher percent of students completed each level of education on time (Fig. A4.1a,b). Similarly, at the secondary level (Fig. A4.2a,b, and c), the repetition rate declined in the state, and a higher proportion of primary school graduates went on to secondary education). - 21 - 4.15 Finally, through various innovations, Guanajuato has made important institutional reforms to support improvements in the education coverage, quality and efficiency: * individual schools planning improvements for themselves; * incentives that reward the teachers in a school as a group for quality improvements (complementing the individual-oriented Carrera Magisterial incentive system); * rationalization of school information systems, computerizing and streamlining data inputs and management (reducing the bureaucratic requirements on principals and teachers); * innovative compensatory education programs (PAREB, PAREIB); and * provision of scholarships and the establishment of a student loan program (EDUCAFIN). 4.16 The above achievements in conjunction with Federal initiatives to improve education and other human development activities (e.g. Carrera Magisterial, Progresa and textbook programs) provide a good foundation for further advances in education in Guanajuato. CHALLENGES AND ISSUES 4.17 Despite the above progress, Guanajuato's still has five main challenges in education sector-improving outcomes, increasing demand, coordinating better the post-basic education programs, improving quality of personnel, and utilizing its capacity more efficiently. (i) Improving educational outcomes. 4.18 The state's education achievement rates lag behind national averages and standards, which reflects weakness in the past as well as the present. The number of years completed by persons 15 years old and over is only 6.3 years, a year less than the national average. The post- primary enrollment rates are low, particularly for the poorest, for women, and for rural families, and they lag behind the national average (Table A4.8). The state's secondary net enrollment rate is only 51 percent, compared to the national rate of 60 percent. For the poorest in rural areas in Guanajuato, the rate is even lower-23 percent. Of the primary school graduates, only 83 percent went on to enroll in lower secondary education, which is below the national average of 91 percent. On average only 72 percent of students complete each education level on time. Student achievement test scores are low and not improving (Fig. A4.3). Students are able answer substantially less than half of the test questions, which they are supposed to know. (ii) Increasing demand as well as supply 4.19 The supply and demand for schooling at the basic education level are roughly in balance. On the whole, there are no waiting lines for children to enroll, although some popular schools might have excess demand. Nor is there excess aggregate supply of education services. Student/teacher ratios are moderately high for basic education, but much lower on average for the upper secondary and higher levels of schools, where there appears to be some underutilized teaching capacity (Tables A4. l0a,b). - 22 - 4.20 Students leaving school before completion of basic education seems to result from lack of motivation. In a survey of sixth graders who did not enroll during the following year in lower secondary schools, two-thirds mentioned lack of interest and motivation as causes (Table A4. 11). About 20 percent of total school leavers indicated economic problems; 14 percent mentioned parents' disapproval; and another 14 percent mentions distance or availability of local schools as causes. Additional research is needed to get a deeper understanding of the problem. The study should examine the common hypothesis that low demand is caused by irrelevant and boring curriculum and teaching practices. (iii) Coordinating diversified post-basic education programs. 4.21 The current diversified system of post-basic education is uncoordinated and rigid. Parents and students complain about the cost and difficulties for students to change educational strategies as their abilities and interests become clearer, and as they learn more.about the labor market. (iv) Enhancing the quality of personnel 4.22 Part of the problem in Guanajuato's schools is the low qualification of teachers, which persists despite much investment-in their training See Table A4.12 and Fig. A4.4 for results of teacher Carrera Magisterial tests. Teacher training does not focused on improving their teaching practices and appears to have had little impact on student learning. Principals also lack the technical and leadership skills needed to inspire and assist teachers in improving their teaching practices. Supervisors' effectiveness is limited by traditional roles and lack of knowledge about technical-pedagogical and mentoring skills. (v) Improving efficiency 4.23 Although Guanajuato's spends less per capita on education and lags behind the rest of the country in economic development, the state has achieved a primary net enrollment rate comparable to the national average, as previously mentioned. Also, its gross enrollment rate for the total school age population (4-24 year olds) equals the national rate. Nevertheless, resources can be used more intensively and efficiently in significant areas. (a) Planning and resource allocation need to treat the state and federal schools as parts of a single system, with facilities and staff allocated for best service to the student population, rather than to perpetuate past patterns, which were often inequitable and do not reflect changing demographics. (b) More intensive use of existing school buildings through multiple shifts will economize on construction expenditures. Table A4.10 shows that in lower and upper'secondary schools one classroom serves one group per day on average. Detailed analysis of their geographical distribution patterns could identify specific areas where multiple shifts would be a viable and cost-effective approach to expansion of coverage. - 23 - (c) The student/teacher ratio stands at a reasonable level in basic education schools, indicating that substantial increases in demand would have to be met by additional teachers. Again, detailed analysis of its geographic distribution would be needed. (d) The share of salaries in total public education spending now stands at about 97 percent. Good practice suggests that this variable should be between 90-80 percent. A high percentage implies that little is left for education materials, investment in equipment, and professional development (Table 4.1). Table A4.3 shows that little of the education budget is spent on investment and strategic projects. (e) Due to personnel leaves, absences and other causes, the SEG often ends up not using about 6-8 percent of its budget for personnel expenditures. These unused resources automatically go back to Finanzas. To enhance the institutional incentive for generating surpluses, a policy should allow at least a partial automatic retention of those savings by the SEG and other agencies. These savings could help finance under-funded but high-priority programs. Table 4.1 Allocation of the Secretary of Education Budget by Expenditure Category Percent Wages and Salary 92.1% Supplies 0.5% General Services 1.6% Subsidies and Transfers 0.4% Real Estate 0.2% Public Works 5.2% Siource: Secrctaa de EducacaOn. EDUCATION IN THE GOVERNMENT PLAN 2000-2006 4.24 The Government Plan has a sound vision for education development, based on a reasonable diagnosis of the situation: * Guarantee basic education coverage. The objective is to reach hundred percent coverage of demand for preschool, primary and secondary education through increased construction and improvement of educational infrastructure. * Improve the quality and relevance of upper secondary and higher education. This would not only benefit the students already in or coming to these schools, but would also simulate more students to continue their schooling. Key actions include use of diverse education programs, simplification and coordination of post-basic educational requirements to facilitate student mobility from one course to another, and strengthening of EDUCAFIN, the state's student loan program. * Promote and establish education models to address the needs of ethnic minorities and rural children. This aims at universal coverage of the indigenous children and of rural communities with at least 100 inhabitants. - 24 - Increase the quality of education services. Actions to achieve this goal include: (i) establishment of the State Committee on Education Quality; (ii) development and implementation of school quality improvement programs; (iii) promotion of the participation of various institutions to diversify teacher training services, as well as greater collaboration among teacher training institutions; (iv) greater recognition of the value of teacher's work; and (v) increased social participation in education and establishment of educational programs for parents. * Ensure availability of resources neededfor the adequate operation of schools. ThePlan calls for training education authorities in school management, providing all schools with the infrastructure they need, and programming of sufficient resources for education. * Ensure that students complete their education on time. The Plan seeks to raise the completion rate of primary, secondary and high school students to 96 percent, 82 percent, and 70 percent by 2006, respectively. Measures mentioned include: promotion of "Reading Corners", teacher training on the issue of grade repetition, establishment of vocational-oriented schools, and widening coverage of EDUCAFIN. * Provide education services to adults. The Plan intends to reduce illiteracy to 18 percent, from the current rate of 12 percent, and to ensure that 80 percent of those trained get jobs. Strengthening the Govermment's Plan and Strategy 4.25 While the educational challenges are many and daunting, the scarcity of financial resources, educational entrepreneurs, and institution capacity limits what can be done to meet those challenges. The temptation under this situation is to spread public resources and government attention thinly. This would be a recipe for failure. The more effective approach is to focus public resources strategically on areas on which the state has a comparative advantage, encouraging other actors to take on other needs, taking advantage of market forces, and selecting interventions based on evidence and experience (both local and international). 4.26 One criticism of Guanajuato's educational system is that children are not learning specific technical and vocational skills that, would make them productive members of society. Consequently, it has been argued that school attendance is not worth the cost to parents and society in general. This has been interpreted by some to mean that public schools should focus on the specific technical and vocational skills need to earn a living. While development of specific technical and vocational skills should be a key ingredient in Guanajuato's drive towards increased productivity and incomes, it is important not to commit a common mistake of tracking young children into technical and vocations courses. The state should be cautious about adding vocational high schools, which might prepare too many people for 20th century jobs. "Vocationalization" of basic education in the name of relevance has failed throughout the world, because it has proven too difficult to predict the evolution of local industries and the specific skills that would be demanded, given rapidly changing technology and global competition. Besides, young children need time to discover their true interests and abilities. For these two reasons, focusing basic education on narrow technical and vocational skills is likely to be wasteful and ineffective. - 25 - 4.27 A more effective strategy for education development would be for: * The public schools to motivate and enable the young to develop their ability to think, quantify and construct knowledge; that is, to build a strong foundation for later acquisition of specific knowledge and skills; and * Firms to train their workers (with the help perhaps of private schools) and for the government to lower private training cost by widening the available pool of highly trainable, disciplined, creative and adaptable workers through improved general education. Setting enrollment targets, particularly for lower secondary education. 4.28 The Plan should be more proactive and have specific education objectives. As currently formulated, it does not articulate quantitative targets for the number children to enroll in and finish basic education. The Plan simply states that it will cover 100 percent of basic education demand, but under the current circumstances where a low level of demand for post-primary education effectively constrains the system, a more proactive stance is needed. The stated goal can be interpreted to mean 100 percent coverage of whatever effective private demand exists, no matter its level. The problem is that achievement of universal basic education would be a very slow under this scenario, and education authorities would not have responsibility for actually increasing the enrollment rate, as long as they could claim that effective demand for schooling is fully met. To encourage vigorous action on both demand and supply, the Plan should establish the objective in terms of increased enrollment rates. 4.29 Focusing on increased lower secondary net enrollment rate would expand not only basic education but also subsequently raise the number of children qualified to study at higher levels of education. For 2006, a reasonable goal could be to raise the secondary net enrollment rate by at least 10 percentage points to catch up with the current national average of about 60 percent. Guanajuato might want to set higher targets (depending on resource availability) because the national enrollment rate for secondary education is also expected to increase. In 1996-2000, gross secondary enrollment rate for Mexico seems to be growing at an annual rate of about 2.3 percent. To catch up with the national average, the goal for Guanajuato's net enrollment rate should be about 65 percent, increasing by one fourth over 1998. By 2010, Guanajuato could aim for the target of 72 percent, which would meet the goal set by Mexico and other Latin American countries at the 1998 Summit of the Americas. 4.30 Pursuing the above objectives would also enhance equity if the state targeted a special net enrollment rate for the poorest children. To narrow the large gap between the education of the poorest and better-off children, the net enrollment rate of the former must rise at a faster pace. 4.31 These goals could be reached through a four part strategy consisting of the following actions on both demand and supply: (i) improving the quality of primary education, so that more will finish primary grades with readiness and interest to continue schooling; (ii) expanding incentive schemes, like Progresa, to motivate parents to keep their children in school; - 26 - (iii) expanding the supply of spaces in secondary schools; and (iv) improving the quality and relevance of secondary education. Improvement of quality and relevance to encourage demand 4.32 Education quality improvements should complement the push for enrollment, so that greater relevance will enhance returns to schooling and increase enrollment. Improving the teaching-learning processes in the classroom should aim to raise student motivation and ability to think, imagine and construct knowledge, rather than the current practice of rote memorization. This objective is a key component for improving children's interest in school and returns to education. In a world driven by rapid technological change and scientific progress, there is a premium for highly trainable, flexible and creative workers. In pursuit of the above idea, Guanajuato should consider: (a) Developing a program to promote active teaching-learning processes in the classroom. Such a program can adapt approaches that have successfully improved student learning elsewhere. For example, the PARE program has increased Mexican student learning achievement (see Box 4.1 on PARE ). Suitably adapted and strengthened, the PARE approach would enhance student interest in learning and development of creative and logical thought processes. Guanajuato can also learn from the experience of Colombia's highly successful Escuela Nueva (Box 4.2 on Escuela Nueva), Japan's school-based system of improving teaching practices (Boxes 4.3a and 4.3b), and New York District Two reform experience (Box 4.4). (b) Giving teachers more opportunity for professional development and rationalizing training programs. The programs like PARE and the other mentioned above require professional development of teachers, principals and supervisors. Teachers will need to have time for professional development. Equally important, SEG will need to evaluate and rationalize current training programs, discarding those that are ineffective and reallocating resources to training programs that support active teaching-learning. Strengthening of the financial, incentive and institutional support. 4.33 The Plan needs an assessment of the financial requirements and budgetary implications of reaching its objectives, along with a resource mobilization strategy. At present it lacks them. To ensure sufficient resources, incentives, and capacity to carry out educational objectives, it would be prudent to take the following measures: (a) Analyze the financial requirements and develop a resource mobilization plan for attaining education targets. Increased enrollment rate and quality improvements will require substantial additional financing. For example, assuming that the secondary school age population is constant and the public cost per student (for classrooms, teachers and materials) also remain the same, Guanajuato would have to increase its expenditure on lower secondary education by at least 28 percent to close enrollment rate gap between the state and the national average. Population projections indicate zero or negative growth. It is not realistic, however, to assume constant unit cost. - 27 - Part of the reason is that the remaining population to be covered would increasingly come from more dispersed and remote communities-more costly to reach. * On top of this supply-side cost must be added expenditures to augment the demand for lower secondary education. Supply-side expansion alone is unlikely to increase enrollment significantly. Analysis of Progresa's experience (a demand-based intervention) suggests that for every percentage point increase in enrollment rate in poor communities, the marginal cost could be in the order of US$100 per student, equal to roughly 13 percent of the secondary education at present. * Improving students' learning achievement, along with expanding enrollment, will require more money for education. Although it is difficult to estimate the additional cost, the PARE experience gives some indications. PARE raised Spanish test scores of students by about 42 percent and 16 percent among indigenous and rural students, respectively, at an additional cost per student of about 38 percent and 24 percent of traditional education costs. This suggests that increasing student learning achievement by 10 percent would cost an additional 10 to 15 percent. * Given the substantial resources needed to achieve enrollment and learning achievement objectives, the state should increase efficiency, as described above. A sensible. plan will continue to concentrate the use of public education money on basic education, while facilitating student loans for higher levels of education. On this point, financial support for EDUCAFIN, Guanajuato's newly established student loan program, would be critical. EDUCAFIN estimates that it would need on average about US$14 million annually for the next five years to finance loans for 3,000 tertiary level students. * The plan should take explicit account of which benefits of the education program have nation-wide externalities - such as greater capacity of recipients of education to pay national taxes - that would justify federal rather than state financing, and which benefits directly and promptly increase the eamings of individuals. The state should thus request revisions to the current form of federal financing, moving toward capitation grants, that would correspond to the national externalities and would help assure that all citizens have access to at least a minimum level of education. These decisions would need to be taken at the federal level, of course, and Guanajuato could recognize and lobby for its interests. For technical and higher education, which have the most immediate results in increased eamings of graduates, the plan should increase the emphasis on cost recovery. (b) Improve the incentives for increased enrollment and student learning: Incentives need to go to schools that attract students, to schools that educate better the students they have, and to poor families that get their children to attend. * A budget allocation formula should give more money to schools that attract and retain more students. For this to work effectively, SEG needs to establish a reliable computerized information system for counting students, a measure that it has already started to develop. * The state needs to evaluate the impact of the ongoing Incentives for Quality program (a promising and innovative SEG initiative) on student and school performance indicators - and strengthen the program accordingly. There are many reasons why the program might not have a strong impact (e.g. reward might be too small; the indicators for rewarding quality might not be appropriate; and measuring them might - 28 - be problematic). The Incentives for Quality Program is a good complement to the Carrera Magisterial teacher incentive program. * Guanajuato should expand its basic education scholarships and the education component of PROGRESA for the extremely poor children. Rigorous evaluation of PROGRESA has shown that it has significant impact on the schooling of poor children; its economic benefits outweigh its cost; and it does not create a dependency on government assistance nor reduce work incentives. (c) Establish greater social accountability for school performance. This can be achieved by making school performance more transparent and by improving parental, social, and business participation. Specifically, SEG could take the following steps: develop an annual Report Card for each school, presenting quantitative measures of school and student achievements to the public; establish benchmarks against which these achievements can be compared by the public and SEG; and work out performance agreements between SEG and the schools. (d) Institute equivalency tests and an effective coordination mechanism for diversified post- secondary programs. These measures would lower the transactions cost of moving from one program to another and, hence, reduce wastage of resources and student frustration. (e) Encourage the private sector to help develop the technical skills of Guanajuato's youth, in at least two ways: * Establishing tighter links between business firms and the technical/vocational schools; and * Lowering the cost of technical training by firms by improving the trainability of young workers through improved general education. CONCLUSIONS 4.34 For improving education in Guanajuato this chapter has two principal recommendations. First, make intensified human resource development central to the strategy of attracting new investment to Guanajuato. This will allow economic growth in the state to reduce poverty and provide job opportunities to those who might otherwise emigrate, and to those who are considering returning. Second, increase education spending, which appears to be significantly below the national average and has declined in the recent past as a share of the state's programmable budget. This increase in educational spending will require more funding, from a combination of state and federal sources, and would need to be accompanied by more effective and efficient use of resources. - 29 - Box 4.1 Shifting to Alternative Learning Models: The PARE Experience As in most countries, Mexican schools follow traditional teaching methods based on the transmission model of learning. In this model, teaching is telling and learning is absorption. Frontal teaching is the usual practice and rote leaming is the norm. With rapid advances in science and technology driving global competition, however, countries have increasingly realized that their future lies in the ability of its citizens not only to absorb knowledge but also to master its construction and creative application. This realization has led forward-looking countries to develop an education system that would foster such cognitive competencies. Not surprisingly, there is increasing interest in so-called child-centered educational approaches (for example, active and constructivist leaming-teaching methodologies), which emphasize thought processes more than specific practices. But how to shift basic education from traditional to altemative models of teaching and leaming remains a challenge to developing countries. Mexico's PARE shows a promising approach to meeting the challenge: through a multilevel innovation that combines constructivist principles and adaptive use of traditional institutional arrangements. The initial objective of PARE was to improve the quality of education in four disadvantaged states (Chiapas, Guerrero, Hidalgo, and Oaxaca) by supplying educational materials, libraries, physical infrastructure, incentives for teachers in isolated areas, and educational courses for teachers, principals and supervisors. To achieve its objective, the following design characteristics were included, which distinguish it from other programs (Tatto 1997,1999): * Use of Piaget's approach to teaching and learning. This approach is used as a model for the development of materials and teaching and leaming strategies. PARE teacher education program attempted to help teachers to change their practice and beliefs while adopting novel materials. * Training of supervisors and principals as teachers' pedagogical advisors and partners. This seeks to facilitate their transformation from pure administrators to "instructional leaders or advisors" and partners of teachers in the leaming process. (To enable supervisors to practice this new role, the program also provides them access to vehicle and economic incentives for visiting all the schools in their jurisdiction at least three times a year.) * Participation and ownership by teachers and other stakeholders. The actual development and implementation of the PARE were done by the teachers, administrators, and school communities. Teacher -teams work together in schools to implement a curriculum developed by and for teachers, and in the process educate each other on a new pedagogy and instructional content. * Adaptive use of current hierarchies to facilitate project implementation. The program took advantage of ingrained hierarchical organization by using its efficient system of communication and knowledge diffusion. But as in Colombia's successful Nueva Escuela program, central structures of authority were used to help teachers gain ownership in the process to change teaching and instruction. * Incorporation of data collection and evaluation in the program design. Pilot testing was undertaken using experimental design. Data were collected at the beginning and subsequent years, which allowed quantitative and qualitative analyses of program impacts and other issues. Empirical analyses of PARE, including a couple of econometric estimates by Bank staff, clearly indicate that the program has on the whole large positive effects on student leaming achievement (World Bank 1998). Moreover, as Tatto (1997, p. 412) observes, "The PARE teacher education program represents one of the most successful attempts to date in Mexico at reaching teachers in poor regions. In the two years since its implementation, it has created an unprecedented demand for its courses among teachers in the different four states. It has overcome organizational, political, and union hurdles, and position itself as a legitimate and credible alternative for teacher education in Mexico." The PARE program has been expanded to ten states under the PAREB project. Despite its early success, PARE continues to be a work in progress and its institutionalization remains an issue. There are still many important issues that will take many years to address before its constructivist goals are fully met (Tatto 1997, 1999). Nevertheless, PARE's early results are so promising that it makes sense for states interested in child-centered education to build on its experience and design. The institutionalization of PARE along with further advances towards its constructivist goals would be valuable. Schools in both well-off and poor communities can learn from it even though it has been focused on marginalized areas. For this purpose, CONAFE and the Agencies of Education need to work out a way by which teachers, parents, principals, supervisors, and community leaders together can use PARE as an instrument to stimulate informed discussion of alternative learning-teaching goals and strategies for the long-term transfornation of their schools into high quality learning centers. - 30 - Box 4.2 Learning from Nueva Escuela A major challenge for Mexico has been the provision of high quality basic education to children in poor, isolated; and small communities. To'address this challenge the Government established community and multigrade schools. The low quality of these schools, however, has become a key issue and several programs have been undertaken to address it. Tabasco, whose primary education system consist mostly of multigrade schools, is a leader in this regard. But it wants to do more. Tabasco has looked at Colombia's Nueva Escuela for ideas on how to further improve student learning in its multigrade schools. Nueva Escuela offers a tested strategy for providing modem and effective education to children in small rural schools. Various countries have adapted it. Researchers from both developed and developing countries have studied and praised it. The consensus is that it is an effective approach to improving teaching practices and student learning. The nain features of Nueva Escuela are: * Active Learning. The teacher's traditional role as source of knowledge and custodial controller of student changes to one where he plays the role of facilitator, ensuring that written instructions are understood, motivating students to do extra work, counseling students with problems, helping students learn through cooperative interaction and increased self-determination, and showing students an appropriate response for handling stimuli. * Student-centered curriculur, using (i) detailed self instructional guides; (ii) learning corners that facilitate simultaneous class activities; (iii) local context, community information, and accumrulation of knowledge; * Use of peer teaching and small work groups to facilitate learning; * Modular evaluation and flexible promotion instead of grade repetition, so students can learn at their own pace; this allows working students to go back to school, without having to repeat the whole grade; * Establishment of student government body to develop civic and democratic values, stimulate leadership and organizational skills, and involved students in school management; * Emphasis on socio-emotional development of students to promote creativity and self-esteem; and * Community involvement in school activities Psacharopoulos, Rojas, and Velez (1992) and other researchers have found that Nueva Escuela schools had significantly improved student outcomes (as measured by Spanish and math test scores), reduced dropout rates among the rural poor. as well as raised student and community participation. Moreover, social self-esteem and civic behavior were higher in Nueva Escuela schools than in traditional schools. - 31 - Box 4.3a Japan's School-Based Professional Development "Japanese educators have instituted a system that leads to gradual, but sustained improvements in teaching over time. The system includes clear learning goals for students, a shared curriculum, the support of administrators, and the hard work of teachers striving to make gradual improvements in theirpractice. Japan has given teachers themselves primary responsibility for the improvement of classroom practice. Kounaikenshuu is the word used to describe the continuous process of school-based professional development that Japanese teachers engage in once they begin their teaching careers. Participation in school-based professional development groups is considered part of the teacher's job in Japan. These groups play a dual role: not only do they provide a context in which teachers are mentored and trained, they also provide a laboratory for the development and testing of new teaching techniques. Virtually every elementary and middle school in Japan is engaged in kounaikenshuu. Run by teachers, kounaikenshuu consists of a diverse set of activities that together constitute a comprehensive process of school improvement. Teachers work together in grade- level groups, in subject matter groups (for example, math or language arts), and in special committees (technology committee, for example). The activities of these various groups are coordinated by a school-improvement plan that sets the goals and focus for each year's efforts. A significant percentage of teachers also engage in district-wide groups that meet in the evenings, generally on a monthly basis. Teachers spend a considerable amount of time each month on kounaikenshuu. One of the most common components of kounaikenshuu is lesson study (jugyou kenkyuu). In lesson study, groups of teachers meet regularly over long periods of time (ranging from several months to a year) to work on the design, implementation, testing, and improvement of one or several "research lessons" (kenkyuu jugyou). By all indications, lesson study is extremely popular and highly valued by Japanese teachers, especially at the elementary school level. It is the linchpin of the improvement process. The premise behind lesson study is simple: If you want to improve teaching, the most effective place to do so is in the context of a classroom lesson. If you start with lessons, the problem of how to apply research findings in the classroom disappears. The improvements are devised within the classroom in the first place. The challenge now becomes that of identifying the kinds of changes that will improve student learning in the classroom and, once, the changes are identified, of sharing this knowledge with other teachers who face similar problems, or share similar goals, in the classroom." Source: Adapted from J. W. Stigler and J. Hiebert, The Teaching Gap, The Free Press, 1999. - 32 - Box 4.3.b Typical Process of Japan's Lesson Study to Improve Classroom Teaching "Although the form of lesson study varies throughout Japan, the following steps seem to typify the process: Step 1: Defining the Problem. Lesson study is, fundamentally, a problem-solving process. The first step, therefore, is to define the problem that wiU motivate and direct the work of the lesson-study group. The problem can start out as a general one (for example, to awaken students' interest in mathematics) or it can be specific (for example, to improve students' understanding of how to add fractions with unlike denominators). The group will then shape and focus the problem until it can be addressed by a specific classroom lesson. Usually the problem teachers choose is one they have identified from their own practice, something that has posed particular chaUenges for their own students. Sometimes, however, the problem is posed from above, perhaps by educational policy makers seeking teachers' input on problems identified as national priorities. Step 2: Planning the Lesson. Once a learning goal has been chosen, teachers begin meeting to plan the lesson. Although one teacher wil ultimately teach the lesson as part of the process, the lesson itself is seen by all involved as a group product. Often the teachers will start their planning by looking at books and articles produced by other teachers who have studied a similar problem. The useful research lesson should be designed with a hypothesis in mind: some idea to be tested and worked out within the context of classroom practice. The goal is not only to.produce an effective lesson but also to understand why and how the lesson works to promote understanding among students. The initial plan that the group produces is often presented at a school wide faculty meeting in order to solicit criticism. Based on such feedback, a revision is produced, ready for implementation. Step 3: Teaching the Lesson. A date is set to teach the lesson. One teacher will teach the lesson, but everyone in the group will participate fuUly in the preparation. On the day of the lesson, the other teachers in the group leave their classrooms to observe the lesson being taught. Teachers stand or sit in the back as the lesson begins, but when students are asked to work at their desks, the teacher-observers walk around, observing and taking careful notes on what the students are doing as the lesson progresses. Sometimes the lesson is videotaped as well, for later analysis and discussion. Step 4: Evaluating the Lesson and Reflecting on its Effect. The gioup generally stays after school to meet on the day the lesson has been taught. Usualy, the teacher who taught the lesson is allowed to speak first, outlining in his or her own view how the lesson worked and what the major problems were. Then other members of the groups speak, usually critically, about parts of the lesson they saw as problematic. Focus is on the lesson, not on the teacher who taught the lesson. Step 5: Revising the Lesson. Based on their observations and reflections, teachers in the lesson-study group revise the lesson. They might change the materials, the activities, the problems posed, the questions asked, or aU these things. They often will base their changes on specific misunderstandings evidenced by students as the lesson progressed. Step 6: Teaching the Revised Lesson. Once the revised lesson is ready, the lesson is taught again to a different class. This time all members of the school faculty are invited to attend the research lesson. Step 7: Evaluating and Reflecting Again. This time, it is common for all members of the school faculty to participate in a long meeting. Sometimes an outside expert will be invited to attend as well. As before the teacher who taught the lesson is allowed to speak first, discussing what the group was trying to accomplish, her or his own assessment of how successful the lesson was, and what parts of the lesson stil need rethinking. Observers then critique the lesson and suggest changes. Not only is the lesson discussed with respect to what the students learned and understood, but also with respect to more general issues raised by the hypotheses that guided the design of the research lesson. Step 8: Sharing the results. All this work has focused on a single lesson. But because Japan is a country with national education goals and curricular guidelines, what this group of teachers has learned will have immediate relevance for other Japanese teachers trying to teach the same concepts at the same grade level. Indeed, the teachers in one lesson-study group see the sharing of their findings as a significant part of the lesson-study process. The sharing can be done in several ways. One is to write a report and most lesson-study groups do produce a report that tells the story of their group's work. Often these reports are published in book form, even if only for the school's teacher resource room. They are read by the faculty and the principal, and might be forwarded to educational authorities at the prefectural level if judged to be interesting enough...." Source: Adapted from J. W. Stigler and J. Hiebert, The Teaching Gap, The Free Press, 1999. - 33 - Box 4.4 The Strategy in Action: The Example of New York District 2 Clear, sustained focus: Eleven years ago, a reform-minded Superintendent, Tony Alvarado, implanted in District 2 the belief that "all kids can leam and deserve the best possible teaching practice". This has created an organizational culture where no excuses are made for teachers facing students with learning disorders, language barriers or poor learning environments at home. This belief has also created a climate of continuous improvement from the status quo. To maximize its chance of success, the District decided to focus on its improvement efforts first on reading and then, several years later, on math. Investment in Professional Development: At the heart of District 2's strategy is sustained investment in professional development. In essence, this entails giving teachers and principals the technical support, resources, time and networks they need in order to continuously upgrade their practice and professional standards. Technical support: At the outset, District 2 conducted a worldwide search for the best practitioners in reading instruction. Finding "the best" in New Zealand and Australia, they were recruited by the District to move to New York and create a professional development program phased in over several years. The majority of support took the form of one-on-one observation and supervision of classroom practice, rather than traditional, "out of classroom" in-service training. On the math front, the District has chosen to develop its capabilities intemally, recruiting in-house specialists who, in turn, train and supervise teachers. Resources: While most school districts in the US spend on the order of 0.5 percent of their annual budget on professional development, District 2 increased its allocation from 3 to 6.5 percent. Facing a small decrease in the overall budget in real terms, Alvarado improved resource use by cutting traditional bureaucratic ranks (i.e. eliminating vice-principals, teachers aides, and reducing the central office staff to four professionals). All budgetary decisions were open, transparent, and clearly supportive of the professional development objective. Time to Network: The expectation was established for teachers and principals to devote time to visiting each others' classrooms and schools to share ideas and observe good instructional practice. The Professional Development Lab was created, structuring three week visits by teachers to the classroom of an experienced mentor teacher, followed later by a week-long visit by the mentor to the visitor's classroom to observe if practice has improved and to reinforce learning. Throughout the system, idea sharing is encouraged and celebrated. Incidentally, many additional activities teachers undertake are voluntary and uncompensated (e.g. morning faculty discussions, seminars) but are embraced because they improve their teaching. Clear standards, Mutual Accountability: Recruitment, professional development and evaluation are consistently focused on excellence in teaching practice. As a result, most District personnel now "know it when they see it and can discuss it intelligently". The development of a common language and standards gives both teachers and principals a clear idea of where they stand relative to their peers in terms of instructional practice. Interestingly, this has been the primary driver of improvement, rather than student achievement. Principals and teachers are held accountable to each other for continuous improvement. There are no dosed doors in District 2; classroom visitation by principals, technical specialists, superintendents and peers are frequent and interactive. Alvarado's two supervisors know each and every teacher in the district and can profile their professional strengths and weaknesses. Each month, principals visit one of their peers' schools, spending most of their time roaming from classroom to classroom, asking questions of students and teachers. Frank, constructive critique of teaching practice permeates discussion. In the end, everyone knows who is teaching well, and who is not. Personnel: Up or Out: Alvarado and his team aggressively pursued an improve-or-out approach to personnel, arguing that "every student deserves a caring, competent teacher". This has led to a culture of zero tolerance in District 2 for teachers who just want to get by. District 2 focused on principals first, as it views them as the instructional leaders without whom additional investment in teachers' professional development is worthless. Over time, District 2 has successfully improved teacher quality by creating incentives for principals to recruit only talented young staff and improve or remove under-performers. It has been able to attract and keep top quality teachers and principals without paying more than other districts (many teachers turn down significantly higher salary offers from suburban districts). District 2 has discovered that for the kind of teachers it wants to attract, access to professional development opportunities and the chance to work in exciting, evolving schools is the best incentive. Nationally recognized quality has created external monetary rewards: some specialists, principals and teachers supplement their income through consulting or university teaching arrangements, several have published books on instructional practice. Despite high tumover, District Two has cultivated excellent labor relations with the local union chapter. It has done so by following Union procedures to the letter (regarded as some of the most restrictive in the country). The head of the New York union chapter is an active supporter of the District 2 model because it successfully brings young, professionally driven teachers into the Union. - 34 - 5. THE HEALTH SECTOR: PERFORMANCE AND CHALLENGES 5.1 With public and private resources Mexico spends about 4.2 percent of its GDP on health care, while OECD countries on average spend almost double this share. Similarly, Guanajuato uses a significant amount of resources for the health of its population. Lessons from national and international experience, however, indicate the need to regularly examine the performance of the health sector due to its susceptibility to inefficient and inequitable resource use. This chapter examines the health status of Guanajuato's population, health care coverage, and other related performance issues. Although for comparative perspective the chapter presents data on issues over which the Federal Government has responsibility, it focuses on health issues that are under' the purview of the state. HEALTH SYSTEM OVERVIEW 5.2 The Mexican health system, in Guanajuato and elsewhere, has three major pillars: * the mandatory social health insurance programs funded by contributions from formal sector employees, employers, and government; * the social assistance program for the uninsured or open population, financed and provided by the public sector (with a small amount of financing from cost recovery); and * the private sector providers, financed by out-of-pocket household expenditures, 5.3 The main institutions of the social health insurance program are IMSS and ISSSTE, which cover the private and government workers, respectively. In addition, PEMEX and the armed forces have their own systems. In total, these organizations cover just over half of Mexico's population and just under half of Guanajuato's. They are vertically integrated and under the responsibility of the Federal Government. The provision and funding of social assistance program was highly centralized until recently, when Mexico undertook a policy of decentralization. 5.4 Health services for the open population in Mexico have decentralized gradually, starting in the 1980's during the De la Madrid administration and culminating in the 1990's during the Zedillo administration. In the 1980s Guanajuato organized its health system under a State Ministry of Health (Secretaria de Salud de Guanajuato, SSG) and created the Institute of Public Health of Guanajuato (ISAPEG), as a decentralized public organism in charge of receiving the resources and operating the health services (social assistance program) for the open population. The SSG is in charge of coordinating the state health system as a whole, and the Minister of Health is also the Director of ISAPEG. GUANAJUATO HEALTH CARE COVERAGE AND RESOURCES. 5.5 ISAPEG provides services to 52 percent of the state total population5. The social security institutions covered cover the rest (41 percent IMSS, 6.4 percent ISSSTE, and 1.1 percent 5 SSG, Agenda Estadfstica versi6n 2000. - 35 - Pemex and armed forces). See Table A5.1. The services of the Social Security institutions are concentrated mainly along the state industrial corridor. This leaves ISAPEG to provide the services to the population in the more inaccessible areas and with a heavier burden of disease. 5.6 The total number of health personnel for all institutions in Guanajuato in 2000 stood at 20,822 (Table A5.2), up by about 20 percent since 1995. IMSS and SSG (ISAPEG) accounted for most of them (11,281 and 6,853 respectively). Less than half of this personnel are doctors. In comparison with the national average, Guanajuato appears to have fewer health staff and facilities (Table A5.3). For example, the number of doctors per person in Guanajuato was only two thirds the national average in 1997. Because they have more resources, social health insurance institutions provide a much higher level of services, as indicated by the number of consultations, hospital discharges, emergency care, dental care and diagnostic studies per capita (Tables A5.4 and A5.5). 5.7 The health services provided by the SSG/ISAPEG to assist the open population and to carry out its regulatory and public health functions are funded 19 percent by the Government of Guanajuato and 81 percent by the Federal Government. (Table A5.6). Fig. 5.1 shows the total SSG spending from 1996-2000 in constant 1994 pesos, indicating a steady increase over the period (20 percent per year), which is good for the population but unsustainable in the long run. Fig 5.1. Total SSG Expenditure on Health 400,aoo.000.0o 3ao,0w,aoo.00 3MMo,o,oo00 20ao,000.0000 150,000,000.00 _ 200.00,000.00 15,000,000.00 50.00D.000.00 0.00 1996 1997 1998 1999 2000 2001 Source: Secretaria de Salud and World Bank Staff Calculations SECTOR PERFORMANCE 5.8 Health outcomes. Despite its disadvantages in socioeconomic conditions and health resources, Guanajuato compares well with the national average in terms of the level and improvement of important health outcome and output indicators (Tables A5.7-9 ). Life expectancy at birth for both males and females in Guanajuato (73 and 78 years respectively in - 36 - 2000) has been rising steadily. Even though economically Guanajuato lags behind most other states, its life expectancy at birth for males is higher than the national average (in 2000 the corresponding figure for females apparently has begun to also surpass the national average). 5.9 Most of Guanajuato's gains in life expectancy resulted from declines in mortality before age forty, especially the mortality rates of infants and young children. Table A5.7 shows that Guanajuato has reduced the infant mortality rate more rapidly in the late 1990s than the country as whole, virtually closing the gap between Guanajuato and the national average. The mortality rate of children under five fell 28 percent. 5.10 Deaths related to nutrition, diarrhea, and upper respiratory infections have declined notably, as seen in Table A5.7. Mortality due to nutritional deficiency and acute respiratory infections was above the national average in 1996 but lower by 2000, and mortality from diarrhea is much lower in Guanajuato than the national average. Guanajuato has succeeded in improving the control of other long-standing infectious and communicable diseases. There are no new cases of measles, cholera, human rabies, dengue and malaria (P. Falciparum), and mortality from tuberculosis declined in 1996-2000 by about 18 percent and is now lower than the national average (Table A5.8). 5.11 In service delivery and utilization the state has laudable achievements: (i) Basic health service coverage. Close to hundred percent (99.8) of its population in 1999 has access to a package of high priority basic services, according to a WYHO assessment. This achievement was brought about by various efforts including: * the Program for the Expansion of State Coverage (PACE) started in 1995 in 11 municipalities with 188 Community Health Aides; * the Program for Coverage Expansion (PAC) with support from the Federal Govermment started in 1997 in 5 municipalities of the Sierra Gorda involving 12 iterant health teams (ESI); in 1998-1999 the program added a mobile unit and constructed five rural health centers; * the implementation of PROGRESA (a Federal program) started in 1997 in 4 municipalities and has since expanded to 46. Currently, about 117,630 families are benefiting from this program, which gives cash assistance to eligible poor families in marginalized rural communities. The assistance is conditional on mothers and children (attending school and) making visits to health centers for scheduled basic health care such as immunization and growth monitoring ; and * construction in 1995-1999 of new health units (66 health centers and 5 hospitals). (ii) Immnunization. Starting at 87 percent in 1996, a rate lower than the national average, Guanajuato's overall immunization rate reached 95 percent in 2000 and caught up with the country as a whole (Table A5.9). For children less than five years old, it is now even higher, at 98.4 percent. (iii) Prenatal care. The average number of prenatal care visits (Table A5.9) has steadily increased during the period, from 2.8 in 1996 to 3.3 in 2000, a rate that is higher than the national mean. The impact of prenatal care on maternal mortality (MMR) rate is not clear, however, as the MMR appears to be about 30 percent lower than its 2000 - 37 - value; for reasons unclear, its decline from 5.1 in 1995 to 3.47 in 1997 has not be sustained (Table A5.9). (iv) Tuberculosis treatment. The percentage of new TB cases under supervised treatment increased from 82 percent in 1996 to 98 percent in 2000 - better than the national average (Fig. A5.1). Guanajuato's achievement in this area could explain its lower mortality rate due to TB relative to the national figure, although other factors may be at work here. (v) Family planning. The share of reproductive-age women practicing family planning declined from 38 percent to 33 percent of the late nineties. This rate is roughly half the national rate (Fig. A5.2), perhaps reflecting cultural and religious differences, rather than availability of reproductive services in the health-care system. 5.12 Productivity and efficiency. Considering that Guanajuato lags behind the nation on average in terms of socioeconomic indicators and health care resources, the above analysis suggests a credible performance of its health sector. Further evidence comes from the utilization rate of the SSG health service capacity and other measures of productivity, showing that the SSG has avoided major distortions in the use of scarce health resources: (i) Hospital capacity utilization. The occupancy rate of hospitals has increased from 64 to 73 percent in 1996-2000 (Table A5.9). Guanajuato, which started with lower occupancy rate than the national mean in 1996, has now surpasses it. The average inpatient days also appear reasonable. Nevertheless, there seems to be room for further improvement. Table A5.10a indicates that there are five hospitals out of 14 with less than less than 53 percent occupancy rate. (ii) Staff utilization. The productivity of doctors is rising significantly. Table A5.9 shows that in 2000 a doctor sees 13 patients for consultation a day on average (up from 9.4 in 1996). The national average in 2000 is 12 percent higher at about 14.7 consultations. Doctors under SSG are expected to dedicate 90 percent of their time to patient contact. These figure imply that a doctor in SSG spends about half an hour per consultation with a patient. The standard for external consultation according to SSG officials is on average about 30 minutes for the first visit but only 15 minutes for subsequent consultations. Consultations with specialists could take longer. The conclusion is that there may be significant room for further improvements in staff productivity, as suggested by the national experience. The potential magnitude, however, needs to be determined. For this, SSG needs to collect data based on time and motion study, which it has not done yet. The analysis here needs to consider the availability of other staff that can efficiently substitute for the doctors' time in certain activities. Some SSG officials point out that, due to lack of support staff, doctors devote considerable time to administrative matters that less costly staff could do. (iii) Budget allocation. Under 70 percent of the SSG budget goes to staff salaries (Table A5.6), which is unusual but consistent with good practice. The personnel share increased from 65 percent in 1996 to 68 percent in 2000, however, and the share of - 38 - materials declined from 23 percent to 14 percent. SSG should monitor this trend carefully, to assure it does not continue and make resource allocation inefficient. (iv) Comparative cost-effectiveness. The outcome and performance indicators above suggest that Guanajuato compares well with the national average, considering its relatively lower economic development and more dispersed population. It also seems more cost-effective, as evidence indicates that Guanajuato spends less resources and money per capita on health services than the national average. * Staff and facilities. Tables A5.3 and A5.lOb show that Guanajuato uses fewer staff and facility resources per capita-not only fewer doctors and nurses (already mentioned above), but also fewer clinics, hospital beds, doctor's offices, dentists, gynecologists and pediatricians on average per capita. * Health spending for the open population. Guanajuato spends much less for its uninsured population than the national average. In 2000, while the Federal Government allocated 387 pesos per person for health services of the open population for the country as a whole, Guanajuato's health expenditure financed by Federal sources was only MxP 169.6. Even if one adds the health expenditures financed from its own resources, SSG's total spending (MxP 248.1 per person) would still be lower than the national average. (Note that the MxP 387 above does not include expenditures financed by the states' own resources.) * Combined social health insurance, SSA and other expenditures. The disparity in health spending can also be gleaned from Table A5.lOb, which shows the combined expenditures of SSA, IMSS, ISSSTE and PEMEX. Whereas the national per capita expenditure by this measure was MxP 1,215 in 1999, the amount for Guanajuato was only MxP 692. * Household health expenditure. The evidence that total health spending per capita is probably lower is further reinforced by data on out-of-pocket health expenses of households. Table A5.lOc presents the average household head's quarterly health expenditure, based on the 1996 INEGI survey of households, which shows that Guanajuato spent 16 percent less than the national average. 5.13 Inequality and Equity. The issue of equity should be seen in the larger context of the Mexican health care system. As mentioned above, there are substantial disparities in the resources for health care between the open and insured population groups - as well as among the states in regard to their budget to assist the. open population. The discussion of equity here focuses on within-state differences. 5.14 Guanajuato's population is geographically concentrated in a few areas and dispersed in the rest of the state. The industrial concentration in the Corredor del Bajio, socio-cultural factors, topographical diversity, and the distribution of natural resources together generate varied population densities in Guanajuato's municipalities and regions. Almost 60 percent of the state's population lives in 27 cities, i.e. in localities with more than 15,000 inhabitants. On the other hand, one third of the state population lives in rural areas and in about 9000 small localities. - 39 - 5.15 The dispersion of the state population makes the provision of services more difficult and accentuates the inequalities within the state. For instance, despite a decrease in the state global fecundity rate (from 3.2 in 1996 to 2.8 in 2000) and a decrease in the state infant mortality rate (from 22 per 1000 inhabitants in 1996 to 16 in 2000), the dispersed localities show greater global fecundity and infant mortality rates. The inequality in health care is illustrated by the considerable variations among municipalities in social health insurance coverage, number of external consultations, the percentage of the population using public health services, and the population to medical personnel ratio (Tables A5.1 la-d). The inequality in the utilization of services is partly explained by municipal differences in the distribution of health manpower of the SSG and the social health insurance system ( see correlation of these two variables in Fig. A5.3). 5.16 Sector coordination and service quality. Guanajuato became the pioneer in intra-state and inter-sectoral coordination with the creation of the State Health Council (Consejo de Salud del Estado). The Council, headed by the Minister of Health of Guanajuato, includes the IMSS and ISSSTE state Delegates, representatives of other federal and state government agencies, and the private insurers and providers. They meet periodically to plan jointly the health actions in five basic areas: epidemiological surveillance, reproductive health, public health and environment, research and formation of human resources and, until recently, quality of health-care services. 5.17 As part of its Government Plan the state recently launched a State Quality Program (also part of a national strategy) for improving the quality of health services through better sector coordination among all the public, social and private sector institutions. The program will strengthen care at the first and second level units and ensure adequate provision of medicines. As a first step, all the sector institutions carried out a survey to collect baseline data on the perception of their own beneficiaries about their services and to be able to measure progress. As a follow up-to this initial step, all the sector institutions in the state developed a Quality Plan according to the objectives in the National Crusade for Improving the Quality of Health Services, which include: (i) Reduction of waiting time for receiving services in first-level units and in emergency services at second-level units; (ii) Beneficiaries' satisfaction with the waiting time in consultations in first level units and in emergency services at second-level units; (iii) Provision of all medicines included in prescriptions and beneficiaries' satisfaction with the full delivery of prescriptions in first level units; (iv) Beneficiaries' satisfaction with the information provided by doctors in first level units and in emergency services at second-level units. 5.18 These consumer-oriented objectives provide ambitious and appropriate goals, and the initiative deserves the state's full support. To maximize the program's impact of the quality movement, it is critical to allocate sufficient resources to: (i) regularly measure and widely progress in achieving stated goals; (ii) make staff training in analytical and problem-solving methodologies an integral part of the quality program; and (iii) develop and test methods to measure and promote quality care. The initial focus of the quality program on issues that can be easily measured and addressed is a wise choice. In the long term, however, it is critical to measure quality by their compliance with health care norms and protocols that are empirically - 40 - related to the effectiveness of interventions in bringing about health status improvements among patients (the ultimate measure of quality). The SSG recognizes the need for this step. This is a more difficult step, however, that requires resources for research and development. In the medium run, the SSG in coordination with the Federal Government health agencies should aim to develop and test the nonms and protocols for clinical services - as well as corresponding problem-solving methodologies. 5.19 Unfortunately, in spite of the intrasectoral coordination effort with the national social security agencies (IMSS and ISSSTE), two obstacles have hindered the state coordination efforts: (I) the regional (multi-state) organization of the social security contradict the state-by- state organization of service for the open population and (2) the vertical integration of the different health providers has resulted in each organization having all its own facilities for a specific population, along with a specific financing source. CHALLENGES FOR THE FUTURE 5.20 Guanajuato is managing its health sector responsibilities relatively well, is cost-effective in comparison with the national experience, and has established a solid foundation for further advances. Three interrelated measures have brought about these achievements: (i) control of communicable and infectious diseases; (ii) provision of universal access to an affordable package of relatively inexpensive but effective basic interventions; and (iii) avoidance of gross distortions in resource utilization. 5.21 To further advance the welfare of its population Guanajuato needs to address three health sector challenges: (i) sustaining universal access to basic health services by the uninsured population and maintaining effective control of public health threats, (ii) expanding the basic package of health services that SSG provides at present, to include a range of secondary health- care interventions, and (iii) avoiding rapid inflation of health spending in the future as pressures mount for more expensive health -interventions arising from increasing predominance of old-age diseases and technological progress in health care. The Govermnent of Guanajuato has recognized these challenges in its Government Plan 2000-2006. 5.22 The Plan identifies specific population groups afflicted with diseases related to poverty and living in zones with little access to adequate health services. For these population groups, the challenge is to maintain advances in the effectiveness of SSG in dealing with long standing poverty related health problems, while at the same time devoting greater resources to the increasingly predominant non-communicable diseases. These diseases, whose number of cases has increased significantly in 1996-1999, includes diabetes mellitus, cardiovascular illnesses, and malignant tumors (Table A5.12). 5.23 Demand for health services for these emerging diseases, whose treatment are more costly than basic care currently provided by SSG, will grow in the near future and could hinder the efforts of Government of Guanajuato to improve the health conditions of the poor living in marginalized areas. Guanajuato faces a fundamental policy question: To what extent should interventions to prevent and treat these emerging illnesses be included in the basic health care package of SSG? How should such an enhanced basic package be funded and delivered. The Plan at present does not answer these questions. - 41 - 5.24 International experience indicates the inevitability of increased health care costs arising from changes in disease patterns, technological progress and increased income. While it still has time, particularly as it plans expanding the basic health care package, Guanajuato should investigate, in collaboration with the Federal Government, alternative ways to contain healthcare costs and improve equity. 5.25 The Government Plan lays out a laudable vision for development of the state's health sector, articulating goals, strategies, and measures to achieve its vision are based on good diagnostic analyses. The Plan articulates a health-sector strategy to decrease social and regional inequities, to increase the quality of care provided by ambulatory facilities and basic community hospitals, to increase preventive care, to provide adequate medicines to the different health units, and to add cost-effective secondary level interventions to SSG's basic package. 5.26 Five issues, however, require systematic thinking and dialogue: (i) Financial planning. As pointed out earlier, the SSG expenditure has grown 20 percent per year since 1995. This is not sustainable, underscoring the need for Government of Guanajuato to work out the financial requirements for achieving its health sector objectives. The Plan at present lacks this financial dimension. In working out such a financial plan, the state should ensure that disadvantaged population groups get their fair share. (ii) A credible system for identifying health-care-disadvantaged areas. There is a need to adopt a good system for classifying and targeting disadvantaged areas, based on objective indicators and analysis of local health conditions. (iii) Expansion of the basic health-care package. There are proposals for broadening the limited basic healthcare benefits that SSG provides its population. As mentioned, it has been argued that a range of secondary health interventions dealing with these and other diseases be included in the package. While this is a reasonable idea, it is critical to establish clear criteria for expanding the package, based on cost-benefit and equity considerations. Furthermore, the financial implications of the expanded package should be consistent with the overall financial plan, in order not to undermine the ability of SSG to provide basic assistance to the poor, and those living in disadvantaged areas. (iv) Improvements in productivity and resource use. Despite notable increases in the utilization of health resources, further improvement appears possible. Given the scarcity of resources and the increasing demands for health services (both quantity and quality), SSG's strategy should be to use the resources more efficiently, including the following: * further increases in hospital occupancy rate, particularly of those hospitals with less than 55 percent occupancy rate (this might allow the Government to scale back its plan to construct more health facilities); * additional improvements in the staff productivity; * early control of the increasing share of salaries in total SSG expenditure, although it is not yet a major problem; -42 - * establishment of standards for health-service productivity and unit costs, based on a micro-level time and motion (usage) study of staff and facilities; * incentives for staff to increase productivity and quality of services (e.g. the proposed retention by health facilities of at least a fraction of its revenues from cost recovery fees; they can use their retained fees to reward good performers and to buy needed materials for the facilities); * sustained implementation and further development of SSG's quality assurance program. * better SSG coordination with IMSS, ISSSTE, and other health insurance organizations on health facility and manpower use; * utilization of private sector providers where (in urban areas) this would be an effective and cost-efficient alternative to in-house provision by SSG. (v) Development supportfor local management. Some relevant issues, acknowledged by the SSG authorities, are not stated in the Government Plan. * Supporting the deconcentration of service delivery from state to lower levels of health jurisdictions. This consists of strengthening the capacity of service providers to manage their financial, human, and technical resources flexibly and optimally -- with full attention to improving the quality of medical treatment. Decentralization needs effective leaders and well-trained managers to plan the use of their resources, with budgets as planning and control fools, to train and develop the healthcare workforce, to use clinical and management information systems, and to measure outcomes. In some cases this devolution might be through contracting of private providers. * Development of an overall planning system. This would enable the authorities to hold service-providing entities responsible for their performance and productivity. The allocation of resources to the substantive programs, strategic projects, and hospitals is still done on a historical basis and not focused on results. SSG officials are aware of the need to improve planning and costing systems and to fix more realistic fees for the services provided to beneficiaries from other institutions. * Development of microregionalization as a planning and targeting tool. Clustering municipalities into microregions would enhance the effectiveness of the state's health system, within the overall planning system. State-level planning is less efficient for certain issues, because the planning authorities are too far from the clients to know well their needs. On the other hand, separate individual municipal planning would also be inadequate, because municipalities acting alone would be unable to efficiently deal with externalities and economies of scale. Microregionalization-clustering-provides a way to improve planning and targeting of health interventions appropriate to local conditions and to deal with the information problem. Planning will be closer to local people and clustering provides a mechanism for greater coordination. This concept could work, but it could also be just another bureaucratic layer with little value added, unless an economically coherent framework and terms of reference guide the formation of the microregions. - 43 - 6. TRANSPORT, WATER AND HOUSTING SECTORS 6.1 Development of Guanajuato's economy is and will be linked with development of its physical infrastructure. Mexico's main rail network crosses the state as do two main federal highways (Highway 57- the "Nafta Highway" and Highway 17) and several PEMEX transmission facilities. It has a busy international airport in Leon and several other airfields. About 60 percent of Mexico's population lives within a 400-mile radius of Guanajuato. 6.2 The state is arid (about 700 mm of rainfall annually), and mountainous (average altitude of just over 1,800 m. above sea-level). There are two distinct types of settlement patterns in Guanajuato; in one type, over 75 percent of its population lives in urban areas along the industrial corridor which straddles Highways 45 and 57, and in the other type, many small villages are scattered throughout the state. Currently, 6,000 of Guanajuato's 9,000 localities, have less than 100 residents in each. The situation poses special challenges to policy makers in providing cost-effective and sustainable infrastructure services. 6.3 With increasing urbanization over the past three decades, the rate of population growth in Guanajuato declined steadily, falling below the national average recently. For example, during 1970-1990, the annual growth rate was 2.8 percent, slipping to 1.8 percent in the 1990-1995 period and then to 0.8 percent in the 1995-1997 period. High migration to the US has been a mixed blessing, providing much-needed income for families but at the same time, reducing the pool of able workers. Over the past decade, many of the largest employers in the industrial zone in the shoe, leather and textile industries have faced a steady erosion of their competitive edge to China and other Asian nations. These developments have serious implications for planners and policymakers and require careful consideration in deciding Guanajuato's long-term direction and focus. Details of the Transport, Water and Housing sectors are presented in the appendix. TRANSPORT SECTOR 6.4 Road Network. Compared to other Mexican states and on a national average basis, on both a per-capita as well as geographic basis, Guanajuato has a good stock of paved and total road network. Table A6. 1, contains details, including inter-state comparisons on the Federal, State and Municipal road network (including toll roads). According to statistics of the Secretarfa de Comunicaciones y Transporte (SCT), in terms of the Federal network in Guanajuato, in 1999, about 28 percent was in good condition, about 25 percent in fair condition, 19 percent in poor condition and about 28 percent in very poor condition. Although these are not outstanding statistics, they are generally better for Guanajuato than for the Federal network as a whole. (Toll roads are generally better-maintained and these are discussed later). The Secretariat of Public Works (SOP) estimates that, on a scale of 1-5 (5 being the best), its inventory of roads has an overall index of 3.5 compared to a national average of 3. Getting statistics on the quality of roads in Guanajuato's forty-six municipalities from state or federal sources is not easy, primarily because of the autonomy of the municipalities in their investments and because of poor or outdated record-keeping systems. 6.5 Although Federal network suffers from poor maintenance, there are no serious bottlenecks in the SCT or Federal Highway Network, the exception being some roads connecting poor municipalities to the national main system (Mexico: Federal Highway Maintenance Project, - 44 - World Bank, 2001). The planned investment program of SOP for 2001 and its long-term investment program are in Table 6.1 Based upon it appears that, as with the Federal network, there are no acute bottleneck problems at the state level.6 With construction of the roads proposed in the 2001 budget, all of the seats (cabeceras) of the 46 municipalities in Guanajuato will have all-weather access to the federal network system. Table 6.1 Proposed Priority State and Federal Investments in New Transport Infrastructure, 2001-2006 __S Million) _ _ _ _ _ _ Total 2001 2002 2003 2004 2005 2006 Federal 4,462 220 880 1,060 1,002 750 550 State 1,160.1 84 248.1 221 207 150 150 Total Planned Investments j 5,622.1 304 1,128.1 1,281 1,209 ,00 700 source: Secretry ot rubIc Wos Table 6.2 Investments in New Works and Maintenance in Guanajuato 1998 1999 2000 2001 1998 1999 2000 MxP MxP MxP MxP (km.) (km.) (kmm) Total 113.6 275.8 389.2 336.7 2,298.7 2,839.6 3,187.6 Construction/Paving Works 49.8 141.3 237.4 63.8 108.0 299.8 350.8 Executed by the State 49.8 141.3 224.4 n.a 108.0 268.9 279.5 Executed by Municipalities n.a. n.a. 13.0 n.a 30.9 71.3 Other State Works 9.2 44.4 58.9 176.7 56.4 132.2 127.0 Network Upgrading 6.1 28.3 38.8 n.a 43.1 82.0 88.8 Terracerias 2.6 15.2 15.9 n.a 12.3 48.1 35.8 Access Roads 0.5 0.8 4.2 n.a 1.0 2.1 2.4 State Maintenance Investments 54.5 90.1 92.9 96.2 2,134.3 2,407.6 2,709.8 Preventative Maintenance 32.3 42.0 44.7 n.a 384.1 607.6 737.8 Routine Maintenance 22.2 48.1 43.3 n.a 1,750.2 1,800 1,897.3 Surface Treatment n.a n.a 4.9 n.a n.a n.a 74.7 Source: SecMetary ot PubliC WoMS. 6.6 Maintenance Expenditures. Expenditures for staff, new investment and routine and periodic maintenance and rehabilitation works at the state level for 2001 are estimated at about MxP 337 million. Of this figure, approximately MxP 241 million is allocated to new investments and about MxP 96 million for maintenance and rehabilitation programs. Because many works in Guanajuato involve expanding and repairing existing streets, bridges, tunnels and other structures, it is often difficult to place them in exclusive categories. SOP has in place a good technical system (Simulation Model of Highway Maintenance Strategies - SISTER), to monitor and maintain the quality of its network and it is placing high priority on maintenance tasks. This system is not as versatile as a new Highway Development and Management Model 6 Discussions with various officials of SOP, field visits and a review of the planned 2001 budget and investment program. - 45 - (HDM-4), however, which is currently being introduced under the Federal Highway Maintenance Project. It is expected that the states will adopt the HDM-4 and improve the efficiency of their maintenance operations. 6.7 At the national level SCT will have an estimated budget of about MxP 3.8 billion per year for routine and periodic maintenance and rehabilitation works between 2001-2004 (Mexico: Federal Highway Maintenance Project). For a network of 41,865 km, this is about MxP 90,000 per km per year for Federal roads. With just over 2,000 km of State roads to manage, the SOP of Guanajuato is planning to spend about MxP 47,128 per km in 2001 for routine and periodic maintenance and rehabilitation works. Given the lower level of technical specifications of the state feeder network (less lanes, lighter traffic, favorable climate and geological conditions), this figure seems to be a reasonable one for such expenditures. 6.8 Analysis of the internal economic rate of return (IERR) estimated for the maintenance works under the Highway Maintenance Project for Federal roads shows LERR figures between 174 percent and 198 percent for the proposed works in Guanajuato, with a national overall average EERR of about 112 percent. Comparable IERR figures for the planned investment program of SOP for 2001 were not available but the staff of SOP claim that their analyses show comparable returns. They explained that even though the maintenance budget for state roads has more than doubled since 1998, they need approximately MxP 150 million annually to upgrade adequately the state network. This implies a shortfall of about MxP 54 million for 2001. 6.9 In view of the high return on such investments, it is recommended that policymakers in Guanajuato agree on a system under which maintenance activities receive full funding before budgets for new investments are considered. Such an approach appears to be also justified because available statistics on population growth, traffic flows, industrial growth, etc. do not show a pressing need, for massive new investments, compared to the need to maintain existing assets. The state is using private-sector contractors to do its maintenance works. In terms of greater private sector participation in the sector, the federal authorities are working to create new performance-based maintenance contracts with private contractors. Such initiatives are included in the ongoing Federal Highway Maintenance Project and should increase efficiency and reduce demands upon public resources. 6.10 The cost-benefit methodology used by SOP primarily takes account of factors such as vehicle operating costs, time savings, accident reduction and related data. The method should broaden its considerations to include the high value-added to real estate property, businesses and other activities which benefit from such network investments. This could also assist in quantifying and levying taxes for maintaining and expanding the system. In one instance, Guanajuato captured some of this value-added benefit by buying the tract of land straddling the entire length of its toll road. This turned out to be a lucrative deal for the state; however, in view of other more efficient options available for capturing some of the value added from such works, e.g., through improved assessment levies, the state should explore these options before becoming a landowner and developer and tying up its capital and administrative resources or risking accusations of favoritism in its disposal of such assets. 6.11 Toll Roads. In 1998, about 60 systems operated approximately 4,800 km of toll roads. (Table A6.2a-b summarizes the length, type of concession and commencement dates for Federal - 46 - and State toll roads throughout Mexico.) An additional five were under construction (about 450 km), with four (about 80 km) in preparation. About one-third of these toll roads were under state jurisdiction. 6.12 During the early half of the 1990s, private sector operators expressed great interest in toll roads. However, a combination of factors including a worsening economy, over-optimistic revenue forecasts and cost overruns led to a US$ 9 billion Government bailout of twenty-three of these operators and the creation of a special Federal entity to handle the acquired system. The Government is currently completing a study on its options and the Bank is preparing to assist SCT on this issue as part of a wider program on highway financing mechanisms. 6.13 In Guanajuato, a 14.5 mile toll road which is being managed by an autonomous state entity, Carreteras y Puentes Estatales de Cuota de Guanajuato. It was one of the first entities where the State went to the bond market and raised enough funding to refinance its debt to Banobras and implement additional works on the system. Based on presentations of the process by various officials, the use of a Fideicomiso arrangement and collateralization of the future revenue stream of the entity were key elements in its finance package. Guanajuato has plans open several new toll roads over the next six years. To the degree that this does not involve contingent state liabilities, it appears that this mechanism could be a viable one for these toll roads. 6.14 The transaction under which the state bought all lands along both sides of the toll-road also appears to have helped finance this operation, as it captured the improvement in land value. The state purchased the land at its low pre-improved price and was able to sell several parcels at a much higher price. This transaction helped to defray some of the overall cost and was beneficial to the state. In the future, landowners may demand higher prices for their property and the state may not be able to repeat its experience. Additionally, while such transactions may be expedient under current circumstances, there is need for the state to try to improve its land- ownership and titling laws so as to facilitate more open market transactions and to capture improved values through traditional tax systems. 6.15 Even in an atmosphere of more cautious toll-road investors, several of them have expressed interest in the new toll-roads being planned. It may be prudent for the state to await the results of the ongoing toll-road study and the recommended follow-up actions before it enters into serious discussions with private operators for its new toll roads. 6.16 Interurban Train. Guanajuato since the 1980s has been considering a light commuter train along the industrial corridor. (See box 6.1) Recently another private sector proposal for.the project has received interest and support from on of the secretaritats.7 The preliminary indications are that in comparison with similar operations in Mexico and elsewhere, many of the basic assumptions, especially those affecting cost, projected ridership and revenue streams, may be too optimistic. Monterrey is having serious financial problems with an interurban train and the lessons from that experience should be a warning flag to policymakers in Guanajuato not to 7 The Bank was asked to review various basic documents Regarding the proposed interurban train and to provide the state with an opinion on its feasibility. The opinion is not based on any primary investigation of the plan, but rather on comparing its basic parameters (in the existing documents) with rail projects that the Bank has reviewed or been involved with in Mexico and other countries. -47 - assume any direct or contingent liabilities for an interurban train. It would have been useful to present a comparative analysis among alternative options. For example, the option of dedicated bus lanes and a more integrated and better-managed inter and intra-city bus system along the industrial corridor would utilize a great deal of the existing private-sector resources, require little or no financial exposure and contingent liability from the state and could be a much more viable option. Box 6.1: Proposed Inter-Urban Train The proposed train for the El Bajio corridor in Guanajuato has been studied and under consideration since the 1980s. The feasibility study was completed by Jica in 1983, and the concession was awarded eventually to SOTRIG (Sociedad Operadora de Tren Rdpido Interurbano de Guanajuato) in May 1995. The $550 million investment would be for a new double track railway and rolling stock to serve about 140,000 passengers initially along the 8 city, 150 km corridor between Celaya and Leon, all within the state of Guanajuato. Traffic: This is the most important corridor in Guanajuato, with two-thirds of the state's population and most of its economic activity. The corridor is well served by Federal Hwy 45 for its entire length, and in addition, there is a parallel toll highway along the first half of the corridor (between Celaya and Irapuato). Most public transport in the corridor is provided by buses (Flecha Amarilla with its 5000 bus fleet) that operate about 17 hours daily, and frequently (10-20 minutes departures) from 8 key terminals located in the main cities. The bus occupancy rate is about 50 percent. SOTRIG expected to have 157,000 passengers in year 2000 from the following sources: 85,775: Assumes all Flecha Amarilla expected bus riders switch to the new train 16,403: Assumes virtually all workers now using Corporate buses will switched 15,540: Comes from the 20% of private auto traffic assumed to switch 117,718: subtotal 15,718: about 14% additional traffic generated by the new train 133,436: subtotal traffic in 1996 23,565: additional amount due to growth @ 4% between 1996- 2000 157,000: TOTAL opening year 2000 traffic. This seems optimistic and unrealistic. Although Flecha Amarilla is an associate of SOTRIG, it seems unlikely that they would stop operating in the corridor completely and concentrate on feeder services as the report states, or that no other operator would step in to fill part of the gap they might leave. Cost: The estimated cost in the proposal averages about $3.7 million per km, including tunnels, new double track and rolling stock. This is about one-half of the typical costs for the suburban rail projects with which the World Bank has had experience. Fares: While the proposal does not give a clear estimate of the rail fares, they cannot compete with buses at 0.3 pesos per kilometer. This, coupled with the 10-year financing term structure, seems to be the reason why guarantees were sought from the State or other sources (triggered if SOTRIG cannot make its payments). Even the most efficient mass transit systems are rarely financially self-sufficient, especially in a relatively low-density urban area like that of Guanajuato. Overall, the justification for the project is weak because it is based on the often-encountered combination of optimistic traffic forecasts and under-estimated costs, coupled with the need for a State guarantee. A series of bus routes radiating out from the 8 key cities might meet at least cost most of demand for 20-30 km intercity trips. The existing bus service from both inter- and intra-state providers can adequately serve the small end-to-end traffic from Celaya to Leon. -48 - 6.17 Other transport issues. While congestion of the state road network system does not now appear to be a problem, the improved federal and state network cannot be viewed in isolation from potential impacts upon municipal and other feeder systems. There already appear to be serious parking shortages in several cities, including Guanajuato where, because of hilly terrain, narrow streets and the lack of appropriate off-street parking facilities, motorists park in tunnels and other state and municipal facilities, restricting use of these facilities and creating hazardous traffic conditions. The authorities should review this problem jointly in order to identify the main issues and work with the appropriate groups to agree on the actions needed to address them. 6.18 Because of both the presence of several large industrial plants in the state and the transit of long-haul heavy vehicles along Highways 57 and 45, Guanajuato should also review the technical specifications of its road network (including bridges and tunnels), especially those which heavy vehicles are likely to use as they exit the main arteries. In addition to the technical specifications, there may be need to review existing weight-control regulations and enforcement mechanisms (mobile and fixed weigh stations, random checks, etc.) to monitor compliance and help conserve the life of the network. The ongoing Federal Highway Maintenance Project has a component covering such activities and it is recommended that Guanajuato take advantage of this normative and regulatory assistance. 6.19 Recommended Actions. To improve its road planning, the state needs to work from a unified economic and social development strategy. With stronger planning, more spending might well be justified, and only then should it seek resources from a combination of cost recovery, borrowing, and private-sector participation. 6.20 The role of government in continuing to expand the extent and quality of roads for rural areas is clear, but not the division of responsibility between the state and municipalities. State matching grants and technical assistance programs would be useful. 6.21 The role of the state government in promoting public transportation services is unclear. Firms already provide some service for their workers, for example the General Motors plant in Silao pays its workers for their transportation. Guanajuato should consider regulatory changes or modest cash incentives to expand the availability of transportation services to other workers. WATER SECTOR 6.22 The water sector in Guanajuato appears more organized and integrated both vertically and horizontally, with a richer source of plans, studies and data than the transport and housing sectors. Reasons for this include the way water's collection, storage, management, distribution and legal framework for water transcend jurisdictional boundaries, as well as the programs of technical assistance and cooperation among municipalities, regional, state and federal water authorities, including the Comision Estatal del Agua de Guanajuato (CEAG). 6.23 Guanajuato's geographical and geological characteristics have had a great impact upon land and water-use patterns and economic activities. The combination of semi-arid mountainous terrain; an average altitude of about 1,800 meters above sea-level; average annual rainfall of about 700 mm concentrated in the southern and north-eastern parts of the state (with about 80 - 49 - percent occurring between June and September); over 9,000 settlements scattered throughout the state; all create some unique challenges for planners. 6.24 Supply and Demand Factors. On average, as Table 6.3 shows, the volume of water annually entering Guanajuato's aquifers and surface drainage systems is about 4.3 billion cubic meters. A usage of about 5.8 billion cubic meters results in a net overdraw of about 1.5 billion cubic meters annually. With an average annual urbanization growth rate of about 3 percent over the past three years and increasing demand for wells and irrigation in rural areas, there is urgent need to bring supply and demand into balance. On the positive side, there are several measures which can achieve such results. This would require modifications in the short and medium-term plans at the municipal, state and federal levels, focusing relatively more on conservation and consumption factors, rather than pushing to increase the draw down rates through more dams, deeper wells and similar actions. 6.25 Table 6.3 also contains details on overall water supply and use by sub-sectors. As it shows, agricultural activities utilize almost all of the surface water and about 83 percent of the underground water produced. Urban and rural households consume about 0.3 percent of the surface water and about 15 percent of the underground water, while industrial activities use under 2 percent of the underground water. At about 11 percent, 1 percent and 88 percent for overall household, industrial and agricultural uses respectively, Guanajuato's 1999 consumption pattern is similar to figures for all Mexico (12 percent, 5 percent and 83 percent respectively), but different from international averages (10 percent, 25 percent and 65 percent respectively). A major reason for this dominance of agricultural usage are the federal government rules for pricing and access to water. 6.26 Coverage. In terms of statewide potable water and sewerage coverage, as Table 6.3 shows, about 90 percent of the population of Guanajuato had access to potable water in 1999 while the figure for sewerage services was about 72 percent. Coverage for the large urban centers was about 96 percent and 95 percent respectively for water and sewerage; for the intermediate cities, the figures were 94 percent and 81 percent respectively and for the rural areas, it was approximately 79 percent and 33 percent. The state has over 16,000 wells dispersed mainly in rural areas. The overall coverage figure, compares well with the national average; however, the urban-rural gap is very pronounced. Additionally, in terms of service reliability, quality and other such factors, there are overall as well as inter-group deficiencies. 6.27 Even though the majority of potable water comes from underground wells, the state has a policy requiring that the water be disinfected. Over the 1993-1996 period, the rate of chlorination grew from 93 to 98 percent however, this figure declined to 96 percent in 2000, primarily because of disruptions caused by changes in administration in some of the water entities. In any case, even with greater chlorination, broken mains and distribution lines and non-continuous service occur in many areas, and infiltration and backflow in such networks, could negate the benefits of any well-head treatment. - 50 - Table 63 Water Utilization and Coverage Water Utilization (%) Source Annual Net Use SrpLslDef. Agriculture Industry CoPron Addition~ ~ ~ ~ ~ ~~~~~Cosmpo Addition (bill M3) (nillion m3) (%) (%) Urban/Rural (%) Surface Water 1.4 1.5 (193.0) 99.73 0 0.3 Underground Water 2.9 4.2 (1,245.9) 83.2 1.8 15 Total 4.3 5.7 (1,438.9) 87.81 1.3 10.9 Coverage According to Ranges of Population Clusters Range of # of Population Population Population Water Sewerage Number of Homes Comties. In Cluster With Water With Sewerage. Coverage Coverage I and2 houses 3,231 24,939 10,301 7,075 41.3% 28.4% 1-99 2,571 114,110 37,985 IS,548 33.3% 13.6% 100-2499 2,904 1,379,252 1,152,587 483,453 83.6% 35.1% Rural Subtotal 8,886 1,518,301 1,200,853 506,076 79.1% 33.3% 2,500-4,999 68 233,462 221,550 158,426 94.9% 67.9% 5,000-9,999 13 81,631 74,117 67,668 90.8% 82.9% 10,000-14,999 11 136,407 121,409 110,613 89.0% 81.1% 15,000-19,999 3 50,758 49,257 44,393 97.0% 87.5% 20,000-49,999 15 456,075 436,195 391,576 95.6% 85.9% Middle Size Cities 110 958,333 902,528 772,676 94.2% 80.8% 50,000-99,999 7 425,149 409,072 374,437 96.2% 88.1% 100,000.499,999 3 730,570 714,859 686,659 97.9% 94.0% 500,000-999,999 1,000,000-and more 1 1,024,406 973,187 1,003,919 95.0% 96.0% Big Cities 11 2,180,127 2,097,118 2,065,015 96.2% 94.7% Urban Subtotal 121 3,138,460 2,999,646 2,837,691 95.6% 90.4% Total 9,007 4,656,761 4,200499 3,343,767 90.2% 71.8% aoure: iM Estud1OS kldOgCOIOgWS de ijuansjuat.199 6.28 Liquid and Solid Waste. In 1999, the state produced an estimated 204 million cubic meters of wastewater, of which it treated about 31 million cubic meters in six of the nine plants it then had in operation (see Table A6.3 and Fig. A6.1). At about 15 percent, these figures are lower than the national average of about 20 percent. There are plans to construct several plants over the next five years to address this gap. Apart from wastewater, Guanajuato generates about 4,600 tons of municipal solid waste daily. It has about 74 hectares of open dumps and about 53 hectares of landfill space in twenty-three municipalities. Because of several financial and technical problems affecting more comprehensive coverage, there are several illegal dumps scattered throughout the state. Additionally, with many leather and other industrial plants in operation, and with heavy use of fertilizers and pesticides, the threat of pollution to important water sources is very real. The state has regulations and several monitoring stations aimed at controlling this problem but the results are mixed. - 51 - 6.29 System Operation. Over the past decade, local water entities have gained greater autonomy. Twenty-five of the forty-six municipalities had decentralized water entities in 1995 and this increased to 37 in 1999, with other municipalities providing water directly, from a more politicized bureaucratic structure. Unfortunately, even with somewhat greater independence of the water organizations, there are still frequent problems with financial, staff turnover, inefficiency, and lack of autonomy. 6.30 Service coverage grew by about 20 percent over the last five years, and while there were also significant increases in the installation of meters, reaching almost 100 percent in the larger cities (e.g., Leon, Guanajuato, San Jose Iturbide and Dolores Hidalgo), the overall rate is only about 69 percent. Efficiency in the system is low and in particular losses from unaccounted for water (UFW) continues to be a problem. For instance, in a study of twenty-four of the large water enterprises in 2000, it was estimated that on average, water billed was about 59 percent of water produced; and only 80 percent of water billed was actually collected. 6.31 While some water companies (e.g., Guanajuato and Celaya) show relatively strong financial positions, the amount recovered by the water companies statewide continues to fall short of the sum needed to cover operation and maintenance costs of these entities. In 2000, for example, 27 of the 37 water companies reviewed showed operating deficits. No tariff provisions are being made for replacing the aging production and distribution network nor is there any consideration for system expansion and upgrading. In several municipalities there is reluctance actually to increase tariffs and even they are approved, and there have been problems implementing and enforcing them. Efforts to adopt indexed-tariff systems have usually failed, for socio-economic and political reasons. 6.32 Weaknesses in the system come from various sources. On the administrative side, according to studies done by CEAG, in many water companies, there are high staff turnover because of change in administration, low salaries and poor working conditions. On the operational side, widespread waste of water by users has weakened the financial position of many water companies. Because almost all of the potable water comes from wells, the cost of equipment and electricity (at both the wellhead and for pumping the water over mountainous terrain) is very significant, averaging 30-67 percent for smaller municipalities and 17-44 percent of the operating costs of the larger ones. 6.33 For small rural settlements in about forty municipalities, the state has provided assistance to dig wells and equip tanker-trucks to distribute water among households. A revolving fund was recently established to help finance such facilities on a cost-sharing basis. While this initiative responds to a pressing need of rural residents for potable water, the proliferation of such wells could create long-term water-management problems. Also, at about MxP 400,000 per unit for tanker trucks and about MxP 1.6 million per well in capital investments only, the cost of the total program will be prohibitive if not properly managed. - 52 - Table 6.4 State Water Budget (2000 MxP Million) 1995 1996 1997 1 1998 1999 2000 2001 Budget Authorized by 100.9 25.7 53.2 65.1 71.2 136.7 N.A. Congress Operating Expenditures 13.1 114.4 10.8 12.6 13.3 14.9 N. 1. Strategic Project Expenditures 87.8 14.3 42.3 52.4 57.9 121.7 129.3 Expenditures for Special 39.9 128.9 28.8 171.2 84.5 26.8 N.A. Projects Counterpart Funding 39.9 135.9 62.5 161.7 122.5 105 N.A. Adjustment to Budget 6.2 6.3 0.3 42.3 N.A. Works Executed for Others 8.9 1.3 Total 186.9 290.6 162.7 398.5 324.5 269.9 Source: CtEAU. 6.34 Guanajuato's State Water Commission has mainly planning, technical assistance and coordination roles. The State spends only 2 percent of its discretionary spending in the water sector. Table 6.4 shows how CEAG has allocated its resources over the last 5 years. There was a sharp decline on total expenditures in 1997, and funds for special projects have increased steadily. 6.35 Actions Taken. The state and local water authorities are well aware of the problems of the sector and have taken several steps to address them. With respect to potable water, CEAG has been working with the largest municipalities to formulate and implement a series of measures to make the systems more self-sufficient and efficient. About 90 percent of the 46 municipalities now have inventory systems for potable water assets and for sewerage systems. Master plans have been prepared for seven water entities and several others are under preparation. Thirty-nine cadastres have been updated over the past five years and 42 municipalities have in operation updated computerized financial systems to manage their accounts. In forty-one municipalities, there have also been tariff studies over the past five years. In terms of proposed investments, over the next six years, plans call for monitoring and measuring systems; hydrological planning programs; rehabilitating networks, treatment plants and related facilities; promoting new irrigation methods; technical assistance and construction of three new dams; at a total cost of about MxP 10.8 billion. 6.36 Recommended Actions. Unfortunately, while the authorities at all levels seem to understand the problem areas, the solutions proposed in the 2001-2006 plan, places relatively greater emphasis upon getting access to more supplies than it is to making sure that the existing supplies are used efficiently. The pricing structure for water at the federal, state and municipal level should be the first area of priority. It should be reviewed to make prices more closely reflect the cost of providing the service. Apart from improving earnings and promoting greater self-sufficiency of various sector entities, economic pricing is the best vehicle for improving efficient use of water by both households as well as agricultural and industrial users. Unaccounted for water, both potable and irrigation, is extremely high. Studies by CEAG show that even with a 10-20 percent reduction in the total agricultural demand, construction of expensive dams could be pushed back several years into the future. With almost 2,000 km of irrigation ditches, many of them in very poor condition, there is a high loss-factor in the - 53 - distribution process. Surface evaporation from both reservoirs and current irrigation practices also adds to this loss. These are two areas where sector entities should join with farmers to ensure that improved practices are quickly adopted. 6.37 For household consumers, the updated inventory of assets, user lists, accounting systems, tariff studies, etc., are all steps in the right direction. However, in spite of the steps taken so far, the results have not been as positive as they should have been. To help municipalities improve their operations, the Government should support such enforcement measures as temporary disconnection of sewerage services for unpaid water bills. It should also promote the adoption and maintenance of appropriate tariff structures and provide incentives for municipalities to repair and upgrade their damaged infrastructure and install or repair micro-metering (especially in the larger urban areas). CEAG's data base on key performance indicators of water entities should be updated and placed on the internet, available to users and officials. 6.38 In the rural areas, instead of assisting in financing new wells in each community and helping in the acquisition of new tanker trucks to distribute potable water, displacing many existing private water vendors in the process, the Government should assess the feasibility of rehabilitating existing wells in strategic locations and using existing private sector water distributors, with clear operational rules and guidelines. This will reduce the need for public financing of such operations and improve efficiency and sustainability. Where feasible, the Government should promote the formation of cooperatives among several population clusters so that these groups can assume the responsibility for operating and maintaining their own water systems, calling upon the authorities only when major repairs or assistance are needed. HOUSING SECTOR. 6.39 Background. For housing, Guanajuato is a microcosm of Mexico and many other developing and developed countries, the primary concern being how to provide shelter and basic services on an affordable, efficient and sustainable basis for an ever increasing, mostly urban population. One of the first challenges here is to identify the main sector bottlenecks, along with possible causes of the current situation. 6.40 While both supply and demand constraints affect housing markets, policymakers seeking to improve access of residents should focus on easing housing supply constraints-such as cumbersome and costly land-titling requirements, high transaction costs, unrealistic or inappropriate construction norms and standards, disincentives to mortgage lenders.8 Unfortunately, instead of viewing market-supply constraints and income-insufficiency as the primary issues to be addressed, policymakers usually try to work around them with ad-hoc initiatives that further distort housing markets and contribute to inefficiency, inequity, and corruption. 6.41 After several decades of attempting to solve its housing-sector problems through a wide range of centralized programs, specialized institutions and initiatives, and seeing the problem worsening, Mexico began to decentralize its system during the past two decades. Apart from passing on more resources and responsibilities to state and local authorities, the Government also 8 World Bank, Housing: Enabling Markets to Work Washington DC, 2000. - 54 - ceded ownership of many parcels of its large land-holdings to the states and created several state- housing entities. With greater autonomy, state authorities began their own initiatives aimed at addressing various pressing shelter issues. Unfortunately, in spite of several programs targeted at special groups, and various incentives and subsidy programs, housing continues to be a challenge for Federal, State and Municipal policymakers. 6.42 In Guanajuato, the Instituto de Vivienda del Estado de Guanajuato tIVEG), was created in 1985 to replace the Federal entity, INDECO. Apart from receiving the assets of INDECO, IVEG also obtained part of its initial capital funding from the state. Up to 1991, IVEG was involved in the direct construction and financing of housing solutions for various identified target groups. In order to assist a larger group, the state changed this policy after 1991, with IVEG acting as a promoter of housing development in partnership with community groups, NGOs, builders and others. In this new role, IVEG's main activity has been to take public land or acquire undeveloped land and use its official position to accelerate the process to get such lands urbanized and divided into plots with all of the necessary approvals, permits, services, etc. These urbanized lots are then offered to contractors who build the needed units, sell them to the target groups, and pay IVEG for the land after receiving the proceeds of their sales. 6.43 Over the past three years, IVEG provided just over 13,500 solutions under eight separate product lines ranging from serviced lots to completed units. If its various national and other housing finance partners (e.g., FOVI, SEDESOL, INFONAVIT, ISSEG) are included, the number of programs available through IVEG increases to about eighteen, with the number of solutions reaching about 17,000 and the range of qualifying households being 1-6 Minimum Salaries (I SM is about MxP 38 per day). Table A6.4 contains details of some of the housing programs of IVEG and other entities. In 1999, IVEG had a staff of about 60 persons to implement its program. Its operating cost for 1999 was about MxP 30.3 million. Consistent with frequent post-election staff turnover, the current management group comprises many who were recently appointed by the incoming administration. 6.44 Evaluation of Initiatives. IVEG's has emphasized building shelter units, and more recently, acquiring and urbanizing land for builders. Key data on the housing sector (number of units, type of construction, age, location, occupancy, tenancy); beneficiary analysis; affordability; repayment record; cost of operation; assets and liabilities and other such financial data are not readily available. IVEG has some financial data; however, there has apparently not been any recent rigorous review or audit of IVEG's accounts and operations. A recent IDB analysis of IVEG noted that there may be serious deficiencies in its finance and reporting systqms. Nonetheless, IVEG reported a profit in 1999 of about MxP 25 rnillion, primarily from its land transactions. It had assets of about MxP 377 million and liabilities of about MxP 44 million in 1999. Its main assets are land (approximately MxP 200 million, receivables from developers of about MxP 47 million and outstanding mortgage credits of about MxP 70 million. Its most recent estimates of bad debts show about 53 percent of the portfolio to be in arrears. IVEG's 2001 budget is about MxP 70 rnillion. 6.45 State authorities put the housing needs of Guanajuato at about 100,000 units, although the estimate was inadequately documented to break down this figure into its constituent parts- overcrowding, new family formation, new arrivals, loss to hazards, units beyond repairs. - 55 - 6.46 Apart from the multiplier effects of construction activities and the importance of housing and basic services for a strong and well-functioning workforce, housing is also very important from a socio-political perspective. Many of the housing problems facing Guanajuato reflect wider country issues and these would have to be addressed in a broader and more comprehensive manner, with short, medium and long-term perspectives clearly defined in order to achieve sustainable results. The following are among some of the more important factors which should provide the basic underpinning for formulating an appropriate housing policy. 6.47 Supply Factors. The housing market is not functioning well because of both supply- and demand-side constraints. The authorities at the Federal, State and Municipal levels have relatively greater ability to address supply-side constraints than demand-side ones. For example, currently in Guanajuato, IVEG is taking advantage of its status as a state entity to acquire land (from publicly-held stock or via expropriation), cut red-tape and bottlenecks in order to get such lands urbanized for developers to provide housing. In this way, instead of reducing delays and costs for everyone by working to eliminate the red-tape and bottlenecks (which are primarily created by the Federal, State and Municipal authorities), IVEG takes these obstacles as given and uses its privileged position as a monopolist to profit from the inefficiency. 6.48 A well-functioning land market is a key element for economic and social development. Apparently, the Mexican land-reform initiatives of the last decade fell short of the goal of creating an enabling environment facilitating efficient sales, purchases, titling, zoning, taxation, etc. At the state level, even with its monopoly position, indications are that IVEG and other such entities will soon face greater obstacles as they deplete their stock of "free" federal land and have to start buying land and factoring this as an explicit cost in their operations. 6.49 Apart from land-market issues, existing regulations on land-use, zoning, permits, building codes, construction norms and standards, should all be reviewed in order to enhance the facilitator role which state housing entities are supposed to play. There is a very high correlation between construction norms and standards (minimum lot-size requirements, width of streets, sidewalks, water distribution systems, etc.) and the cost of a unit to the final beneficiary. To the degree that such requirements lead to low density and high unit cost, they work counter to the goal of providing the poor with affordable solutions unless these are highly subsidized. While minimum public-safety requirements must be maintained, indications are that many of the current construction norms and standards are not formulated with public-safety and security issues in mind and they need to be appropriately modified in order to encourage increased housing construction of low-cost solutions. 6.50 Housing finance is another area of importance where, because of the absence of private sector institutions, governments are inclined to seek ad-hoc solutions without working to address many of the key concerns posing obstacles to entry for many private-sector lenders. Mortgage lending has several special characteristics, including a long term and relatively large size, which adds to the reluctance of private lenders to actively participate in housing-finance lending. In Mexico and other countries, governments have made several unsuccessful attempts to find alternative funding sources. By tapping into social security funds, pensions and other such publicly-managed pools, they have provided additional mortgage funding to a few lucky clients. Even for the limited cases where commercial banks are willing to offer mortgages to qualified borrowers, there are generally strict laws and regulations on such items as the interest rate, - 56 - foreclosure conditions in cases of defaults, and the legal redress they can seek. In general, while it is true that even with policies conducive to mortgage lending, commercial banks may not be willing to lend much for this sector, especially for the poorest strata, there is still a lot which governments can do in their legal, financial and related regulations to facilitate lending for housing. 6.51 Demand Factors. People do not have adequate housing primarily because they are poor, and unless incomes are increased in a sustainable manner, such households most likely cannot afford higher-priced units. To the degree that the authorities attempt to artificially bridge the income discrepancy by granting relatively large subsidies to a privileged target group, such groups will tend to dispose of the relatively costly housing (relative to their income level) by renting or selling it, often at a discount, in order to re-adjust their expenditure pattern to their income level. Even when beneficiaries do not sell or rent the units, the additional maintenance, tax, utility and other costs usually requires a relatively larger share of their (unchanged) income and puts additional strains on their budgets. 6.52 Welfare Cases. One very important element in any housing program is the need to separate out welfare cases and treat them as such. Many government housing- entities are usually asked to address the needs of families in the lowest deciles of household income and to do this on a cost-recovery basis. Even in the wealthiest countries, there is recognition that this is not possible for households where they do not have enough income even for food alone. While it may be good politics to advocate that shelter programs go to the most needy families, there are several pitfalls in insisting on repayments, adequate maintenance and no resale or rental of such units. Rather than pushing housing sector entities to assume de-facto welfare roles, policymakers must identify the poorest among the poor and have appropriate social welfare programs for them. Recommended Actions. 6.53 For policymakers in Mexico and other countries facing similar housing problems, a viable alternative lies in a package of supply-side reforms coupled with strategies to increase the income level of households. Identifying and assisting those who need special attention as special cases is also an important element since it eliminates distortions and pressures upon housing entities to combine market and social-welfare functions. 6.54 As part of the reform measures mentioned above, instead of buying and urbanizing land, policymakers can declare their commitment to reforming the system which contributes to limited land-accessibility and dependence upon state internediation. At the same time, the state can target its funding to upgrading the infrastructure in existing neighborhoods and assisting households to improve their existing units with a wide range of programs, depending upon the current living condition of these target households. To some degree, this recommendation builds upon IVEG's existing home-improvement program. Through the proposed program, for example, the state can terminate its multiple product line and replace it with a single subsidy program. Each year it can declare how much it has available for home improvement subsidies and leverage this with beneficiary contribution (in cash or kind), in line with its sector reform activities. - 57 - 6.55 Such subsidies would have simple but clearly-defined rules and conditions. For example, first priority could be for those who need subsidies to obtain title to their property. Such households could receive, say, a grant of four pesos for each peso they provide toward getting their titles. Another priority category could be water and sanitation connections. For every peso spent by the targeted family to install such services, a subsidy of say, three pesos can be given to them, subject to a certain limit. With parallel institutional changes, e.g., in simplifying the titling system and reforming the operations of the water companies, the entire process is reinforced from both the supply and demand side. 6.56 Based upon investments made in 1999 in Guanajuato under all official housing assistance programs, government assistance (loans or grants) for finished units averaged about MxP 150,000 while progressive housing units received about MxP 2,500 with home improvement loans being about MxP 1,500 and serviced lots reaching about MxP 1,000. An explicit leveraged-subsidy program would have had a much lower per-family cost to the Government and would have reached a much larger beneficiary group. Moreover, it most likely would not have created many of the problems (e.g., bad debts), which currently plague existing programs and it could help to conserve and improve the existing stock of housing units, providing security and improved living conditions on a more sustainable basis while reducing the pressure for new units. PLANNING AND COORDINATION WITH MUNICIPALITIES AND THE PRIVATE SECTOR. 6.57 The state needs not only to plan and coordinate better its own activities in the infrastructure areas, but also to make coordination with municipalities and the private sector. As note in chapter 2, the state now passes its federal transfers for the State Social Infrastructure Fund (FISE, in Ramo 33) to the municipalities to augment the Municipal Social Infrastructure Fund. With no strings attached, each municipality uses the money for its own purposes. The state could better use these resources, in combination with its own, in a leveraged way to promote infrastructure activities with state or regional externalities. The funds would be provided on a matching-grant basis when municipalities, individually or in groups, put their own funds into areas that are priorities for the state. Other states, like Puebla, already have such pari- passu programs. In rural areas of Guanajuato these might focus on water conservation. In urban areas on housing. In both, on improving the interurban and rural-to-urban transport system. 6.58 Guanajuato has a vigorous private sector that has already gotten involved in some aspects of infrastructure provision and financing. It already takes a lead in housing and urban transit. Still, this participation has been largely ad hoc, and excluded from some sectors like water, and it could be even more effective if the state encouraged it systematically. Regulatory reform needs to come at the beginning, making it easier for new entrants and clarifying property rights and other rules of the game for those that do enter. In water, the federal government will need to participate in the regulatory reform, giving the states wider authority, but even without the federal reforms states have some scope for action, as demonstrated in the State of Mexico. Along with regulatory reform, the state can stimulate effective private sector action, to address state priorities, with leveraged use of state financial resources. Sometimes, it could use partial guarantees for private sector financing, but this should be done only with great caution to assure that the state takes only a limited liability and that the private sector participants have substantial - 58 - equity of their own at risk. In other cases, the state could use subsidized concessions, which might be most appropriate in areas like urban transit, where operating costs are substantial. 6.59 There are several plans for many types of industrial, commercial and service activities and investments-not coordinated or consistent with each other, until they are sorted out by the Planning Council, discussed in the next chapter. For example, the Secretariat for Sustainable Economic Development has plans for creating an inland port in Guanajuato, as an alternative cargo center to Mexico City, hoping to attract about 30 percent of the national and international merchandise-distribution activities. It also has plans for a 150 km of interurban train along the industrial corridor, linking the eight largest cities. Added to this is a planned business, hotel and tourism complex aimed at developing Irapauto. Finally, the development plan calls for building in Leon the nation's biggest expo center, with exposition pavilions, a stadium, a congress center, a fair dome and other attractions and amenities. Plans of the SOP, on the other hand, focus on toll roads. At least prior to the 2002 budget cycle, neither set of plans was coordinated with the plans of the Secretariat of Social Development, nor of the secretariats of Education and Health. And the Secretariat of Finance and Administration does no plan for financing investment and personnel in all the sectoral plans. 6.60 The various economic infrastructure plans are ambitious and costly. There appear to be no clear market studies or financing sources identified and several important details on implementation, impact, etc. seem to be undefined. If they are implemented, they will have enormous implications for traffic needs and infrastructure investments over the next two decades. Even with several officials actively seeking investors for these ventures, there needs to be more internal consultation, combined economic and feasibility analyses, and related studies on the overall impact of such investments upon the region and the state. They should take stock of the current status of Guanajuato, including the recession in textile and leather industries and the declining population growth rate. 6.61 All of these analyses will need to take account of socio-political aspects in order not to discriminate against marginal segments of the population because of their rural location or special circumstances. This means that planning for the needs of approximately 9,000 rural communities, each with population less than 2,500 and for other scattered communities, should also be considered in the above analysis. Many of these small communities are rapidly declining as urbanization and external migration increase. However, state authorities will have to balance between providing too much costly infrastructure to villages that may not exist by the end of the decade and providing too little, so that the residents have no access to the transport system for their social, economic and other needs. The SOP has been trying to match the quality of the roads it builds in such communities to the possible uses of the infrastructure. Since most of these investments do not provide commensurate benefits, before considering socio-political factors, budget decisions should be sensitive to these special considerations. - 59 - 7. BUDGETING INSTITUTIONS AND FISCAL OUTCOMES 7.1 How have institutions contributed to the prudent fiscal management in Guanajuato? What institutional features have contributed to the weakness of the planning and investment process? What options for institutional reform could address those weaknesses, without losing the strong points? A well performing budget ought to serve not only macroeconomic stability, but also strategic priorities and managerial efficiency, with a strong linkage among them. Otherwise, policy makers and planners may exceed resource availability or managers may operate without paying attention to cost efficiency requirements. 7.2 To explain, outcomes of fiscal stability, planning and management, economists and political scientists have turned their attention to the role played by formal and informal institutions (norms and procedures) as well as the commitment to follow or to enforce them. Research on how budgeting institutions affect fiscal outcomes, as in Guanajuato, focuses on the incentives built into the institutional framework that shape eublic officials' behavior in providing, as well as citizens' conduct in claiming public services. 7.3 Budgeting is not just a matter of aggregate fiscal discipline, strategic assignment and management efficiency. Defining the source and the use of public resources is a political struggle among conflicting interests, which sometimes sets new rules of the game. In this sense, the institutional perspective not only highlights the dynamics of the budgeting process but it also takes into account other social and cultural factors that contribute to fiscal outcomes. AN INSTITUTIONAL EXPLANATION FOR FISCAL OUTCOMES 7.4 Budgeting norms, procedures and practices now receive wide recognition for preserving or undermining fiscal stability, and though, in a lesser way to sway effective resource allocation and efficient management. Most of the research done in this field can be usefully arranged into three categories. The first one includes those attempts to define a legal or a quantitative restraint to avoid overspending by the executive or legislative bodies. A second type emphasizes decision-making procedures employed to establish overall expenditure limits or sectoral quotas within the government. The third type of institutional arrangements are related to transparency issues on public decision-making, how they were made as well as their results and costs. 'Transparency demands that this information be accessible, clear and widely communicated to the general public."'0 7.5 Poterba (1994) and Alt and Lowry (1994) find, at the state level, a strong relationship between balance budget rules and size of deficits. Von Hagen(1991) and von Hagen and Harden (1995) find evidence that more hierarchical and more transparent procedures are associated with lower average budget deficits in 12 countries of the European Community. One study of particular interests for Guanajuato is de Haan, Moessen and Volkenkirk (1999), which highlights 9 For an excellent survey see for example Alesina, A. and R. Perotti (1999), "Budget Deficits and Budget Institutions." In J. Poterba and J. Von Hagen, eds. Fiscal Institutions and Fiscal Perforrance. University of Chicago Press, Cambridge, MA; and J. Poterba (1996), "Do Budget Rules Work?," NBER Working Paper no. 5550. 10 World Bank Public Expenditure Handbook. Washington DC ,2000, page 16. -60 - the importance of the Finance Ministry for fiscal discipline. Alesina et al (1996) show for 20 Latin American countries that those with more hierarchical and transparent budget procedures tend to have lower average budget deficits. Similarly, Stein, Talvi and Grissanti (1998) find that government tend to have lower deficits and lower debt levels with institutions that promote a more comprehensive view of the cost and benefit of public sector activity. Not surprisingly, they also mention how constraints that enhance fiscal discipline may hamper the capability of the administration to react against shocks. FISCAL STABILIrY 7.6 While a balanced budget indicates aggregate fiscal discipline for that year, it does not ensure sustainable fiscal outcomes in the long run. To do so, the budgeting process requires institutional mechanisms to keep competing, often excessive, claims within affordable limits. Then, what matters for stability is how to define "affordable" limits, how to control expenses and how to uphold hard budget constraints, especially those related to budget financing. No less important for fiscal results are how budgeting norms and procedures handle unexpected fluctuations; and how control agencies react to them. 7.7 The rest of this section considers each stage of the budgeting process and how agents interact within the institutional framework to affect fiscal outcomes. The review of norms and procedures for budget preparation, approval, execution, evaluation and control provide a better understanding of fiscal sustainability in Guanajuato during the last decade. 7.8 Budget Preparation. The Secretariat of Finance estimates federal transfers and state tax shares and sets revenue targets for each of the state's surcharges and fees. Later, it establishes expenditure ceilings to individual sectors and agencies. Finally, The Secretariat defines a financing plan to ensure resource availability according to a cash-flow agreement. 7.9 Defining the right amount of resources is a well-established practice in Guanajuato. Revenues have been systematically underestimated during the last decade. The State Income Law shows for each revenue item smaller figures than the correspondently executed value for the period 1996-2000 (Table 7.1). As mentioned earlier, 10 percent of total state income is set aside to cushion fluctuations in federal transfers. Extraordinary resources, which frequently come, are never budget before being legally assigned by the Federal Government. In this way, Guanajuato has avoided any defensive bargaining with Federal authorities. Consequently, conservative revenue estimates have become the anchor for fiscal figures downstream the budgeting process. 7.10 Current expenditures closely match established revenues, while investment becomes the adjusting variable. The income directorate in the Finance Secretariat hands in revenue estimates to the budget office, which defines all current expenses other than those determined by federal transfers, including teachers' salaries. By law, the Finance Secretariat establishes public salaries, manages personnel and distributes the public payroll." According to the Law, all public remunerations must be contemplated in the salary structure authorized by the Secretariat and should have a corresponding budget assignment. New job places can only be created when their contribution can be proven and budget resources are made available within personnel expenses. See articles 48 through 58, Expenditure Law. And also Reglamento de la Secretarfa de Planeaci6n y Finanzas del Estado de Guanajuato. Direcci6n de Administraci6n Personal, Art(culo 66. - 61 - The Secretariat must authorize in advance any adjustment in the administrative organization. General acquisitions and expenses should follow similar steps. Secretariat's exhaustive control over current expenses explains why current expenses track closely the annual increases in Federal tax sharing (participaciones). Table 7.1 Estimated and Collected Revenues, Income Law (Millions of current Mexican pesos) 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 (est.) (coll.) (est.) (coll.) (est.) (coll.) (est.) (coll.) (est.) (coll.) Federal Tax- Share Transfers 2,202 2,483 2,991 3,349 3,813 3,931 4,559 4,714 5,446 6,153 Federal Transfers 1,715 1,986 2,364 3,114 4,322 5,037 5,845 6,772 7,549 8,530 for Sectors Own Resources 320 379 412 439 614 754 785 882 850 802 Credit 100 300 325 430 350 TOTAL 4,337 4,848 6,067 6,902 9,074 9,722 11,619 12,368 14,195 15,485 Difference (collected minus 511 835 648 749 1,290 estimated) source: secreta de rmanzas y rianeacion. 7.11 To establish the resource envelope for the investment, the budget office subtracts current expenses from total revenues estimates. Once the budget office elaborates the gross figures, it communicates quotas to secretariats and decentralized agencies based on assignments of previous years. Discussion and changes are allowed within each secretariat. The Junta de Gobierno under the Governor's direction makes final decisions about secretariats' shares and has not in recent years ever changed revenue estimates to allow for larger expenditures.'2 Later, each secretariat and agency disaggregates its activities into programs and projects for an amount equal to the assigned quota. 7.12 Planned borrowing would accommodate the difference between the conservative revenue estimates and realistic expenditures. Between 1996-2000, initial borrowing estimates fluctuated around 5-10 percent of state's share in federal taxes. As the fiscal year advances, however, effective revenues has always exceeded the initial budget estimates, closing the financial gap and thus making borrowing unnecessary. Despite the absence of an explicit norm to establish debt limits in Guanajuato, the State has not contracted any loans during the past five years. 7.13 Budget Approval. Although the governor's party did not control the legislature in Guanajuato during the 1990s (between the PRI loss of the governorship in the early 1990s and the PAN attainment of congressional majority in 2000), the State Congress has always approved the aggregate budget as presented by the administration.13 There is such confidence in the 12 Interviews with Secretariat officials. 13 The executives lack of control of Congress has also been the case at the national level since 1997, but there congress has held up and modified the budget in the past three years. - 62 - budget's passage that there are no legal provisions to solve the stalemate if a budget were not approved. Sequencing in the approval of income and expenditures, as well as overall aversion to borrowing, helps to explain Guanajuato's expediency in budget approval. 7.14 According to legal norms, Congress first approves the income law, defining thereby a ceiling that constrains expenses. In a context of conservatively calculated revenues any additional expenditure must be financed with credit resources. Faced by administrations that have openly proclaimed their dislike for credit use, Congress has routinely approved the budget without changing aggregate figures. 7.15 Congress approves the Annual Budget Law -Ley del Presupuesto General de Egresos del Estado de Guanajuato para el Ejercicio Fiscal del 2001 - at two classification levels: first, aggregate assignments for central entities and decentralized agencies and, second, expenditures at the level of programs and projects with their respective goals and performance measures. This budget structure allows Congress to examine closely state expenditures and to introduce changes at project level without disturbing the aggregate balance. In addition, it makes easier for Congressmen to fund specific programs and projects, up to the aggregate quantities previously agreed with the administration. 7.16 Budget Execution. A budget assignment is a legal right for a government agency to expend a specific amount of resources. To start contracting, however, the agency needs a certificate proving resource availability. Presently, the Secretariat provides that certificate through an Integrated Financing System (Sistema Integral de Hacienda P4iblica), which automatically tracks the expenditures and the remaining amount for each line item, therefore, leaving no margin for overdrawing the budget. 7.17 The financial management system also strives to adjust aggregate payments and available resources during the fiscal year. The Secretariat negotiates a yearly payment calendar with each agency for the amount assigned in the law. After that, the Secretariat must make available the agreed resources to the agency, which should expend them in due time. If the agency fails to use them within a specified time, the Secretariat reassigns them to another agency. According to figures in Table 7.2, during the last five years, Guanajuato has executed exactly the approved budget two times and under executed it on two other occasions. Only on one occasion, in 1997, did the State spent more than what was initially approved. 7.18 Any budget modification requires the approval of the Budget Direction of the Finance Secretariat. If the proposed addition exceeds 7.5 percent of total projected income, however, Congress must also give its approval.'5 Any agency wanting a change must submit a request with the justification to the Secretariat, which introduces any approved modifications into the system. The Secretariat's control over the system avoids any possibility to override its decisions. 7.19 'Adequate provision of cash resources facilitates budget execution in Guanajuato. A reliable flow of resources follows the annual public works plan. For the last two years, financial management efforts have aimed to minimize idle resources by adjusting and optimizing the 14 Article 75 of the Expenditure Laws allows the Congress to provide aid and endowments to public and Drivate agencies. 15 Article 41, Expenditure Law. - 63 - rhythm of project execution. As consequence, there are no overdue payments waiting for treasury resources to pay them. Table 7.2 Guanajuato Expenditure by Economic Function (2000 MO) 1996 1997 1998 1999 2000 Approve Executed Approve Executed Approve Executed Approve Executed Approve Executed Current Expenditure Wages and salaries 5,068.3 5,068.3 5,159.5 5,619 6,189.2 6,189.2 6,742.3 6,450.3 7,463.2 7,230.3 General materials & inputs 196.6 196.6 171.9 162.3 120.8 120.8 152.2 141.8 181.2 174.4 General services 362.5 362.5 404.6 501.1 440.7 440.7 507.4 481.5 516.1 487.1 Transfers and subsidies 554.2 554.2 1,000.1 1,065. 1,994.5 1,994.5 2,642.3 2,635.2 2,330.8 2,321.6 Aportaciones Ramo 33 801.1 801.1 Financial investment 31.6 31.7 420.5 33.3 33.5 33.5 347.8 345 428 415.6 Interest 40.9 40.9 18.8 18.8 18.4 18. 17.4 17.4 13.9 12.7 Participaciones 1,042.7 1,042.7 1,143.7 1,143.7 1,207.6 1,207.6 1,262.5 1,262.5 1,494.3 1,494.3 7,296.9 7,296.9 8,3193 8,543.7 10,005 10,004.9 11,672 11,333.8 13,228.9 12,937.2 Capital Expenditure Transfers and subsidies 716.1 716.1 654 681. 1,472 1,472 1,307.2 1,298.2 435.1 433 Aportaciones Ramo 33 941.3 941.3 Assets 229.3 229.3 180.4 334.8 169.5 169.5 205.6 201.2 135.4 128.6 Public investment 389.8 389.8 241.5 618.2 749.3 749.3 695 635.7 718.2 678.8 Financial investment 19.8 19.8 35.2 53.7 73.7 73.7 50 50 2.7 2.7 Public debt repayment 67.6 67.6 19.7 19.7 9.2 9.2 21.5 21.5 11 10.7 1,422.7 1,422.7 1,130.9 1,708 2,473,9 2,473.9 2,279A 226.7 2,243.8 2,1953 Total 8,719.6 8,719. 9,50.2 10,2S1. 12,478.9 127478.9 13,951A 13 .6 15A72.7 15 132.5 Source: secietaria de tinana y k laCaL. 7.20 Fiscal Balance Control. The expenditure law explicitly authorizes the Secretariat to reduce expenditures to balance undesired developments in the revenue side of the budget (Article 38. Expenditure Law). This has never happened in Guanajuato. In 1997, Guanajuato spent more than the initially approved budget; however, expenditures for that year matched the increased revenues, because structural changes in federal transfers generated extra income and expenditures of MxP 1,135 million. 7.21 Budgeting norms, procedures to establish revenues and expenditures, as well as debt and cash management in Guanajuato keep expenses below the limits defined by affordable resources. In particular, cash management is meant to economize public resources, on occasions even at the cost of adequate public service provision. For example, in education, these cuts in some years represent up to 5-6 percent of total expenses. Though, the sector usually recovers a portion, the State saves or reassigns what remains. In Guanajuato, formal and informal rules combine to produce a comprehensive set of incentives to enhance fiscal discipline. - 64 - 7.22 Why is it so? Political factors seem the primary explanatory factor, and the political inclination has reinforced itself with institutions. Unfriendly and often-conflicting relations between the State and the Federal Governments seem to be the origin of the matter. On the basis of historical experience, the PAN-controlled Guanajuato government feared wrongdoing with transfers from the PRI-controlled federal national governments. Under those circumstances, it was not politically sound to rely on extraordinary resources coming from the federal level, or to have to bargain for them. 7.23 The practice of Guanajuato contrasts starkly with some other states, which sometimes count on getting extra appropriations from the federal government. In earlier years this was a regular occurrence, but not since the late 1990s. Nevertheless, those states got local congressional approval for high spending levels based on optimistic revenue forecasts. Funds could be committed and spent as long as they were in the approved budget. Then they went to the federal government for assistance, an extra grant or an advance, if the projected revenues did not materialize. If necessary, they just carried over a floating debt to the next year to cover any shortfall. These institutions and traditions seems to carryover from a period of one-party domination at all levels of government, but do not seem workable now in the absence of federal guarantees of state debt and ad hoc fiscal transfers to states. Thus, Guanajuato seems better prepared than many states for the fiscal environment of the 21St century. DEFINNG PRIORITIES AND ASSIGNING RESOURCES 7.24 Defining priorities is a political process, but politically driven decisions may be improved if decision makers have reliable information as well as incentives to use it. Then decision makers will be better able to assign resources among competing claims, to learn from results and to introduce appropriate changes. A good planning system should also provide a long-term prospective on economic, political and social developments including the effects of policy implementation. Finally, proposed actions must be transparent, making it possible to track results and hold public officials responsible for them. 7.25 Formulating Priorities. This section discusses mainly the actual framework used up to the 2001 year budget, although planning is rapidly evolving in Guanajuato, with promising institutional and organizational reforms underway. 7.26 Laws and regulations, reinforced with a new Organic Law of Executive Power and a new State Planning Law, both passed in December 2000, require an incomning administration to issue a the government's action plan (Plan de Gobierno) within its first three months in office. The Plan should provide a comprehensive and coherent strategy to frarne public policy during government's term. Those actions must be formulated in terms of activities, programs and projects with their respective quantified goals and targets. 7.27 Budget approval under a program structure improves planning; and this administration, perhaps for the first time, is making an effort to convert campaign promises into precise and operative activities. Prior to 2001 the Plans were mostly indicative, with great emphasis on public works and with old expenditure projects easily finding room under newly stated objectives. - 65 - 7.28 Inertial investment was reinforced through years by the lack of a long-term fiscal and financial outlook within the government's plan. Investment was defined each year as a residual variable while sectoral quotas were assigned based on historical trends, by a capable bureaucracy that was partially responsible for and loyal to the traditional budgeting system. Consequently, old programs were preserved without having to compete for resources, and new ones hardly found the opportunity to get into the budget and show results. Lack of mechanisms to consider new demands within the planning process reinforced the tendency to preserve the status quo. 7.29 During 2001 Guanajuato is implementing its new planning law in advanced preparation of the 2002 budget. The law established a Planning Council (Consejo de Planeaci6n) with representations from all parts of the state government, from municipal governments, from the federal government, and from the organized non-government sectors. The Secretariat of Social and Human Development has a lead role, as technical secretariat of the council, and is also mandated in the Organic Law of Executive Power with the task of elaborating, executing, and evaluating the Government Plan. Each of the nine line secretariats (Education, Health, transport and Communications, etc.) and the independent agencies of the state produces a six-year sectoral plan, based on the Government Plan, and from the sectoral plans the secretariats and agencies propose their annual budget programs, including investment. While this could turn into time- consuming window-dressing on business as usual, the planning process seems to be proceeding seriously. The Secretariat of Social and Human Development and the Secretariat of Finance are working closely together to select a coherent program of investment that accords with the priorities in the overall Government Plan and fits within the state's financing constraints. The two main criteria for choosing projects are their social impact or their potential for cost recovery. As with the introduction of any new process, its performance should be monitored and evaluated, with feedback to fine-tune the procedure for the next cycle. 7.30 Guanajuato's budget structure is a noteworthy achievement, especially in comparison to other states. Undoubtedly, it has facilitated Congress's close scrutiny of government proposals and their approval. Following a well-known tradition, Guanajuato's Congress demands useful, reliable and timely budget information. The evolution of the budget structure corresponds to the relentless struggle between a Congress willing to find administration's wrongdoings and an administration eager to prove the opposition wrong. In this case, constructive political struggle has promoted a positive outcome. 7.31 Budget Evaluation and Control. The emphasis on short-term planning and financial implementation does not mean that the substance and purpose of public expenditures go unquestioned in Guanajuato. On the contrary, the program budget structure developed by Guanajuato makes it easier to evaluate results and their costs as well as to establish responsibilities for resulting outcomes. The health and education secretariats are well acquainted with the technique. 7.32 A well-established accounting system complements the program structure and provides useful information for decision making, especially for evaluation and control. Inputs are easily tracked and costs are assigned to each government interventions, thus providing evidence on whether and how resources contribute to the proposed objectives. The Comptroller (Secretaria de la Contraloria) routinely evaluates programs and projects and publishes the results. - 66 - 7.33 Between June 1999 and May 2000, the Secretaria de la Contralorta evaluated 203 strategic projects for a value of MxP 780 million, an amount almost equal to total capital expenditures in 2000. During the same period the Secretarna de la Contraloria was able to launched 8,963 public-works audits for a value close to MxP 980 million, of which 1,485 were designed to verify the transparency in using budget resources. Five thousand and seven hundred and sixty three other actions aimed to examine the operability of State public infrastructure. Moreover, thanks to control mechanisms it was possible to corroborate that communities received satisfactorily according to expectations 1,144 government actions. Finally, out of these actions and many others the Secretaria de la Contralorta penalized 346 public officials. These actions help to strengthen public administration and increase credibility of Guanajuato's accounting practices. 7.34 It is not a perfect control system, of course, and some measures could correct for sector unbalances, vague goals, and overly complicated indicators. Guanajuato does have a well- developed system to assign resources and to evaluate results - the basic elements for transparency in government decisions. Unfortunately, the dissemination of information has been largely restricted to public officials and the legislature. Despite efforts by some citizens, they remain largely unaware of these developments, limiting therefore the accountability of public leaders. 7.35 Congressional control over government expenditures has improved during the past decade, thanks, on the one hand to the greater transparency brought in by the evolving budgeting structure; and on the other, to the political commitment between Congress and the administration to assess government actions mainly on technical grounds. Before 1994, audit was legally oriented; the Contadurfa Mayor de Hacienda, Congress' technical instrument, focused on the effective control of budget accounts by line item. It was an effort to promote accountability over the detailed use of resources. With the passing of the Auditing Law in 1994, Congress assumed a performance and result-oriented type of control, asking public officials since then to come and defend their programs and projects. As a result of this political agreement, audits were stripped of any political connotation, and their results have always received strong and nonpartisan support from congressmen. 7.36 Despite these developments, local expenditure has gone largely uncontrolled in Guanajuato. From many years there was a legal muddle over ultimate responsibility between the Contadurfa Mayor de Hacienda standing for the Congress and the Secretaria de la Contraloria representing the government. Finally, a constitutional decision made few years ago favored the former.16 But, the main reason for this lack of control has been Congress's unwillingness, shared by the administration, to oversee political co-partisans in charge of municipal management. Now there is a move to do so. Both parties have arranged to free local auditing from political restrictions. Consequently, there is a legal project to create an independent organism free of Congressional influence and responsible for those audits. 16 constituciRn Polftlica del Esado, Article 63. And also see Congress Organic Law, Article 219. - 67 - EFFICIENT RESOURCE MANAGEM:ENT 7.37 Institutions, formal and informal rules of the game, help explain fiscal outcomes, as do the availability and management of human, technical and financial resources and timely and reliable information. Their importance as explanatory factors depends on the fiscal function. For example, budgeting norms, may have a larger impact on fiscal discipline, whereas labor norms and management may have a decisive impact on efficiency. A full report on management efficiency would require collecting data by sector and even by project, which is beyond the reach of this review. This section focuses on the institutional interactions between budgeting and the rest of the public management. 7.38 Management efficiency depends on multiple background factors - goal setting, transparency in control over resources, accountability and responsibility for outcomes and their consequences - which become operational in the specific institutions of budget structure, cash management, and fiscal control. All three factors contributed actively to the day-to-day management decisions in Guanajuato's public sector. Although goal setting is hierarchical and inertial, managers and sector directors interact to define programs and projects as well as to decide on task magnitudes. Moreover, program budgeting explicitly links inputs and outputs introducing cost awareness for public resource use. Sufficient financial resources flow in this way, which explains the observed success with budget execution. Only MxP 40 million out of total investment assignment (MxP 807.5 million) were left unexecuted during 2000. 7.39 An effort is underway to refine further the management of cash. Managers and the Secretariat must agree upon a monthly cash schedule. If the agency does not execute scheduled resources on time or renegotiate them, the Secretariat assigns them to other activities. The system is still causing some difficulties for managers; it needs more accurate information, as well as flexibility, in order to improve financial management of government activities. Nonetheless, the explicit setting of inputs and outputs in the budget and their strong linkage at least provide managers with clear signals of what to do and for what they will be evaluated. Even without specific incentives, managers seem adequately motivated to search for productivity gains and introduce innovative approaches for optimizing resources, especially in health and education. Public works are well implemented, since they, along with basic education and health, are the focus of the state's institutional and managerial resources. Other areas of social investment and human-capital building receive less attention. 7.40 Input-output budget linkages facilitate control beyond the legal, line-item level. The Secretaria de la Contralorfa is consolidating a performance-oriented type of control. Since managers have well-defined tasks, they could now be held accountable for measurable results, but follow-up is still usually lacking. For example, Guanajuato's Water Commission was in charge of helping local water companies to increase revenues by 10 percent from October 1999 to June 2000.17 According to the auditing report, revenues decreased by 2 percent, rather than increased as had been agreed. Now the subject rests with the Governor's office, but it shows how powerful such instrument could be if the full consequences were carried out. "7 It considered two lower goals a minimum effort of 8 percent and satisfactory increase of 9 percent. - 68 - SUMMARY: ACHIEVEMENTS AND LIMITS OF FISCAL AND FINANCIAL MANAGEMENT 7.41 Although Guanajuato's institutions improved fiscal and financial management - with tight fiscal discipline, effectively implemented public works, and control for performance - they are just starting to address some longer run problems: planning instruments need to develop the ability to address important social and economic changes, and incentives need strengthening in order to reduce waste at local levels. 7.42 Fiscal sustainability. Despite the present successes, the conjunction of state revenues, federal transfers, and state and local expenditures may be following a tendency that is not sustainable in the long run. * A substantive effort to preserve expenditure trends with lessening success, especially in the case of health and education while capital expenditures keep falling down. This tendency becomes critical in light of the social indicators in Guanajuato being below the national average. * The state tax structure, obsolete and confusing, with a cost/revenue ratio probably higher than one, diverts enforcement efforts to a handful of unproductive user charges and fees, instead of searching for new income sources. * Growing financial savings in the middle of pressing social needs and economic development demands. Although the state's financial assets are well managed, there is not a clear policy connecting those resources to coverage of risk, and even less to overall fiscal and financial management. 7.43 Sufficiency of planning. Planning has been the weak link among the three fiscal dimensions. Although it included a government plan and program budgeting (now taking a stronger role), it had a bias toward short-term activities and implementation of public works. * Without a comprehensive social and economic prospective, the state's authorities were not sufficiently prepared to face urgent social demands and changes in long- term economic trends. Although programs and projects are subject to fairly good evaluations, there is a tendency to preserve the status quo. Emphasis on short-term (annual) cash management often took the place of medium-term financial outlook and an evaluation of all financing sources against raising demands. * It is still to soon to evaluate how well the growing role of the Secretariat of Social and Human Development will remedy the past weakness of the planning function. It has the institutional potential to do so. It has the legal authority, the administrative position (technical secretariat of the Planning Council), and the mandate of the Governor to make substantive decisions about what to include in the budget. It also has the cooperation of the Secretariat of Finance and a strong mandate from the Governor that the two secretariats should work together. 7.44 Decentralization to municipalities. Transferring resources and responsibilities from the State to local governments is moving along an unsustainable path in Guanajuato, which has already aggravated some troublesome fiscal tendencies without showing expected gains. - 69 - * Guanajuato's transfers to local authorities are higher per capita than in any other state. Nonetheless, there is not a comprehensive plan to coordinate state and local programs and investment, which leads to waste, duplicated efforts, and conditions * Information on municipal spending and finances is unreliable and incomniete. Despite efforts to control public resource use, it is common to find control nrg.ncirv,s at. feder nl sta.4nd coE.s ~.d, muii niles ,.operatin simultaneously and without coordination. Guanajuato is trying to correct this situation with the creation of a truly independent control organism. 7.45 The three-year non-renewable terms for municipal governments and the widespread staff changes they engender, cripple long-term vlanning and its imDlementation. Most municipal authorities a lack unified, well-articulated long-term vision within which to set priorities, agree on strategies and formvulate short aand mediumterm programs. Entities typic lly sek to secure maximum resources for their respective sectors by presenting large packages of requests for new investments, without attempting to prioritize them. Since tne Ramo 33 budget changes in 199s, municipalities have unprecedented access to federal funding. At the same time, the tenuous accountability link with SEDESOL has been weakened with no compensatory changes at either the state or federal level. While municipalities still have to seek state approval for several spending and tariff decisions, many officials cite municipal autonomy as the reason for not knowing what is happening in the municipalities or having an"y dafta on men- Of nheir ti ICLl'J1lWli14IA I iOliS' 7.46 To improve tne institutionai framework for planning in the medium term, new iaws in December 2000 gave the Secretariat of Social and Human Development a mandate to coordinate programming among all the line secretariats. In 2001 they are starting to fill this role for the 2002 budget, in close coordination with Finance. This will help to integrate planning obiectives and to establish a coherent counterpart to the Secretariat of Finance, which is in charge of nrnviding nfFnrde1 resources to finance the PDanr. With, the ne-,e inQth,inal fra..e.vork several short term measures would improve planning, some of which are already being * Develop the government plan further by specifying goals, programs and projects, establishing inputs and outputs and defining costs for all proposed government actions. Priority setting must consider the elaboration of a complete portfolio of proiects as well as their competing ranking. Sectoral recommendations from this report would be included in this group of competing claims. * Elaborate a comprehensive social and economic strategy for the next six years to complement the government plan. It should include strateeic interventions and the regulatory framework, as well as capital and social infrastructure needs. * Prepare a six-year fiscal and financial plan to match the revenue requirements with the spending program. All potential fiscal and financial sources must be examined before proposing a new fiscal and financial structure to ensure resource availability. - 70 - This would include an evaluation of the risk coverage provided by the state's financial fund and establishment of a debt policy, which provides the criteria for approving the use of credit. * Make cash flow management more flexible, with allowances for technical difficulties during project execution. * Develop a strategy to interact with local municipalities. It should consider project co-financing, information flows, technical assistance and training as well as devise and implementation of control mechanisms. For the latter, the state could strengthen the new "-rgano Superior de la Fiscalizacidn", which represents an opportunity to control or at least monitor local fiscal management. To motivate the cooperation of the municipalities, the state can make its voluntary transfers to them conditional upon participation in state or regional initiatives. - 71 - REFERENCES Alesina, A, and R. Perotti (1995a). "Fiscal Expansions and Adjustments in OECD Countries," Economic Policy, 207:248. Alesina, A., R. Hausmann, R Hommes and E. Stein (1996). Budget Institutions and Fiscal Performance in Latin America. NBER Working Paper 5586. Alt, J., and Lowry (1994). "Divided Government and Budget Deficits: Evidence for the States," American Political Science Review. Cabrero-Mendoza, E. and J. Martinez-Vazquez (2000). "Assignment of Spending Responsibilities and Service Delivery," in M. Giugale and S. Webb, eds., Achievements and Challenges of Fiscal Decentralization: Lessons from Mexico. World Bank: Washington, DC. Haan, Moessen and Volkenkirk (1999). "Budgetary Procedures -Aspects and Changes: New Evidence for Some European Countries," in J. Poterba and J. Von Hagen, eds., Fiscal Institutions and Fiscal Performance, NBER and University of Chicago Press, Cambridge, MA: Poterba, J (1996). Do Budget Rules Work?, NBER Working Paper 5550, April. Poterba, J. (1994). "State Responses to Fiscal Crises: Natural Experiments for Studying the Effects of Budgetary Institutions," Journal of Political Economy, June. Stein, E., E. Talvi, and A. Grissanti (1998). Institutional Arrangements and Fiscal Performance: The Latin American Experience. Inter-American Development Bank. Office of the Chief Economist. Working Paper 367. Von Hagen, J. (1991). "A Note on the Empirical Effectiveness of Formal Fiscal Restraints," Journal of Public Economics 44, 199-210. Von Hagen, J. and J. Harden, and I. Harden (1995). "Budget Processes and Commitment to Fiscal Discipline," European Economic Review, 39, 771-779. - 72 - Appendix To Chapter 4 - 73 - Table A4.1. Statistics and Basic Education Indicators of Guanauato, 1999-2000. Level of Education Number of Non-Teaching Teaching Teachers Special Other Number of Schools Principals Principals Teachers Personnel Students Initial 35 32 0 124 12 51 4,966 Initial PRODEI 105 0 0 1,044 0 0 21,969 Special CAM 43 36 7 301 107 109 4,185 Special USAER 61 3 58 529 0 0 16,181 General Pre school 2,656 795 1,711 5,205 1,047 1,561 191,597 Alternative Pre school 746 1 708 189 0 1 13,962 CONAFE Pre school 526 0 0 532 0 0 5,897 Indigenous Pre school I 0 1 0 0 0 6 Total Pre school 3,929 796 2,420 5,926 1,047 1,562 211,462 General Primary 4,295 2,053 2,234 22,955 2,668 3,957 758,984 CONAFE Prinmary 375 0 0 392 0 0 4,868 Indigenous Primary 20 14 8 120 5 20 3,872 Total Primary 4,690 2,067 2,242 23,467 2,673 3,977 767,724 General secondary 299 396 90 4,165 1,676 2,544 105,757 Technical secondary 107 208 13 1,628 890 1,654 56,078 Telesecundaria 961 124 648 2,942 134 428 88,712 Total Secondary 1,367 728 751 8,735 2,700 4,626 250,547 Total trainingfor work 61 71 38 513 34 365 59,967 General Bachillerato 392 209 288 4,007 970 1,274 59,371 Technical Bachillerato 109 196 129 2,201 349 1,461 36,520 Technical school 98 114 59 1,379 226 778 20,087 Total Upper Secondary 599 519 476 7,587 1,545 3,513 115,978 Teacher Training 51 76 26 876 102 307 6,197 Total 10,880 4,325 5,960 48,573 8,220 14,510 1,442,995 Source: SEG, Indicadoies Educativs B4sicos a] Alcance de todos, 1999-2000, SIE, 2001. - 74 - Table A4. 2. Students, Teachers and Schools by Level and Administration Level Number of Students Personnel (a) Number of Schools (b) Guanajuato 1,318,432 47,421 10,511 Federal (c) 807,340 26,523 6,823 State 369,113 12,866 2,643 Private 141,979 8,032 1,045 Pre School 209,231 5,597 3,938 Federal (d) 148,076 3,843 2,845 State (e) 39,192 861 755 Private (f) 21,963 893 338 Primary 765,404 25,464 4,688 Federal (g) 511,327 17,422 3,715 State 198,879 6,148 703 Private 55,198 1,894 270 Lower Secondary 236,970 8,868 1,325 Federal 111,693 3,154 189 State 101,504 4,056 960 Private 23,773 1,658 176 Professional Secondary 19,847 1,557 110 Federal 10,263 815 28 State 873 160 9 Private 8,711 582 73 Upper Secondary 88,980 5,935 450 Federal 25,981 1,289 46 State 28,665 1,641 216 Private 32,334 3,005 188 (a) Includes teaching and directors (b) Expressed in number of shifts rather than physical plant units (c) Includes Federal Schools (d) Refers to community courses controlled by CONAFE and to CENDI (Centro de Desarrollo Infantil) (e) Encompasses formal education, alternative programs and CENDI (f) Encompasses formal education and CENDI (g) Includes formal education and CONAFE's community courses - 75 - Table A4.3. Education Expenditures in Guanajuato: 1996-2001 1996 1997 1998 1999 2000 2001 (MxP) Total Exp. In Education 2,660 3,709 4,791 5,854 7,213 7,928 Sec. Of Educ. 2,510 3,506 4,458 5,143 6,235 6,813 Autonoumus Org. 149 203 333 711 977 1,115 (2000 MxP) Total Exp. In Education 4,791 5,510 6,190 6,409 7,213 7,413 Sec. Of Educ. 4,521 5,208 5,759 5,630 6,235 6,370 Autonoumus Org. 269 301 430 778 977 1,043 Percent Share of 66% 64% 66% 67% 67% 63% Federal Transfers Education Exp as share 69% 64% 66% 65% 65% of Programmable Exp. Sec. Of Educ. Exp. As share 27% 29% 26% 22% 22% 25% of total educ. Exp. Table A4.4a Guanajuato Secretary of Education: Expenditure by level of education 1999 (MxP million) Level of Education School operations % Special % Investment % Administrative % Total % and maintanence Projects (i) cost (ii) I Initial 16 13 1 0 18 0 Pre school 558 12 6 5 4 20 47 12 616 12 Primary Education 2,595 57 78 63 10 45 224 57 2,907 57 Adult Education 12 0 0 0 1 0 13 0 Total secondary 1,387 30 24 19 3 13 118 30 1,532 30 General secondary 542 12 6 5 0 2 46 12 594 12 Technical secondary 367 8 3 3 0 1 31 8 401 8 Telesecundaria 479 10 14 12 2 10 41 10 537 10 Higher education 41 1 0 0 5 22 4 1 50 1 (Teacher Training) Total 4,593 100 124 100 22 100 396 100 5,135 100 Lnsrnunonl Or Expenditures (%) 89 2 -0 _ _2 O 8 100 wurce: =U, b,ubsecretar1a deMAWnos kanclros. FmAleros deli e tcate (vuanaoJ4o. de- -I Note: (i) Special projects refers to special programs for the improvement of education quality. (ii) Administrative cost refers to cost of administrative operation of central and regional education offices and the support services units for the municipalities. - 76 - Table A4.4b Expenditure per Student by Level of Education 1999 Number of Total Expenditure Cost per Student Level of Bducad(on Students (xP millions) (Pesos per capita) Initial 22 18 793 Pre school 158 616 3,887 Primary Education 684 2,907 4,246 Adult Education 2 13 4,306 Total secondary 198 1,532 7,704 Genenl secondary 78 594 7,585 Technical secondary 45 401 8,744 Telesecundaria 74 537 7,189 Hligher education 4 so 9 g80 (Teacher Training) 4 Total 1,071 5,135 4,790 aourrce: St, Siuiscretaca de Kecusos Fnancieros, IndlcadOres Elnancieros Gl Srstemfa Educaivo de (UUanaJUo, 19m. Table A4.4c. Distribution of Total Education Expenditure by level, 1999 (including education spending by autonomous organizations) MXP Percent Percent Percent Secretary of Education 5,143 88 Intial 0 Preschool I I Primary 50 Secondary 26 General 10 Technical 7 Telesecundaria 9 Higher education 1 (teacher training) Adult education 0 Autonomous Agencies 708 12 12 (Post-basic education, research, and training Total 5,851 100 100 - 77 - Table A4.5. Comparative Spending 1999 (pesos) Per student Per person (of relevant age) Guanajuato National Guanajuato National Primary education Federal expenditure 2,879 6,164 2,777 6,735 Federal + state expenditures 4,246 4,093 Secondary educadon Federal expenditure 5,223 9,446 3,157 7,850 Federal + state expenditures 7,704 4,653 Basic education Federal expenditure 3,232 5,062 2,750 5,172 Federal + state expenditures 4,767 4,051 All levels Federal expenditures (except 2,509 4,250 for non regionalized budget) Total ( MxP niillion) Guanajuato = 5,200 National = 166,160 Source: (a) ziu Nubsecremina de KwCuI1O kinancimls, Ifld1cadoIMS tqmaaDcmv Mc b1stma dUCAfvo de bUMNaUM.o 19W. (b) Scwab de Eduaia PdbUca (SEP) Eaadti Edra Avas www.SEP.gob.mx. Note: School age population: (i) primary = 6-11 years; (ii) secondary = 12-17 years; and (iii) all levels = 6-24 years. Table A4.6. Percentage of Demand Coverage Academic Years National Guanajuato 1992-93 60 54 1993-94 61 55 1994-95 61 56 1995-96 62 57 1996-97 63 58 1997-98 64 59 1998-99 65 61 1999-00 66 65 2000-01 67 67 Note: Demand is estimated as the population between 4-24 years old - 78 - Table A4.7. Education Achievement Statistics Percentage of the population between 6 1990 1997 and 14 years that attends school Distrito Federal 65.1 97.1 National 85.8 92.2 Guanajuato 81.6 88.9 Proportion of the population 15 year old and more with post-primary education Distrito Federal 64.6 72.1 National 42.5 50 Guanajuato 30.3 39.7 Percentage of the population 15 years old and more that are illiterates Distrito Federal 4 3.6 National 12.4 10.6 Guanajuato 16.5 15.1 Table A4.8. Net Enrollment Rate by Poverty Status and Level of Education 1998 INEGItCEPAL Poverty Line Urban Rural Total Poverty Status |Guanajuato National Guanajuato National Guanajuato National Primary (6-11 years old) Extreme 90.4 90.2 89.3 92.6 89.8 91.5 Moderate 92.9 94.6 97.2 96.2 93.8 94.9 Non-poor 94.9 95.2 97.1 93.8 95.3 95.0 Total 92.6 93.8 92.0 93.4 92.4 93.6 Lower Secondary (12-14 years old) Extreme 48.1 50.1 22.7 35.1 33.4 40.9 Moderate 60.0 68.6 50.2 51.2 57.8 64.8 Non-poor 84.0 77.2 40.2 61.2 74.3 75.1 Total 62.8 68.6 30.7 41.9 50.6 59.8 Upper Secondary (15-17 years old) Extreme 19.1 14.2 3.5 7.3 10.2 10.3 Moderate 30.4 33.4 12.3 16.6 26.7 30.3 Non-poor 46.4 56.7 31.2 26.5 42.9 52.6 Total 33.8 40.5 11.6 12.8 26.6 32.6 University (18-24 years old) Extreme 0.6 4.4 0.0 0.6 0.3 2.2 Moderate 3.0 8.8 0.0 4.1 2.3 7.8 Non-poor 18.0 24.7 7.4 3.8 16.4 22.0 Total 9.3 17.2 1.7 2.4 7.3 13.6 Source~ Wnod Bank SLi Ccutloh s on ENIbH91. - 79 - Table A4.9. Selected Educational Flow Indicators: 1976-2000 1976/ 1980/ 1985/ 1990/ 199M 19921 1993/ 1994/ 1995/ 19961 1997/ 1998/ 1999/ 1977 1981 1986 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Primary School Drop Out Rate Guanajuato 10 8 6 6 5 4 4 4 3 3 3 2 2 National 9 7 5 5 5 4 4 3 3 3 3 2 2 Repetition Rate Guanajuato 10 11 11 10 10 9 9 9 8 8 8 8 7 National 10 11 11 10 10 8 8 8 8 8 7 7 7 Terminal Efficiency Rate Guanajuato 58 70 71 72 72 76 79 81 83 84 85 National 64 70 71 73 74 77 80 83 85 86 84 Secondary School Drop Out Rate Guanajuato 10 13 11 11 11 9 9 10 9 11 11 10 11 National 11 11 8 9 9 8 7 8 8 9 9 10 9 Repetition Rate Guanajuato 25 31 30 28 27 25 23 23 24 23 24 23 22 National 29 28 27 26 26 25 24 24 23 22 22 21 Terminal Efficiency Rate Guanajuato 72 70 69 71 73 72 74 71 69 74 71 72 National 76 76 74 75 76 78 76 76 75 74 73 73 Absorption Guanajuato 64 70 69 66 67 71 73 76 76 75 79 84 84 National 78 82 84 82 83 84 86 88 87 87 88 90 91 Table A4.10a. School Input-Output Indicators Student/teacher Groups/classroom Studentclassroom 2000-01 2000-01 2000-01 Kindergarten 33.4 1.6 26.2 Primary 31.9 1.3 29.7 Lower Secondary 28.4 1 32.9 Training for Work 105.5 Technical Secondary 14.2 1.2 28.4 (Prof Medio) High School 14.4 1 28.2 (Bachillerato) Normal Schools 7.6 1.1 22.2 College 9.2 30.6 Graduate 6.7 ,ource: lniicadores tducalvos Basicos al Alcancede Ilodos, IaioacicioZlAXWZ-I, SIEIE. Secretarfa de Educacion de Guanajuato. - 80- Table A4.10b. Student/ Teacher ratio National Lower Professional Upper Academic Years Primary Secondary Secondary Secondary 1992-93 29.6 17.7 11.5 15.3 1993-94 29.1 17.7 11.1 15.2 1994-95 28.7 17.5 10.8 15 1995-96 28.3 17.7 10.1 14.8 1996-97 27.9 17.5 10.6 15.2 1997-98 27.6 17.4 10.8 15.4 1998-99 27.2 17.3 11 14.9 1999-00 27.2 17.4 11.3 14.8 2000-01 27.1 17.4 11.3 14.7 Guanajuato Lower Professional Upper Academic Years Primary Secondary Secondary Secondary 1992-93 32.1 20.1 9.3 12.8 1993-94 31.8 20.3 9.8 12 199495 31.4 20.5 10.4 12.3 1995-96 31.2 20.5 10.5 12.9 1996-97 30.7 20.3 10.7 12.3 1997-98 30.1 20.3 10.7 12.5 1998-99 29.5 20.7 10.6 11.7 1999-00 29.5 20.5 11.1 11.9 2000-01 29.5 - 20.5 11.1 11.8 Soute: SEP website. Table A411. Survey of sixth grade students not enroll in secondary first grade Reasons for not registering Percentage distribution 1. Forgoten or did not know the registration date 14.9 2. Have to repeat grade 2 3, There is no local secondary school 4.9 4. School is too far from my home 5.1 5. Unable to enroUl in the desired school 4.2 6. Have economic problems 20.7 7. Parents didn't allow their enrollment 14.6 8. Do not wish to continue studying 31.2 9. Change of family residence 3 Total percent 100 Total sample size 1,684 3ouwce: Survey 1999-2L5, bEu. - 81 - Table A4.12. Carrera Magisterial Examination Results (Teachers), 1999 GTO aerage National Rank (1995) Rank (1999) (19T v) Average (1999) (1999) Primaria lerciclo 14 20 49 49.5 2do. Ciclo 18 19 45.5 45.5 3er. Ciclo 20 18 55 54.9 Secundaria Espafiol 16 5 63.3 60 MatemAticas 18 13 49.6 48.9 Ffsica 6 4 50.6 47.6 Qufinica 11 8 47.4 45.7 Biologfa 14 6 57.4 56.5 Orientaci6f 18 54.9 54 educativa Source: Factor Preparaci6n PmfesionaL Informe de Resultados, Guanajuawo. Evaluaci6n 1999 and 1995, SEP. - 82- Fgure A4.1a Primary Drop Out and Repetition Rates 12. 10 8- \ t 6-X+- Guanajuto Repetion 6 ~~~~~~~~~~~~~~~~~~~~~~~~~Rate -4--National Repetition Rate 4 _---Guanajuato Dop Out Drop Out Rate -4( Natonal Drop Out Rate 2 0. a * U) CD C) v-) mm Academic Year Figure A4.1b Primary Terminal Efficiency Rate go 80 70 60 k 50 - Guanaiuato Terminal Efficec 40 - ............... _NatiDa= erminal Efftiency 30 - 20 10 - O- . . . .. .. .. . . . NSK N 99 N 69S Nl, N Academic Year - 83 - Figure A4.2a Secondary Repetition and Drop Out Rates 30 25- ; 20 . + Guanajuato Repetition Rate - Nadonal Repetition Rate -- *Guanajuato Drop Out Rate 0 15 - 0"* National Drop Out Rate 10 5 Drop Outt 0 .~-0) U . . . ) . .) U 1- O) 0) 0) 0) 0) 0) 0) LO 0, 0) 0) 0 Go co OD co 0) 0) 0 0) a) 0) O~~~~~z cn - va uz a n _ Xs cn5 CD ) 0D CD CO 0) 0Z cn cn cn cn c c- cn co cn 0c co c 0) 0) 0) 0) c 0) 0) 0) cn n) 0) 0) 0) 0) 0) a) 0) Academic Year Figure A4.2b Secondary Terminal Efficiency Rate 80 78 76 74 72- Guanajuato Temina 70 ~~~~~~~~~~~~~~~~~~~~~~~~~~~Efficiency 0.70 -U- / i/ w National Teminal Efficiency 66 64 Y Academic Year - 84 - Figure A4.2c Secondary Absorption Rate 100 90 80 70 , -60 Guanajuato 50 _ Absoon Rate 40 U - National Absorption Rate 30 - 20 - 10 ' Academic Year Figure A4.3 Carrera Magisterial Student Learning Achievnent Test Scores (1995-1999) 50 45 U 403 *~4| 42.9 ~~~~~~~~~4O~~~~~~~~~~~~~Z .35 *99t 3cz4 X~~~~~~~~~~~~~~~~~~~~~~~~~-N Sw-a=ndry }20 |15 10 5 0 1994-1995 1995-1996 199S1997 1997-199 1951999 Academic Year - 85 - Figure A4.4 Carrera Magisterial Test Scores of Students and Teachers by Subject 70 § 60 57.39 S49 i .9 49.59 50-6 47.46 | 1i 50 < 50- | | | ~~~~~~~~38.5 40-5 40.64192 t40 - MTeache- | * | 30Noj - - St t s 19Stu a 20a- f t I 19 Subject 100 - i i * '' * ' '° -: ff KW SR E-m oS S 0 °f°E Note: For Students Is 1995-1999v average, and for teachers is 1999 Subject - 86 - Appendix To Chapter 5 - 87 - Table A5.1 Health care coverage 1994-1999 Open (uninsured) Population Insured Population Year SSG DIF IMSS-Solidaridad IMSS ISSSTE Other 1994 1,104,287 167,234 1,500 1,554,597 331,156 49,117 1996 1,057,246 280,128 AE 1,594,765 293,313 36,522 1997 1,142,306 242,798 AE 1,697,129 289,709 37,429 1999 1,740,636 1,984,357 311,188 52,900 Table A5.2 Health Sector Resources By Institution Guanauato, 2000 DESCREPTION TOTAL SOCIAL SECURITY Social Assitance LM.S.S. |LSS.S.TE. PEMEX S.D.N. S.S.G TOTAL PERSONNEL 20,822 11,281 1,809 547 332 6,853 TOTAL 5,040 2,236 573 143 72 2,016 Total 4,451 2,059 485 121 72 1714 General 1,613 721 133 25 6 728 Medical SeSecaiSts 1,576 874 280 63 18 341 Residents 407 240 46 28 1875 Pasantes 631 156 6 0 23 446 Dentists 224 68 20 5 7 124 _ OtherStaff 589 177 88 22 0 302 TOTAL 9,410 5,198 690 207 180 3,135 Total 6,166 3,043 551 133 75 2,364 Auxiliaries 2,442 1,165 174 52 19 1,032 General 2,450 1,237 255 50 25 883 u Z [Specialized 538 371 44 25 29 69 ___________ hothers 736 270 78 6 2 380 n Diagnostic Assistance Services 850 415 82 28 15 Staff _ _ _ _ ___ _ _ __310 Other Staff 2,394 1,740 57 46 90 461 other Personnel *a 6,372 3,847 546 197 80 1,702 ____ _ -~~~~~~~~~~~~~~~~~ - 88 - Table A5.3 Comparison of health staff and facilities between Guanajuato and the national average, 1997 Indicators National Guanajuato Doctors per 00,00 pop 115.9 78.4 Nurses per 100,000 pop 181.9 120.8 Hospital beds per 100,000 pop 80.5 57.5 Clinics*per 100,000 pop 50 31.7 Consultations (general) per 1000 pop 1,497.1 1,154.8 Surgical interventions per 1000 pop 27.3 23.9 Births attended per 1000 women in 56.7 57. reproductive age 3owce. VO&MI, earspwctva k.smadUa: (iInjuMito. Table AS.4 Health Services Provided by Institutions Guanojuato, 2000 Description Total IMSS ISSSTE PEMEX SDN SSG General consultations 1,374.7 1,445.2 1,547.8 2,409.1 770. 1,220.8 Hospital discharge 36.1 45.4 37.6 102. 173.9 26.3 Surgical interventions 27.5 31.3 20.7 57.6 49.2 23.4 Dental consultations 81 105.8 74.1 397.7 253.7 52A Emergency care 180.4 303 86.4 799.3 318.5 74.5 Diagnostic studies 1,259 1,864.5 1,965.7 6,353 4,256.3 523.3 Active FP users 249.4 327.9 543.3 601.5 173 172.5 NewFPacceptors 79.6 88 155.8 131.2 87.9 76.4 Note: in 1000 persons covered by institution except for the last two items, which are in absolute number of persons. - 89 - Table A5.5 Selected Health Service (Supply) Indicators Guanqjuato 2000 (Per 100,000 pOpulaTon) TOTAL IMSS ISSSTE PEMEX SDN SSG Doctors in direct 909 98.5 147.8 392.4 330 67.2 contact with patients Dentists 4.6 3.2 6.1 16.2 32.1 4.9 Nurses 125.9 145.5 167.9 431.3 343.7 92.7 Health workers 425 539.5 551.2 1773.7 1521.7 268.7 Hospital beds 50.3 53.1 60.9 162.1 458.3 39.2 (Censables) Health clinics 33.1 23.1 41.1 158.9 110 36.4 Radiology laboratories 1.43 1.43 1.22 9.73 4.58 1.25 Surgery operating 1.7 1.8 2.4 9.7 18.3 1.3 rooms Delivery rooms 8.1 0.8 1.8 6.5 9.2 14.5 Blood banks 0.2 0.05 0.6 3.2 4.6 0.16 Table A5.6 Guanajuato Institute of Public Health Expenditure (1996.2000) 1996 1997 1998 1999 2000 2001 Total (MxP millions) 293 445 624 797 1,072 1,247 277 390 458 1994 MxP millions Total 146 192 227 258 319 364 1994 Pesos per open pop. 138 168 148 Growth Rate 32% 18% 14% 23% 14% Avg Growth Rate 20.19% Percentage Share Personnel 65% 64% 65% 69% 68% 70% Materials/Supplies 23% 17% 17% 16% 14% 13% General services 8% 9% 8% 6% 6% 6% Community aids 0% 0% 0% 0% 0% 0% Equipment 4% 5% 3% 2% 5% 4% Works 1% 5% 7% 7% 6% 7% Founding source (percentage share) State 25% 23% 17% 20% Federal 72% 78% 83% 81% source: ui1u. Institte ot Pubitc Heatth except tor ama on tunoaig sources whichi came fmm the uvtireay. -90 - Table AS.7 Comparative Life Expectancy and Mortality Rates: Guanajuato vs. National IND 1996 1997 1998 1999 2000 2.1 Life expectancy at birth fMalk) Guanajuato 71.5 71.9 72.3 72.6 73.0 Natioda 70.1 70.4 70.6 71.0 71.2 2.2 Life expectancy at birth (Female) Guanajuato 75.9 76.2 76.6 76.9 78.2 NaYonal 76.5 76.7 77.0 77.3 77.5 3.1. Life expectancy at 40 years (Male) Guanajuato 35.8 35.2 35.7 35.7 35.8 National 35.3 35.5 35.6 35.7 35.9 3.2 Life expectancy at 40 years (Femae) Guanajuato 40.4 39.7 40.3 40.4 40.5 National 40.0 40.1 40.3 40.4 40.6 1 Standarized mortality rate Guanajuato 4.7 4.6 4.6 4.5 4.2 Nationa 4.3 4.2 4.1 4.0 3.9 9 Maternal mortaity rate Guanajuato 3.9 3.5 4.5 4.0 4.0 National 4.7 4.6 5.3 3.9 3.4 11 Breast cancer mortality rate Guanajuato 5.6 6.1 5.4 .5.8 4.9 National 6.6 6.7 6.7 6.9 7.0 12 Infant mortality rate Guanajuato 22.4 21.9 20.7 18.5 16.2 National 16.8 16.5 15.9 15.5 15.0 14 Mortality rate of children less than 5 years old Guanajuato 6.2 5.9 5.6 5.1 4.4 National 5.1 4.9 4.7 4.5 4.1 15 Mortality rate due to nutritional deficiency of children less than 5 years old Guanajuato 32.5 22.8 18.6 15.4 13.1 National 19.2 16.8 17.1 16.9 16.8 21 Mortaity rate due to diarrhea of children less than 5 years old Guanajuato 6.6 7.0 6.2 5.5 5.3 National 38.4 33.3 30.2 26.5 24.2 22 Morality rate of children less than 5 years old due to ARI Guanajuato 94.7 87.0 58.7 66.1 37.7 National 73.5 67.7 64.1 59.7 51.1 23 Mortaity rate due to accidents Guanajuato 37.4 37.0 32.1 33.7 30.9 National 37.6 37.9 37.5 35.2 33.5 24 Mortality rate due to pubnonary tuberculosis Guanajuato 6.5 6.9 6.2 5.6 5.3 National 18.2 20.7 18.7 19.6 19.8 36 Mortality rate due to heart disease Guanajuato 66.7 66.4 65.5 61.1 57.5 National 70.4 71.8 72.6 73.5 74.5 38 Mortality rate due to cerebrovascular disease Guanajuato 26.5 25.7 26.7 25.5 23.5 National 26.1 26.1 26.4 26.4 26.5 40 Mortality rate due to diabetes mellitus Guanajuato 41.6 41.0 50.4 51.5 53.8 National 37.4 38.0 40.2 41.8 43.0 - 91 - Table A5.8 Selected Morbidity Indicators: Guanajuato vs National IND 1996 1997 1998 1999 2000 18 New Cases of Measles Guanajuato 0 0 0 0 0 National 2 0 0 0 0 19 New Cases of Tuberculosis Guanajuato I 0 1 0 1 National 48 39 29 42 41 20 New Cases of Tetanus (Neonatal) Guanajuato 2 1 2 0 1 National 64 39 25 17 10 30 New Cases of Rabies Guanajuato 0 0 0 0 0 National 16 20 7 5 4 31 New Cases of Malaria Guanajuato 0 0 0 0 0 National 6,206 4,788 15,100 3,993 4,072 32 New Cases of Malaria by P. Falcita Guanajuato 0 0 0 0 0 National 87 65 21 42 36 33 Morbility rate due to classical dengue Guanajuato 0 0.1 0 0 0 National 37.6 55.5 24.2 30.7 24.3 34 Dengue aemorrhagicfatality rate Guanajuato 0 0 0 0 0 National 3.02 3.77 3.76 2.09 2.08 35 Vew Cases of (oncocercosis) Guanajuato 0 0 0 0 0 National 37 New Cases ofArterial Hypertension Guanajuato 367 373.1 359.1 228 345.7 National 247.4 271.8 272.7 274.5 274.8 39 New Cases of Diabetes Mellitus Guanajuato 345.7 386.8 388 248.9 355.5 National 198.3 215.4 235.69 235.3 237.3 41 Cholerafatality rate Guanajuato 0 2 0 0 0 National 0.46 0.76 0 0.54 0.4 42 New Cases of Cholera Guanajuato 0 260 4 0 0 National 1,088 2,356 71 2,978 1,500 - 92 - Table A5.9 Selected Health Service Indicators: Guanajuato vs National IND) ._______________________________________ 1996 1997 1998 1999 2000 5 Avg. prenatal care visits Guanajuato 2.8 2.9 3.0 3.2 3.3 National 2.7 2.7 2.8 2.9 3.0 6 Family Plmning active users Guanajuato 38.1 37.6 38.3 36.3 33.1 National 66.8 67.6 68.7 69.4 70.2 16 Complete vaccination coverage rate Guanajuato 87.3 87.8 89.7 93.8 95.1 National 91.8 89.6 95.5 94.3 95.0 17 Complete vaccination coverage rate of children less than 5 years old Guanajuato 95.3 97.8 96.5 90.9 98.4 National 96.9 97.1 97.8 97.6 98.1 25 Percentage of new cases of tuberculosis with supervised treatment Guanajuato 82.1 78.1 97.4 97.7 97.7 National 73.7 78.8 78.3 82.9 84.9 28 Percentage of new cases of AIDS transmitted by blood transfision Guanajuato 0.0 0.0 0.0 0.0 0.0 Natinan 3.7 2.5 2.3 0.8 0.1 43 vg. medical consultations (persons/day) Guanajuato 9.4 8.9 12.5 13.1 13.1 National 11.1 11.9 13.4 14.0 14.7 44 Hospital occupancy rate (%) Guanajuato 63.7 68.3 71.2 70.8 73.7 National 70.3 67.7 67.1 71.1 70.0 45 dvg. ays of hospital stay Guanajuato 4.0 4.4 3.7 3.0 4.4 National 3.4 3.4 3.3 4.1 4.0 46 Daly Avg. of surgical interventions (persons/day) Guanajuato 2.5 2.3 2.4 2.5 2.7 - ational 2.3 2.3 2.3 2.4 2.4 - 93 - Table A5.10.a Hospital Utilization By Unit State of Guanajuato 2000 Average Inpatient Occupancy Rate Unut ~~Days OcpnyRt Estatal 20 Nivel 2.7 71.3 Dolores Hidalgo 2.1 83.9 Guanajuato 2.6 78 San Miguel de Allende 2.5 95 San Luis de la Paz 2.4 44.3 Celaya 2.9 74.1 Acambaro 2.2 53.4 Salvatierra 2.2 41.3 Salamanca 2.2 71.3 Uriangato 2.7 42.6 Irapuato 2.6 68 Le6n 3.6 89.5 Materno Infantil 1.8 50.8 Hospital Psiquiatrico 114.1 75.8 o,uce: S.AJ. Report of Acfivites 2Mm MI,IPA. Note: The psychiatry clinic is not included in the total of the "Estatal de Segundo Nivel." - 94 - Table A5.10.b Public Health Spending and Other Resources by State Principal resources for every ten thousand inhabitants, 1999 Federative Medical Beds Doctor's Doctors in Odonto- Gyneco- Pediatricians Pub. Exp. entity units offices touch Nurses logists logistV 21 per capita 3/ with patients National 1.9 7.9 5.1 11.7 18.8 0.9 2.3 1.9 1,214.8 Aguascalientes 1.2 8.3 4.5 15.4 21.8 0.9 3.2 3.3 1,321 BajaCalifomia 1 6.6 3.9 11.4 18 0.9 2.5 2.5 1.302.7 Baja California Sur 4.1 15.3 9.5 22.7 35.1 1.6 5 4.1 2,299.2 Campeche 4 9.6 8 15.7 20.6 1 3.5 2.3 1,386.6 Coahuila 1.7 10.4 5.6 13.5 25.9 0.9 3.4 2.8 1,443.7 Colima 3 8.6 7.2 15.8 23.7 1.1 4.1 2.7 1,579.7 Chiapas 2.6 4.4 4.8 8.8 11.5 0.8 1.3 0.7 604.5 Chihuahua 1.9 7.7 4.8 10.3 17.7 0.6 2.1 1.8 1,201 Distrito Federal 0.9 18.9 8.9 25.7 46.5 2 4.4 6.4 4,314.2 Durango 3.1 8.1 6 13 20.7 0.7 2.6 2.1 1,123.4 Guanajuato 1.3 5.2 3.3 8.1 12.3 0.5 1.5 1.1 692.2 Guerrero 3.2 5 5.6 9.7 13.8 0.7 2 1.1 685.8 Hidalgo 3.1 6 5.2 10 14.6 0.7 1.5 0.9 793.6 Jalisco 1.6 9.3 4.8 11.4 19 0.9 2.4 1.8 1,002.7 Mexico 1 5.6 3.5 7.5 11.2 0.7 1.6 1.3 611.5 Michoachn 2.1 4.9 4.1 8.9 11.6 0.8 1.7 0.9 622.9 Morelos 1.8 5.3 4.4 10.6 17 0.9 2.5 2.3 979.6 Nayarit 3.7 7.6 6.4 13.3 20.6 1 2.6 1.7 1,125.8 Nuevo Leo6n 1.5 10 5.7 12.3 2.44 0.8 2.5 2.7 1,465.3 Oaxaca 3.3 4.9 4.9 8.6 12.3 0.7 1.2 0.6 608.2 Puebla 1.9 6.3 4.1 8.2 13.1 0.8 1.2 1 664 Queretaro 2.1 5.5 4.4 11.9 17.4 0.8 2.8 2.1 928.8 Quintana Roo 2.5 6.5 5.8 13 19.9 0.9 3.3 2.7 1,392.7 San Luis Potosl 2.3 5.9 4.4 9.2 15 0.7 1.9 1.1 803.9 Sinaloa 1.9 7.8 5.1 11.6 19.7 0.7 2.4 1.7 1,069 Sonora 1.8 10.8 5.9 13.7 23.2 0.8 3.1 2.7 1,299.9 Tabasco 3.2 7.1 6.5 15.2 20.8 1.6 2.7 1.9 1,020.2 Tamaulipas 1.8 10 5.5 13.5 21.6 0.8 3.2 3 1,240.2 Tlaxcala 2.1 4.7 4.2 9.5 13.6 0.9 1.7 1.3 790.7 Veracruz 2 6.1 4.9 10.1 14.2 0.7 1.9 1.5 882.7 YucatAn 1.9 8.9 4.9 12.9 20.4 0.8 2.6 2.4 1,290 Zacateeas 2.7 4.9 4.9 9.7 13.8 0.7 1.9 1.1 759.3 Sowue: SSA/DGIED, Boletfn de Informacide Estadistica No. 19,1999. Mexico, Plm Nacional dc Salud 2001, WWW.SSA. GOB.MX 1/ information taken from women of fertile age. 2/ information taken from the population under 15 years of age. - 95 - Table A5.10.c Average Household Head Medical Expenditures (1996 MxP) Expenditure category National Guanajuato Primary or ambulatory care (non-hospital or prenatal) 43.6 33.8 Hospital (excluding prenatal) care 12 9.5 Prenatal care 14.6 10.8 Orthopedic and therapeutic care 9.3 10.7 Health insurance 11.6 11.4 Total 91.1 76.2 Soucr. 19I Household ,, rvey, IN-'UL - 96 - Table A5.11.a Social Health Insurance Coverage Rate Insurance coverage rate state 50% SANTA CATARINA 0% CORONEO 2% SAN DIEGO DE LA UNION 4% DOCTOR MORA 4% XICHU 4% JERECUARO 5% HUANIMARO 5% TARANDACUAO 7% SANTIAGO MARAVATIO 7% OCAMPO 7% VICTORIA 8% TIERRA BLANCA 9% TARIMORO 10% SAN FELIPE 10% ROMITA 11% YURIRIA 12% MANUEL DOBLADO 13% COMONFORT 13% APASBO EL ALTO 14% URIANGATO 14% PUEBLO NUEVO 14% PENJAMO 14% CUERAMARO 15% ABASOLO 16% VALLE DE SANTIAGO 16% SAN LUIS DE LA PAZ 16% DOLORES HIDALGO 18% SANTA CRUZ DE JUVENTINO ROSA 19% SALVATIERRA 26% ACAMBARO 31% CORTAZAR 31% ALLENDE 32% JARAL DEL PROGRESO 36% SILAO 39% APASEO EL GRANDE 43% PURISIMA DEL RINCON 43% SAN JOSE ITURBIDE 44% MOROLEON 47% VILLAGRAN 54% SALAMANCA 57% SAN FRANCISCO DEL RINCON 61% IRAPUATO 69% GUANAJUATO 79% LEON 82% CELAYA 85% ATARJEA __ - 97 - Table A5.11.b External Consultations Per 100 Extemal consultations per 100 pop State 187 URIANGATO 86 APASEO EL ALTO 88 DOCTOR MORA 92 YURIRIA 101 SAN LUIS DE LA PAZ 102 SAN FELIPE 105 DOLORES HIDALGO 110 SAN DIEGO DE LA UNION 111 VALLE DE SANTIAGO 120 COMONFORT 121 PENJAMO 124 SANTA CRUZ DE JUVENTINO ROSAS 128 ABASOLO 129 ALLENDE 129 MANUEL DOBLADO 132 APASEO EL GRANDE 134 TARIMORO 135 CUERAMARO 136 PURISIMA DEL RINCON 145 SAN JOSE ITURBIDE 149 SILAO 153 HUANIdARO 154 CORTAZAR 161 ROMITA 168 VILLAGRAN 172 SAN FRANCISCO DEL RINCON 182 TARANDACUAO 182 OCAMPO 183 ACAMBARO 186 CELAYA 186 JARAL DEL PROGRESO 191 JERECUARO 202 IRAPUATO 206 SALVATERRA 213 PUEBLO NUEVO 220 CORONEO 228 LEON 234 VICTORIA 235 MOROLEON 237 GUANAJUATO 240 TIERRA BLANCA 242 XICHU 259 SALAMANCA 307 ATARJEA 313 SANTIAGO MARAVATIO 327 SANTA CATARINA 393 - 98 - Table A5.11.C Population Per Medical Population per medical personnel Stateb94 VALLE DE SANTIAGO 23967 SANTA CRUZ DE JUVENTINO ROSA4 2,841 YURIRIA 2,629 APASEO EL ALTO 2,574 ABASOLO 2,550 SAN FELIPE 2,325 PENJAMO 2,285 SILAO 2,234 COMONFORT 2,177 DOLORES HIDALGO 2,042 CORTAZAR 2,029 SAN DIEGO DE LA UNION 1,997 CUERAMARO 1,968 HtlANIMARO 1,962 ROMITA 1,921 JERECUARO 1,907 SAN JOSE ITURBIDE 1,878 SAN LUIS DE LA PAZ 1,826 PURISIMA DEL RINCON 1,784 JARAL DEL PROGRESO 1,761 ALLENDE 1,726 APASEO EL GRANDE 1,716 MANUEL DOBLADO 1,591 DOCTOR MORA 1,531 VILLAGRAN 1,477 SAN FRANCISCO DEL RINCON 1.268 URIANGATO 1,176 TARIMORO 1,169 MOROLEON 1,148 OCAMPO 1,102 SALVATIERRA 1,097 VICTORIA 1,046 TIERRA BLANCA 1,039 PUEBLO NUEVO 1,033 CORONEO 1,031 ACAM8ARO 884 TARANDACUAO 827 IRAPUATO 761 CELAYA 728 LEON 655 XICHU 639 SALAMANCA 585 SANTA CATARINA 568 SANTIAGO MARAVATIO 549 ATARJEA 520 GUANAJUATO 463 - 99 - Table A5.11.d Percent of Population Using Public Medical Services Percent of population State 71% ABASOLO 40% PENJAMO 40% SANTA CRUZ DE JUVENTINO ROSAS 42% CUERAMARO 47% COMONFORT 51% HUANIMARO 51% PURISIMA DEL RINCON 53% DOCTOR MORA 55% APASEO EL ALTO 56% CELAYA 56% ACAMBARO 60% SAN LUIS DE LA PAZ 60% TARIMORO 60% CORTAZAR 61% SILAO 63% TIERRA BLANCA 65% SAN JOSE ITURBIDE 67% URIANGATO 67% VALLE DE SANTIAGO 67% SAN DIEGO DE LA UNION 69% OCAMPO 71% MANUEL DOBLADO 71% LEON 72% YURIRIA 73% SAN FRANCISCO DEL RINCON 73% ROMITA 75% CORONEO 77% IRAPUATO 78% ALLENDE 79% SAN FELIPE 79% GUANAJUATO 82% VILLAGRAN 82% SALAMANCA 84% APASEO EL GRANDE 84% ATARJEA 85% DOLORES HIDALGO 87% XICHU 87% JARAL DEL PROGRESO 88% VICTORIA 90% TARANDACUAO 94% SANTA CATARINA 97% JERECUARO 97% PUEBLO NUEVO 98% SALVATIERRA 99% MOROLEON 118% SANTIAGO MARAVATIO 138% - 100- Table A5.12 Principal Causes of Mortality in Guansjuato Number of Cases 1996 1999 Afecciones en periodo 401 421 Diabetes 298 409 Heart 161 329 Cirrosis 111 223 Cardiovascular 149 183 Malignant 61 177 Pneumonia and 162 136 Insuficiencia 147 126 Source: Anuarios Estadicos del Estado de Guanajuato INEGI 1997 and 2000. Figure A5.1 Percentage Of New TB Cases With Supervised Treatment 120 100 0 80- : 60 - | + GTO -|-Nat| 40 20 0 1996 1997 1998 1999 2000 - 101 - Figure A5.2 Family Planning Active Users: Percent Of Women In The Reproductive Age 80_ 70 -- 60 30 20 10 0 1996 1997 1998 1993 200 Figure A5.3 Correlation Between Municipal Availability of Doctors and External Medical Consultations 3000 . 3000 2500 t~~~~~~~~~~~~~~~xea co15oorsprI00 pop E12000 * * * * ___ 500 . * * 0 SO 100 150 200 250 300 350 400 4f0 Extemal conmihatlona par 100 pop - 102- Appendix To Chapter 6 - 103 - Table A6.1. Comparison of Road network among states (1998) All Roads Der: Paved Roads Per: L12ta Federal Roads: 9ate Roads; Surface Rural Roads: Surface Improved °° 000 pop °° 000 pop Roads Total led Total U1na Te- Paved Total Una- r Pved Pathwas of area Rofd Totm P _ve _ot_ v_te ved ted (kiiitat States: 318,953 47,946 47,946 61,436 702 9,031 51,703 157,037 25,083 122,324 9,630 52,531 162.1 3.3 55.6 1.1 Aguascalientes 1,858 369 369 675 19 656 814 - 814 - 332.4 2.0 183.4 1.1 Baja Cal. Norte 11,106 1,701 1,701 1,138 77 1,061 4,411 582 3,829 3,856 158.4 4.5 39.4 1 1 Baja Cal. Sur 6,271 1,199 1,199 1,726 690 682 354 1,089 - 992 97 2,257 85.1 14.8 22.4 3.9 Campeche 4,646 1,353 1,353 908 67 841 1,777 349 512 916 608 89.5 6.7 59.9 4.5 Coahuila 8,523 1,843 1,843 1,934 78 1,856 4,746 - 4,746 - 56.2 3.7 24.4 1.6 Colima 1,991 389 389 550 101 449 1,052 9 969 74 - 365.0 3.7 167.2 1.7 Chiapas 19,270 2,215 2,215 2,106 32 309 1,785 14,890 734 13,939 217 56 260.8 4.9 57.1 1.1 Chihuahua 12,394 2,485 2,485 2,522 62 2,460 7,387 1,037 6,350 - - 50.2 4.1 20.0 1.6 Distrito Federal 149 149 149 - 99.4 0.0 99.4 0.0 Durango 10,324 2,201 2,201 877 145 732 6,030 - 5,776 254 1,216 86.3 7.1 26.6 2.2 Guanajuato 10,215 1,243 1,243 2,037 2,037 4,824 4,511 313 2,111 333.9 2.2 117.5 0.8 Guerrero 12,258 2.166 2,166 2,057 125 1,932 6,858 966 4,831 1,061 1,177 192.3 4.0 80.9 1.7 Hidalgo 7,087 1,020 020 2,183 414 1,769 3,884 238 3,614 32 - 337.7 3.2 134.4 1.3 Jalisco 24,376 2,564 2,564 2,991 250 2,741 4,815 - 4,815 14,006 304.2 3.9 66.2 0.8 Estado de Mexico 9,729 1,234 ,234 6,134 2,139 3,995 2,361 - 2,361 - 453.3 0.7 243.7 0.4 Michoacan 12,995 2,621 2,621 2,455 82 2,373 4,069 3,864 205 3,850 217.1 3.3 86.8 1.3 Morelos 2,042 434 434 1,162 77 1,085 446 446 - - 413.3 1.3 307.4 1.0 Nayarit 5,945 982 982 860 154 706 1,691 35 1,586 70 2,412 215.2 6.5 63.6 1.9 Nueva Lc6n 7,162 1,434 1,434 2,774 78 2,696 2,954 - 2,897 57 - 110.9 1.9 64.9 1.1 Oaxaca 16,003 2,992 2,992 1,243 78 1,165 8,148 - 8,148 3,620 167.8 4.7 43.6 1.2 Puebla 8,553 1,440 1,440 2,527 77 2,450 4,432 4,299 133 154 252.2 1.7 118.6 0.8 Querdtaro 3,170 574 574 816 59 757 1,780 - 1,701 79 - 269.4 2.3 119.8 1.0 Quintana Roo 5,006 1,007 1,007 1,187 198 989 2,812 - 2,812 - - 99.4 5.7 39.6 2.3 San Luis Potos 10,715 1,656 1,656 1,335 77 1,258 7,724 204 7,379 141 - 170.5 4.7 48.6 1.3 Sinaloa 16,360 1,071 1,071 2,162 78 2,084 7,567 1,677 5,888 2 5,560 281.6 6.5 54.3 1.2 Sonora 32,860 2,253 2,253 3,738 239 3,499 15,221 15,221 - - 11,648 177.7 14.8 31.1 2.6 Tabasco 7,761 558 558 2,193 77 2,116 5,010 1,844 3,166 - - 314.7 4.1 108.4 1.4 Tamaulipas 12,213 2,208 2,208 2,301 727 1,574 7,704 68 7,508 128 - 153.0 4.4 49.0 1.4 Tlaxcala 2,373 574 574 694 34 660 1,105 - 1,105 - 606.3 2.5 315.3 1.3 Veracruz 16,780 3,125 3,125 4,343 2,094 2,249 9,312 - 6,793 2,519 - 230.4 2.4 108.4 1.1 YucatAn 9,044 1,382 1,382 2,064 78 1,986 5,598 2,119 147 3,332 - 229.9 5.5 170.3 4.0 Zacatecas 9,774 1,504 1,504 1,744 356 1,388 6,526 - 6,526 - - 130.3 7.2 38.5 2.1 Soarce: k-or Mecaa bats-bL: Anuano ZsLmsO . 1995. - 104- Table A6.2a Toll Roads in Concession (1998) Length Type of Date of Date Oper. {krn Concessn. Concessn. Benan In Operation: 4,510395 1 Guadalajara-Colima 148.000 Fm. Instit. Oct-87 Jan-89 2 Tepic-Entronque San Blas 25.000 Fm. Instit. Feb-88 Jan-89 3 Camargo-Jimenez 70.000 State Gvt. Aug-89 Aug-89 4 El sueco-Villa Ahunada 87.000 State Gvt. Aug-89 Aug-89 5 Atlaoomulco-Maravatio 64.000 Fm. Instit. Oct-87 Oct-89 6 Constituyentes-Reforma-La Marquesa 21.000 Pub. Sctr. Jul-89 Aug-90 7 Cuernavaca-Acapulco 262.780 Pub. Sctr. Ju1-89 Oct-90 8 Puente Internacional Zaragoza-Ysieta 6.590 Pub. Sctr. Jul-90 Dec-90 9 Guadalajara-Tepic 194.100 Pub. Sctr. Dec-90 Feb-91 10 Chihuahua-Sacramento 21.800 State Gvt. Oct-88 Apr-91 11 Delicias-Camargo 65.000 State Gvt. Oct-88 Apr-91 12 Zapotanejo-Lagos de Moreno 152.000 Pub. Sctr. Apr-90 May-91 13 Monterrey-Nuevo Laredo 146.000 Pub. Sctr. Nov-89 Ju1-91 14 Puente lntemacional Solidaridad Colombia 0.159 State Gvt. Ju1-90 Jul-91 15 Ubramiento Poniente de Tampico 14.000 Pub. Sctr. Dec-89 Aug-91 16 America-ManzaniUlo 47.000 Pub. Sctr. Nov-90 Aug-91 17 Estaci6n Don-Nogales 468.500 State Gvt. Oct-90 Aug-91 18 Yerbanis-G6mez Palacio 118.926 Pub. Sctr. Ju1-90 Aug-91 19 Libramiento Oriente de San Luis Potosf 33.750 Pub. Sctr. Oct-90 Aug-91 20 LUbramiento Calera de Victor Rosales 6.300 State Gvt. Oct-90 Sep-91 21 San MadtinTexrnelucan-Tlaxcala 25.500 Pub. Sctr. Mar-90 Sep-91 22 Tijuana-Tecate 35.005 Pub. Sctr. Nov-89 Sep-91 23 Ecatepec-Piramides 22.200 Pub. Setr. Jan-90 Dec-91 24 Merida-Cancdn 241.302 Pub. Setr. Dec-90 Dec-91 25 Libramiento Nororiente de Quer6tr 37.000 State Gvt. Dec-90 Mar-92 26 C6rdoba-Veracruz 98.000 Pub. Sctr. Aug-90 Jun-92 27 Leon-Lagos de Moreno-Aguascalientes 116.000 Pub. Sctr. Nov-90 Oct-92 28 Mazatlin-Culiacin 181.500 Pub. Sctr. Nov-90 Oct-92 29 Puente Intemacional Libre Comercio 4.503 State Gvt. Nov-90 Dec-92 30 Libramiento Oriente de Saltillo 22.000 State Gvt. Jan-92 Dec-92 31 Puente San Miguel 0.260 State Gvt. Dec-92 Dec-92 32 Libramiento de Fresnillo 20.020 State Gvt. Mar-92 Mar-93 33 Cadereyta-Reynosa 132.015 Pub. Sctr. Jan-91 Apr-93 34 Puente Colorado 0.450 State Gvt. Aug-93 Aug-93 35 Durango-Yerbanis 105.374 Pub. Sct. Apr-92 Sep-93 36 La Tinaja-Cosoleacaque 228.100 Pub. Sctr. Nov-90 Oct-93 37 Maravatio-Zapotlanejo 309.606 Pub. Sctr. Oct-92 Oct-92 38 Mexico-Pacluca 47.100 Fm. Instit. Feb-94 Feb-94 39 Tihuatlan-Tuxpan y Puente Tuxpan 37.457 Fm. Instit. Feb-94 Feb-94 40 Penon-Texcoco 16.168 State Gvt. Mar-93 Mar-94 41 Carbonera-Puerto Mdxico "Los Chorros" 34.200 State Gvt. Jan-93 May-94 42 Torre6n-Saltillo 232.600 Pub. Sctr. Jan-94 Aug-94 43 Guadalajara-Zapotlanejo 26.000 Pub. Sctr. Jan-93 Aug-94 44 Puente de btla-Iguala 68.500 Fm. Instit. Aug-94 Aug-94 45 Zacapalco-Rancho Viejo 17.300 Fin. hIstit. Aug-94 Aug-94 46 Mdxico-Cuernavaca 61.612 Fm. Instit. Aug-94 Aug-94 47 La Pera-Cuautla 34.140 Fin. Instit. Aug-94 Aug-94 48 Chamapa-Lecheria 30.000 Pub. Sctr. Apr-91 Oct-94 49 libramiento de Manzanilo 19.000 Pub. Sctr. May-94 Oct-94 50 Gomez Palacio-Jimenez 183.820 State Gvt. Oct-93 Nov-94 51 Puente El Zacatal-Cd. Del Carmen 3.892 Pub. Setr. Aug-94 Nov-94 52 Puente Internacional Reynosa Pharr 7.926 State Gvt. Oct-93 Jan-95 53 Esperanza-Cd.Mendoza 35.800 Pub. Sctr. Oct-92 Apr-96 54 Patzcuaro-Uruapan 56.500 Panstatal Aug-98 Sep-98 55 Tecate-Rumomsa 55.500 Parastatal Mar-97 Dec-98 56 Libramiento de Nogales 12.140 Statea vt. Nov-93 Feb-99 0- * - 105 - Table A6.2b Toll Roads in Concession (1998) Length Type of Date of Date Oper. (km) Concessn. Concessn. Beean Under Construction With Sections In Oneration: 243.854 1 Champoton-Campeche 39.000 Feb-91 Jan-93 2 Cardel-Veracuz 29.400 Oct-93 May-94 3 Mexico-Querdtaro 175.454 May-97 May-97 Under Construction: 452.000 1 Asunci6n-Tejocotal 22.000 Feb-94 2 Cirdenas-Entronque Aguadulce 83.000 Nov-93 3 libramiento de Tulancingo 22.000 Feb-94 4 Reynosa-Matamoros 71.000 Dec-93 5 Santa Ana-Caborca-Sonoita 254.000 Dec-93 in Prenaraion: 78250 I La Venta-Colegio Militar 22.000 Dec-93 2 Libramiento Nororiente de Toluca 30.000 Oct-92 3 Puente Intemnacional C6rdoba Las Americas 0.250 Sep-92 4 Puente Intemacional Piedras Negras n1 26.000 Aug-91 Grand Total 5,284A99 Source: SCI. Unidad de Aulopisms de Cuota - 106- Table A6.3 Treatment of Municipal Effluents Muicipa1ty Number of treatment Number of treatment Design Flow Treated Flow plants plants in operation Its/see tts/sec Irapuato 1 1 700 700 Abasolo 1 0 70 0 San Francisco del Rinc6n 1 0 220 0 Coroneo I 1 5 5 Victoria I 1 5 5 Guanajuato 0 0 140 0 Le6n I 1 2500 2500 Tierra Blanca 0 0 6 0 Santa Ana Pacueco, Penjamo 1 1 30 30 Salamanca (PEMEX) 1 1 170 170 San Luis de la Paz 0 0 40 0 San Diego de la Uni6n 1 0 5 0 Total 9 6 3891 3410 soue: CkAU, zWI. Table A6.4. Profile of IVEG's Housing Program Monto Plazo iDTTasa de Cuota Monte Plazo ~~inter,6s 1) Inicial Lotes con servicios 8,000-30,000 24 meses 15.5% 20% Vivienda Semilla 61,660 8 anios 18.5% 20% Autoconsteucci6n o 2,000- 15,000 24 meses 15.5% 20% Enganche de Vivienda 8,000-15,000 24 meses 15.5% 20% Programa Magisterio 6000 18,000 N.D. 12% 20% (autoconstrucci6n y enganche) ' - Programa Autofinanciamiento Hasta 60,000 36 meses 12.075% 20% (apoyo a grupos de 30 a 50) por familia Vivienda Rural 2,000-15,000 4 afios 12% obra l)Incluye seguro de vida en la mayorfa de casos - 107- Chart A6.1.Current and Projected Wastewater Treatment Program Abaso San Foo. Dl Rlnoorn Aceflbam Waterto be Guaftuato Volurnleda Wagte Water Water to be teatd TO be bved lo comfpty se 260 Water Gonewaed Troed after ; ontldon d trad w O Vane de Sa_i-ago 200 Dobm Hkkdgo307 o IItdatgo Penlerno Sakialbee 160 traputato 9a, Cmz de J. POa S-a?ianla Uaato 100LP^eono San Mlt de Atttd POO=it San Its de la Paz 100 Cetaya SWac Coroneo __ Xnr Vkorta 60 ~~~~~~~~~Leon San LLds de la Paz aGtajualo seneag treatniOrd 20002008 0 SOU,wM CEAG - 108 - Nationwide Appendix - 109- Table 1. Fiscal Statistics, in 1998 MxP per capita Own Revenues Total Exp. Debt Stock Aguascalientes 1,612 2,436 226 Baja California 372 2,732 67 Baja California Sur 192 4,527 -43 Campeche 540 3,379 183 Coahuila 186 2,481 262 Colima 175 3,154 -82 Chiapas 190 2,642 -1 Chihuahua 488 2,357 444 Distrito Federal 2,280 3,297 1,586 Durango 147 2,650 146 Guanajuato 259 1,536 44 Guerrero 129 2,506 805 Hidalgo 115 2,146 110 Jalisco 244 1,956 -31 Mdxico 181 1,677 939 Michoacan 67 2,070 -2 Morelos 193 2,213 191 Nayarit 295 2,651 0 Nuevo Le6n 441 2,395 -42 Oaxaca 83 2,436 57 Puebla 195 1,943 36 Queretaro 166 2,368 -19 Quintana Roo 427 2,834 136 San Luis Potosf 64 2,082 49 Sinaloa 310 2,205 -89 Sonora 308 2,571 31 Tabasco 202 3,398 86 Tamaulipas 297 2,159 -6 Tlaxcala 192 2,703 0 Veracruz 121 2,334 9 YucatAn 235 2,299 -77 Zacatecas 84 2,473 88 Sowre: Secrelra do Hacienda y Crddito Publico. 1. Net of trnsfers to muniaiie - 110- Table 2. Social and Economic Statistics Percentage Of Average Life Expectancy at GDP PC Area Population Economic Active Years Birth MxP (1999) (KM2) 2000 Population that i of School Men Women Occupied Aguascalientes '51,407 5,289.97 943,506 35.1 8 74.2 78.5 Baja California 62,681 71,512.55 2,487,700 36.4 8.3 74.3 78.4 Baja California Sur 57,543 73,863.65 423,516 39.9 8.3 74 78.6 Campeche 69,156 57,014.12 689,656 35.2 7 72.5 76.9 Coahuila 58,183 150,666.17 2,295,808 35.8 8.4 73.9 78.5 Colima 43,777 5,485.89 540,679 36.8 7.7 74.2 78.6 Chiapas 18,765 73,667.72 3,920,515 30.8 5.3 70 74.8 Chihuahua 60,155 245,885.62 3,047,867 36.6 7.7 73.6 77.9 Distrito Federal 110,911 1,567.40 8,591,309 41.6 9.7 75.1 79.4 Durango 35,724 122,844.85 1,445,922 30.6 7.3 72.5 77.2 Guanajuato 29,376 30,956.12 4,656,761 31.3 6.3 73 77.2 Guerrero 23,694 64,851.11 3,075,083 28.8 6.1 70.8 75.7 Hidaigo 25,080 20,572.10 2,231,392 32.6 6.7 71.9 76.5 Jalisco 41,832 79,153.62 6,321,278 37.4 7.6 74.1 78.5 Mexico 33,248 21,355.80 13,083,359 34.1 8 74.1 78.5 Michoacan 25,672 58,581.52 3,979,177 30.8 6.2 72.7 76.8 Morelos 35,962 4,898.12 1,552,878 35.4 7.8 73.5 78.2 Nayarit 25,491 27,037.62 919,739 34.6 7.3 72.8 77.6 Nuevo Le6n 75,037 64,655.18 3,826,240 38.5 8.9 74.7 78.8 Oaxaca 19,504 93,064.28 3,432,180 31.0 5.6 70.2 74.8 Puebla 33,077 34,090.92 5,070,346 32.8 6.7 71.6 76.6 Queretaro 53,008 12,147.34 1,402,010 34.2 7.5 73.1 77.5 Quintana Roo 66,760 39,184.96 873,804 39.9 7.8 73.7 77.7 San Luis Potosf 30,589 63,871.48 2,296,363 31.1 6.9 72 76.5 Sinaloa 31,358 58,385.59 2,534,835 34.7 7.7 72.9 77.9 Sonora 49,487 180,642.67 2,213,370 36.6 8.2 73.6 78.5 Tabasco 26,541 24,686.52 1,889,367 31.7 7.1 72.8 77.2 Tamaulipas 46,829 79,741.39 2,747,114 36.8 8.1 73.5 77.6 Tlaxcala 23,038 4,114.42 961,912 34.1 7.6 73.4 77.5 Veracruz 24,583 72,100,33 6,901,111 34.0 6.4 71.7 76.3 YucatAn 33,207 43,495.31 1,655,707 37.3 6.8 72.1 76.6 Zacatecas 22,901 73,863.65 1,351,207 26.1 6.5 72.1 76.7 Source: Stahsticai Annex to tesdiaent's Keport. Table 3 Social Indicators Percentage of Percentage of Percentage of State Households population pulation that earn less than 15 years and older PO two MW' that are illiterates Aguascalientes 31 4.8 55.4 Baja Califormia 18 3.5 51.2 Baja California Sur 26.8 4.2 58.9 Campeche 28.6 11.8 38.4 Coahuila 27.2 3.9 69.7 Colima 31.8 7.2 45.6 Chiapas 20.3 22.9 17.6 Chihuahua 29.3 4.8 56.2 Distrito Federal 31.8 2.9 51.3 Durango 32.6 5.4 48.9 Guanajuato 30.9 12 33.9 Guerrero 30.3 21.5 20.3 Eiidalgo 31.6 14.9 29.1 Jalisco 27.2 6.4 44.3 Mdxico 35.7 6.4 39.7 Michoacan 31.6 13.9 26.2 Morelos 34.9 9.2 34.2 Nayarit 31.9 9 40.5 Nuevo Le6n 23 3.3 65.9 Oaxaca 24 21.5 22.6 Puebla 30.9 14.6 24.9 Querdtaro 29.3 9.8 45.4 Quintana Roo 24.4 7.5 46.2 San Luis Potosi 29.8 11.3 37.4 Sinaloa 36.9 8 53 Sonora 32 4.4 56.4 Tabasco 24.7 9.7 29.4 Tamaulipas 34.6 5.1 51.2 Tlaxcala 36 7.8 29.8 Veracruz 32.3 14.9 30.7 YucatAn 34.7 12.3 45.1 Zacatecas 32.3 8 32.4 Sowue:Searia de Sad 1. Minimum Wag - 112- Table 4. National Health System (Resources per 10,000 persons in 1999) Medical Medical doctors Percentage of Health Exp. By Unitsc Beds in touch with Hospital Fed. Gov. Units patients Occupancy per capita Aguascalientes 1.2 8.3 15.4 78.4 1,321.0 Baja California 1 6.6 11.4 74.6 1,302.7 Baja California Sur 4.1 15.3 22.7 48.5 2,299.2 Campeche 4 9.6 15.7 50.4 1,386.6 Coahuila 1.7 10.4 13.5 73.7 1,443.7 Colima 3 8.6 15.8 65.5 1,579.7 Chiapas 2.6 4.4 8.8 64.6 604.5 Chihuahua 1.9 7.7 10.3 71.3 1,201.0 Distrito Federal 0.9 18.9 25.7 69.2 4,314.2 Durango 3.1 8.1 13 77.9 1,123.4 Guanajuato 1.3 5.2 8.1 73.1 692.2 Guerrero 3.2 5 9.7 58.4 685.8 Hidalgo 3.1 6 10 79.7 793.6 Jalisco 1.6 9.3 11.4 53.1 1,002.7 Mdxico 1 5.6 7.5 60.9 611.5 Michoacan 2.1 4.9 8.9 70.3 622.9 Morelos 1.8 5.3 10.6 81.9 979.6 Nayarit 3.7 7.6 13.3 61.6 1,125.8 Nuevo Le6n 1.5 10 12.3 82.3 1,465.3 Oaxaca 3.3 4.9 8.6 63.1 608.2 Puebla 1.9 6.3 8.2 61.8 664.0 Queretaro 2.1 5.5 11.9 72.2 928.8 Quintana Roo 2.5 6.5 13 63.1 1,392.7 San Luis Potosi 2.3 5.9 9.2 59.6 803.9 Sinaloa 1.9 7.8 11.6 76.1 1,069.0 Sonora 1.8 10.8 13.7 71.3 1,299.9 Tabasco 3.2 7.1 15.2 78.5 1,020.2 Tamaulipas 1.8 10 13.5 67.6 1,240.2 Tlaxcala 2.1 4.7 9.5 60.3 790.7 Veracruz 2 6.1 10.1 68.4 882.7 YucatAn 1.9 8.9 12.9 84.2 1,290.0 Zacatecas 2.7 4.9 9.7 77.5 759.3 Nowre:sccetmIa de aiud. - 113 - Table 5. Federal Expenditures in Education Fed. Education Exp. per capita Aguascalientes 2,123 Baja California 2,026 Baja California Sur 4,042 Campeche 3,000 Coahuila 2,043 Colima 2,935 Chiapas 2,028 Chihuahua 1,645 Distrito Federal 4,635 Durango 2,445 Guanajuato 1,239 Guerrero 2,297 Hidalgo 2,113 Jalisco 1,306 Mexico 972 Michoacan 1,838 Morelos 1,848 Nayarit 2,613 Nuevc Leon 1,509 Oaxaca 2,091 Puebla 1,354 Queretaro 1,939 Quintana Roo 2,131 San Luis Potosf 2,074 Sinaloa 1,977 Sonora 1,962 Tabasco 1,885 Tarnaulipas 2,182 Tilaxcala 2,038 Veracruz 1,678 YucatAn 2,045 Zacatecas 2,268 ,ource: statistical Annex t li'r dent s ReporL - 114- Table 6. Infrastructure Statistics Average Roads number of Number of (Kmn) people Houses living in a house Aguascalientes 1,938 4.6 192,000 Baja California 11,129 4.1 541,000 Baja California Sur 6,422 4.1 94,000 Campeche 4,597 4.6 147,000 Coahuila 9,775 4.3 518,000 Colima 1,730 4.2 124,000 Chiapas 20,064 4.9 742,000 Chihuahua 12,741 4.1 709,000 Distrito Federal 149 4.1 2,097,000 Durango 12,209 4.5 319,000 Guanajuato 10,509 4.9 919,000 Guerrero 12,535 4.7 641,000 Hidalgo 7,731 4.7 460,000 Jalisco 24,823 4.6 1,333,000 Mexico 9,814 4.7 2,603,000 Michoacin 13,020 4.7 834,000 Morelos 1,941 4.3 348,000 Nayarit 5,766 4.3 211,000 Nuevo Le6n 7,166 4.3 858,000 Oaxaca 16,093 4.8 691,000 Puebla 8,341 4.9 969,000 Queretaro 3,325 4.7 277,000 Quintana Roo 5,070 4.2 186,000 San Luis Potosf 10,674 4.8 474,000 Sinaloa 16,446 4.5 552,000 Sonora 33,254 4.3 507,000 Tabasco 8,815 4.8 382,000 Tamaulipas 12,451 4 652,000 Tlaxcala 2,519 4.9 185,000 Veracruz 16,245 4.4 1,557,000 YucatAn 12,230 4.6 351,000 Zacatecas 10,010 4.5 297,000 ourme Memeara ec Lomu tlocs y iTnnspoms anm btat1scaI Annex to k'rdsrdent sepon IMAGING Report No. 23333 ME Type: ER