Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) Report Number: ICRR0023699 1. Program Information Country Practice Area (Lead) Argentina Macroeconomics, Trade and Investment Programmatic DPF Planned Operations Approved Operations 0 0 Operation ID Operation Name P167889 AR 1st Inclusive Growth Programmatic DPF L/C/TF Number(s) Closing Date (Original) Total Financing (USD) IBRD-89040 31-Jan-2020 500,000,000.00 Bank Approval Date Closing Date (Actual) 01-Nov-2018 31-Jan-2020 IBRD/IDA (USD) Co-financing (USD) Original Commitment 500,000,000.00 0.00 Revised Commitment 500,000,000.00 0.00 Actual 500,000,000.00 0.00 P168713_TBL Country Practice Area (Lead) Argentina Macroeconomics, Trade and Investment Operation ID Operation Name P168713 Second Inclusive Growth Programmatic DPF ( P168713 ) Page 1 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) L/C/TF Number(s) Closing Date (Original) Total Financing (USD) IBRD-89040,IBRD-90010 0 Bank Approval Date Closing Date (Actual) 11-Jul-2019 IBRD/IDA (USD) Co-financing (USD) Original Commitment 500,000,000.00 0.00 Revised Commitment 500,000,000.00 0.00 Actual 0.00 0.00 Prepared by Reviewed by ICR Review Coordinator Group Dimitri Tsarouhas Jeffrey Allen Chelsky Donna Kaidou Jeffrey IEGEC 2. Program Objectives and Pillars/Policy Areas EVOBJ_TBL a. Objectives The Argentina First Inclusive Programmatic Development Policy Financing (DPF) aimed at supporting policy measures to: (i) strengthen the foundations for private sector-led growth (Pillar 1), and (ii) strengthen the social safety net and enhance fiscal equity (Pillar 2) (Program Document [PD] p.5). Although a Second DPF was envisaged and approved by the Board it never materialized. According to the ICR, this was because “the macroeconomic framework was no longer deemed adequate” (ICR, p. 5) For the purpose of this ICRR, the project development objectives (PDOs) of the operation (against which outcomes will be assessed) are taken to be the following:  PDO 1: Strengthen the foundations for private sector-led growth;  PDO 2: Strengthen the social safety net and enhance fiscal equity. b. Pillars/Policy Areas The operation was structured around two pillars encompassing the operation’s objectives, namely to: (i) strengthen the foundations for private sector-led growth, and (ii) strengthen the social safety net and enhance fiscal equity (PD, p.21). c. Comments on Program Cost, Financing and Dates Page 2 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) The First Inclusive Programmatic Development Policy Financing (DPF) consisted of an IBRD loan of US$500 million. DPF1 was approved on 1 November 2018 and closed as envisaged on 31 January 2020. The originally envisaged Second Programmatic DPF (P168713), also of the amount of US$500 million, was approved by the Board on 11 July 2019 but was not declared effective due to the “inadequate macroeconomic framework” (ICR, p.5). 3. Relevance of Design a. Relevance of Objectives The two objectives of the operation were highly relevant to the country situation, the government’s reform program up to 2019, and the Bank’s 2018 Systematic Country Diagnostic (SCD) on reform priorities for Argentina. DPF1 also drew on the Performance and Learning Review of the 2014-2018 CPS, and was reflected in some results indicators in Pillar 1. The two pillars of the operation were a core part of the 2019 Country Partnership Framework (CPF). Relevance to Country Context Argentina has a history of stop-go cycles in its economic development which have made it somewhat unique: instead of growing into the middle-income trap it has fallen into it. The main effects of boom-and-bust cycles have been economic underperformance (2.7 percent GDP growth between 1950 and 2016, which is about half of high performing states in South America), weak institutional development (compared to countries with similar income levels) and inadequate social protection mechanisms for the most vulnerable in society. Chronic economic volatility contributed to macroeconomic imbalances, which tended to impact the country’s fiscal position, undermining both sustainable growth and shared prosperity. Such imbalances have been fueled by a political system geared towards pro-cyclical economic policies that amplified booms and busts, and which have led Argentina to spend almost one-third of the time since 1950 in recession (PD1, p.21). From 2011 to 2015 Argentina’s economy stagnated, while subsidies for energy and transport went from 0.8 percent of GDP in 2005 to 6.0 percent in 2015. In 2015, government-initiated reforms sought to spur private sector growth and facilitate much-needed foreign investment. By opting for gradual macroeconomic adjustment, Argentina remained vulnerable to sudden shifts in the global economic outlook and its macroeconomic fundamentals remained weak. By the end of 2017 inflation was 24.8 percent and the country’s current account deficit was 4.7 percent (CPF, p.7). In 2018 a severe drought led to a drastic fall in agricultural output, while a perceived heightened risk associated with emerging market economies and the appreciation of the US dollar combined with higher US interest rates led to a rise in the sovereign risk premium and a large depreciation of the peso. Inflation rose to 47.6 percent, investment fell by 5.8 percent, private consumption decreased by 2.4 percent, GDP contracted by 2.5 percent and the debt-to-GDP ratio was 88 percent (CPF, p.9). the poverty rate rose to 32.0 percent in the second half of 2018 (CPF, p.10). The government reached agreement with the International Monetary Fund (IMF) on a Standby Agreement (SBA) in April 2018 and revised in August 2018, following a new wave of pressure on the peso. The three-year US$56.3 billion arrangement under the SBA foresaw measures to ensure fiscal consolidation with a primary budget surplus by 2020, BCRA independence and a cessation of Treasury financing from the Central Bank, and commitment to a floating exchange rate and an expansion in social safety nets. Page 3 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) Given the challenging macroeconomic and fiscal environment, the operation was well aligned with the government’s priorities of addressing policy distortions that acted as barriers to private sector growth and supported well-targeted priority social spending to offset the effects of fiscal consolidation (PD, pp. 21-22). Relevance to CPF and country development strategy The operation largely reflected government priorities specified in the two strategic pillars regarding private sector led growth and a combination of more efficient social spending through fiscal equity, and were pertinent to the country’s situation, especially the macroeconomic crisis after 2018. After the 2015 elections, the new government released a reform-oriented program centered on boosting private sector capacity for employment creation and investment, fiscal consolidation, and monetary reform. Reforms allowed Argentina to regain access to international capital markets in 2016, the abolition of currency controls and the gradual phase out of state subsidies, which fell to 1.9 percent of GDP by the end of 2018. The government also abolished export subsidies (except for soya beans), reduced market entry restrictions and diminished the scope of application of import licenses to spur private sector growth and facilitate investment. The poverty rate fell from 30.3 percent in 2016 to 25.3 percent in 2017. Nevertheless, a combination of severe drought, US dollar appreciation and the perceived risk of sovereign default in vulnerable emerging market economies led to severe pressure on the peso a year later. The government reached agreement with the International Monetary Fund (IMF) on a Standby Agreement (SBA) in April 2018 and revised in August 2018, following a new wave of pressure exerted on the peso. The 2014 CPS initially focused on direct support to the most vulnerable at the household level, but the 2017 PLR offered the WBG the opportunity to respond to the shift in priorities introduced by the new government elected in 2015, and which sought to accelerate structural reforms through private sector liberalization and a tighter fiscal framework. . The WBG’s 2018 SCD identified the need for a new model of development for Argentina that would allow the country to break free from the boom-and-bust cycles of the past. This proposed development model centered on transitioning to new sources of growth for development through four pathways, two of which are relevant to this operation. Pathway 1 was about focusing on an open and outward oriented model of development (SCD 2018: 19), while pathway 2 focused on the specific policies necessary for such a transition, with capital market reform and investment in infrastructure prominent among them. Relevance to WBG Priorities The SCD (2018) identified several policy priorities, some of which are directly relevant to the PDO. The first set of priorities centered on sound fiscal management and macroeconomic stability. This was critical for the purposes of both sustained growth and shared prosperity in line with WBG priorities. Second-tier reform priorities related to the need to upgrade basic services offered to all citizens and especially the most vulnerable. For the open development strategy to succeed, the CPS identified the need to reduce barriers to competition in the Argentinian market and integrate the latter in the global economy by reducing tariffs and barriers to trade, as well as by strengthening the regulatory environment on pro-competition policy and enhance the country’s anticartel enforcement strategy. b. Relevance of Prior Actions Rationale Page 4 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) The operation was structured around two pillars that corresponded to the two objectives: (i) strengthening the foundations for private sector-led growth, and (ii) strengthening the social safety net and enhancing fiscal equity (PD, p.5). The operation had a total of nine prior actions (PAs), five of which related to Objective 1 and four of which related to Objective 2. PDO 1 PAs on strengthening private sector-led growth drew from the World Bank’s 2018 Strengthening Argentina’s Integration in the global economy: Policy proposals for trade, competitiveness, and investment as well as the 2018 SCD, while PDO 2 PAs drew from the Argentina Public Expenditure Review (2018), the Province of Buenos Aires Public Expenditure Review (2016) and the Supporting Effective Universal Health Coverage in Argentina Project (2018). Table 1: Prior Actions (PAs) for the Argentina 1st Inclusive Growth Programmatic DPF PDO 1: Strengthen the foundations for private sector-led growth PA1: The Borrower has enacted a new Competition Law to strengthen the legal framework for competition, as evidenced by Law No. 27,442. PA2: The Borrower has issued measures to reduce tariff and non-tariff import barriers for intermediate and capital goods, as evidenced by the Borrower’s Secretary of Commerce’s No. Resolution 170/2018 and the Borrower’s National Executive Decree No. 117/2017. PA3: The Borrower has enacted legislation to reduce the complexity of business registration and create a national unified firm registry, as evidenced by Law No. 27,444, Law No. 27,349, the Borrower’s Resolution No. 5/2017, the Borrower’s Resolution No. 6/2017, and the Borrower’s General Joint Resolution No. 4098E-2017. PA4: The Borrower has enacted a Productive Financing Law that reforms the legal framework for capital markets and financing instruments in the enterprise sector to promote private investment, as evidenced by Law No. 27,440. PA5: The Borrower has enacted a Corporate Criminal Liability Law strengthening the anti-corruption framework and bringing the Borrower in line with international standards, as evidenced by Law No. 27,401. PDO 2: Strengthen the social safety net and enhance fiscal equity PA6: The Borrower has approved regulation to protect the most vulnerable while reducing transport subsidies, as evidenced by the Borrower’s Resolution No. E-77/2018. PA7: The Borrower has enacted legislation to enhance fiscal responsibility at the provincial level and improve equity in intergovernmental transfers, as evidenced by Laws No. 27,428 and 27,429. PA8: The Borrower has introduced a single window system at ANSES, to simplify and facilitate access to social benefits, social tariffs, health insurance, and other social programs, as evidenced by the Borrower’s National Executive Decree No. 339/2018. PA9: The Borrower has signed a separate framework agreement with fifteen (15) provinces to implement universal health coverage, as evidenced by the agreements signed by the Borrower, through its Minister of Health, with each of the following provinces in June of 2018: (a) Corrientes; (b) Jujuy; (c) La Pampa; (d) La Rioja; (e) Mendoza; (f) Misiones; (g) Salta; (h) San Juan; (i) Santiago del Estero; (j) Tierra del Fuego; (k) Tucumán; (l) Catamarca; (m) Chaco; (n) Córdoba; and (o) Entre Ríos. Page 5 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) PDO 1: Strengthen the foundations for private sector-led growth. PAs 1-5. PA1: Logistics costs in Argentina, at 27 percent of GDP, were the second highest in Latin America (PD2, p.21), and basic foods cost almost 50 percent more than in peer countries. The country’s legal framework was inadequate in prosecuting monopolistic practices (ICR, p.15), since it did not foresee private damage actions. The PA introduced a new Competition Law, which foresaw heavier penalties for anti-competitive practices and the setup of an independent Competition Authority. The government passed a series of Decrees to implement the new law in line with national legislative practice. PA1: Satisfactory. PA2: Prior to the adoption of this PA, trade and non-trade tariff measures could increase trade costs by up to 34 percent (Licetti et al.2018), therefore weakening the competitiveness of its tradable sector. Reducing tariff barriers and the number of non-automatic licenses has been shown to contribute to a boost in both exports and GDP (Licetii, 2018). The adopted Resolution and Executive Decree abolished import duties for 182 tariff lines related to IT and telecommunications goods and added 100 tariff lines of products subject to automatic import licenses. More comprehensive measures to reduce tariffs and non-tariff barriers relied on future government plans to do so. The further reduction of import costs was foreseen as an indicative trigger for the second operation. PA2: Moderately Satisfactory. PA3: Business operations in Argentina are inhibited by excessive red tape; registering a new firm required 13 separate procedures as compared to an average of eight in Latin America, and the OECD estimated that product market regulation in the country was 30 percent more restrictive in Argentina compared to its South American peers (OECD 2016). Legislation passed by the Government under this PA created a unified national company registry, a modern legal framework incorporating digital technologies in incorporating firms and record upkeeping, and a fast-track procedure to register a limited liability firm in 24 hours. PA3: Satisfactory. PA4: Financial and capital markets are underdeveloped in Argentina, and firms face high obstacles in obtaining credit. Only 11 percent of small firms and 15 percent of medium-sized companies could obtain bank credit in Argentina compared to 25 and 28 percent respectively in the rest of South America. Law 27,440 allowed for the creation of a more robust capital markets and financing framework through electronic invoicing for SMEs, the launch of the mortgage insurance industry in Argentina, and the issuing of an initial blanket authorization for the issuers of securities. However, the PA does not articulate how the law’s enactment leads to the practical implementation of the changes envisaged by the law, while long-lasting capital and financial markets reform, including the setting up of a new credit guarantee scheme that would boost private investment, was foreseen as an indicative trigger for the second operation. PA4: Moderately Unsatisfactory. PA5: Although Argentina had enacted anti-corruption legislation in the 1990s, results had been The legal provisions of Law 27,401 aligned Argentina’s framework with international practice as envisaged in the OECD Convention on Combating Bribery. It did so through three main mechanisms: first, by clearly defining criminal offences and their respective penalties ;secondly by obliging firms to strengthen their internal audit and control systems; and thirdly, by amending the criminal code to strengthen sanctions against corrupt individuals both in the public and private sectors. As a result of the PA and following the law’s adoption, Argentina complied with the United Nations’ Anti-Bribery Convention. PA5: Highly Satisfactory. PDO 2: Strengthen the social safety net and enhance fiscal equity PAs 6-9. Page 6 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) PA6: Resolution E-77/2018 introduced a multi-modal fare and transfer systemin the transport network. According to PD1, low-income residents in the outskirts of metropolitan regions benefit from this system, but there is no evidence that this happens, and whether it happens in relation to low-income earners elsewhere or middle- and high-income earners instead. The better targeting of low-income transport system users was foreseen as indicative Trigger 6 of DPF2. PA6: Moderately Unsatisfactory. PA7: Argentina has a complex and fragmented intergovernmental fiscal revenue sharing and transfer system (coparticipación), which makes provinces increasingly reliant on a regressive sales tax that inflates prices yet limits their tax capacity. The two laws enacted as part of this PA, the Fiscal Pact and the Fiscal Responsibility Regime (FRR) foresee the gradual reduction of the regressive sales tax and its replacement with a more progressive real estate tax. They also include a new set of fiscal rules at the provincial level limiting public spending. The implementation of the Fiscal Pact at the provincial level was part of this PA’s indicative trigger for DPF2, while the improvement of equity in intergovernmental transfers remained uncertain, pending long- term implementation, assuming higher levels of revenue generation at both the federal and the provincial level, and the eventual implementation of anti-cyclical policies to boost public investment in infrastructure. A series of unknows and long-term assumptions were part of how the PA was meant to function in the results chain of this PDO. PA7: Unsatisfactory. PA8: Argentina has multiple social protection systems and schemes, the fragmented nature of which often raised barriers in access for those needing them the most. The introduction of a single window system at the National Social Security Administration (ANSES) integrated procedures handled by the Ministry of Social Development and reduced transaction costs among the multiple agencies administering different aspects of the welfare regime, while making existing social protection systems more accessible to those entitled to use them. However, pensions and social tariffs, which form part of the PA, were only envisaged to be integrated in ANSES at a later stage. PA8: Moderately Satisfactory. PA9: This PA contributes to a stronger social safety net by supporting the 2016 Government initiative of Universal Health Coverage (UHC). Achieving UHC goes largely through the provinces, which are responsible for health delivery. The implementation of the framework agreement means that the UHC strategy can now be implemented at the provincial level, translating into better health outcomes, especially for the poor who rely disproportionately on public health services, and efficiency gains through a reduction in the health system’s fragmentation and coverage gaps. PA9: Satisfactory. Rating Moderately Satisfactory 4. Relevance of Results Indicators Rationale Results Indicators (RIs) are presented in Table 2 along with mapping, progress, and ratings. RI1 does not distinguish clearly between major and minor problems in competition policy, nor does it clarify the sort of action that would be taken when identifying antic-competitive practices. RI1: Unsatisfactory. Page 7 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) RI2 directly measures the impact of PA2 on reducing tariff and non-tariff barriers (automatic licenses) and targets input products necessary to boost the country’s export capacity. The baseline and data were both credible. RI2: Satisfactory. RI3 The choice of this particular RI is linked to the then Argentinian government’s objective of boosting the number of firms registered as SAS and moving them away from the status of limited liability firms (SRL). There is a lack of clarity as to how this would boost the chances of realizing the PDO or indeed the link with the relevant PA. RI3: Unsatisfactory. RI4 is a complicated RI, which relies on a not well defined variable to capture the effect of capital market reform expected as a result of the new legal framework. RI4: Moderately Unsatisfactory. RI5 makes only limited progress in measuring progress towards stronger private sector-led growth, since it focuses on enhanced transparency by firms. The latter is also uncertain, given that integrity plans remain voluntary. RI5: Unsatisfactory. RI6 measures the impact of the expected implementation of the indicative trigger but does not take into account the multiple problems of eligibility and coverage that STs suffer from, and which cast into doubt the capacity of the new tariff system to enhance fiscal equity through better targeting. RI6: Moderately Unsatisfactory. RI7 captures the likely impact of the associated PA and the introduction of the Fiscal Pact, which includes a decline in the share of Ingresos Brutos as part of the Provinces’ overall tax revenue. However, the RI only partially measures progress towards the objective, since it is unclear whether a decline in sales tax revenues will be accompanied by a rise in provincial income resulting from progressive taxes, thus strengthening the social safety net. RI7: Moderately Unsatisfactory. RI8 flows directly from the associated PA that set up a unified system for various social protection schemes. , and is a reliable way to measure progress towards strengthening the social safety net. An increase in the participating programs would help authorities reinforce social protection and allow for fiscal savings. RI8: Satisfactory. RI9 directly measures the impact that the associated PA has had in setting up a new Universal Health Coverage (UHC), since health policy is administered by the provinces, which is in turn directly linked to improving inequitable health outcomes across the country and combine these with more efficient fiscal outcomes. Measurement of active implementation relies on the percentage of the population enrolled in a healthcare facility for continuing care. RI9: Satisfactory. Only some of the results indicators (RIs) were placed within well-articulated results chains mostly premised on a theory of change that measured the likely impact of the PAs and their links to the stated objectives. Several RIs were either not defined well enough or did not articulate a result chain that explicitly demonstrated how the flow of results would allow for concrete measurement of progress towards the achievement of the two objectives. Three RIs are rated Satisfactory, Three Moderately Satisfactory, and Three Unsatisfactory. Table 2: Results Indicators (RIs) for the Argentina 1st Inclusive Growth Programmatic DPF Results Indicator Associated RI Baseline Target Actual at Actual as RI (RI) PA(s) relevance (including (including target % to achievement units and units and date targeted rating Page 8 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) date) date) change PDO 1: Strengthen the foundations for private sector-led growth RI1: Number of anti-competitive practices resolved through sanctions or corrective PA1 U 0 (2017) 8 (2020) 0 (2021) Off Track Negligible measures by the new competition authority (accumulated): RI2: Share of intermediate and capital goods 30% of imports, by value, 74 percent 84 percent 77 percent PA2 S targeted Modest subject to reduced (2017) (2020) (2021) change tariffs or automatic licenses: RI3: Share of new commercial companies registered as 6% of simplified 5 percent 50 percent 7.6 percent PA3 U targeted Negligible corporations (2017) (2020) (2021) change (Sociedad por Acciones Simplificadas, SAS) RI4: The share of (all issuing) firms that issue securities that are using the 8% of streamlined pre- 0 percent 59 percent 5 percent PA4 MU targeted Negligible authorization (2017) (2020) (2021) change process put in place for those firms that have multiple issuances. RI5: Number of PA5 U 0 (2017) 80 (2020) 160 (2019) 200% of [Substantial] integrity plans targeted registered in the change Government Page 9 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) procurement platforms for goods, services, and public works. PDO 2: Strengthen the social safety net and enhance fiscal equity RI6: Share of beneficiaries of Not 22 percent 27 percent Not social programs PA6 MU Available Negligible (2021) (2020) Available that have access (2021) to the STs. RI7: Share of the revenue of sales tax (Ingresos Brutos) in total own revenues of 72 percent 66 percent 77 percent PA7 MU Off Track Negligible Provinces, which (2017) (2020) (2021) is expected to decline below the 2017 baseline value. RI8: Number of different programs 180% of that have been PA8 S 0 (2017) 10 (2020) 18 (2022) targeted High included in the change Single Window system. RI9: Number of 120% of provinces actively PA9 S 0 (2017) 20(2020) 24 (2021) targeted High implementing the change new UHC system. Note: RI achievement ratings note achievement of the targeted change for the RI. RI achievement ratings in brackets reflect ratings that may have been adjusted based on weak relevance of the results indicator (discussed in efficacy section). Rating Moderately Unsatisfactory 5. Achievement of Objectives (Efficacy) EFFICACY_TBL OBJECTIVE 1 Objective Strengthen the foundations for private sector-led growth [PAs 1-5, RIs 1-5] Page 10 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) Rationale RI1: Although the Competition Authority continues to function and assists the process of levelling competition in general terms, the appointment of new senior officials has been frozen following the 2019 elections, while the power to impose fines remains with the Ministry of Commerce. Rating: Negligible. RI2: Small progress has been made in increasing the number of imported goods subject to lower tariff rates. However, the deterioration in macroeconomic conditions and in particular the 2020 introduction of capital controls targeting capital goods has led to additional import control measures and the reintroduction of non-automatic licenses. Rating: Modest. RI3: The Inspector of General Justice has added additional requirements when registering new firms after 2020. This has added to the existing bureaucratic burden and in some cases meant the suspension of the online registration scheme foreseen by legislation introduced as part of this indicator’s prior action. Rating: Negligible. RI4: Firms have been reluctant to use Argentinian securities because of the deteriorating macroeconomic environment, especially the balance of payment crisis of 2018. The regulatory framework with regard to the new capital markets law has made substantial progress, and a new national credit guarantee scheme has been set up. Rating: Negligible. RI5: By 2019 the original target of 80 firms voluntarily submitting their integrity plans had been exceeded by a margin of 2:1, allowing for some measure of progress in the anti-corruption reform drive of recent years. The unsatisfactory relevance of this RI to the PDO of enhancing private sector growth results in a downgrade in efficacy. Rating: Substantial. Rating Unsatisfactory OBJECTIVE 2 Objective Strengthen the social safety net and enhance fiscal equity [PAs 6-9, RIs 6-9] Rationale RI6: Although energy and transport subsidies were reduced between 2016 and end-2018, the onset of the pandemic led to a subsequent increase, from 2.2 percent in 2018 to 2.5 percent in 2020 and 3 percent in 2021. While gas STs have remained the responsibility of the federal government, electricity STs are now fully managed by the provinces. Data collection to measure the indicator is not available, except for the Province of Buenos Aires. Rating: Negligible. RI7: Deteriorating macroeconomic conditions led to an attempt by the Government to boost provincial resources, thereby suspending planned reductions in the turnover and stamp tax. The Budget Law of 2021 Page 11 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) suspended the quantitative rules of the Fiscal Responsibility Law and curtailed the powers of the Federal Council for Fiscal Responsibility (FCFR), instead reasserting the authority of the central government. Rating: Negligible. RI8: The target for this RI was achieved a year in advance of the target, and available data suggests that more programs, exceeding the original goal, have been incorporated in the Single Window System. These programs entail core social security protection programs on labor disability, pensions, child benefits and family allowances. Rating: High. RI9: Progress in the incorporation of more provinces to implement Universal Health Coverage (UHC) has not been negatively affected by the pandemic, and by 2020 the target number of provinces taking part in the scheme exceeded the original goal. Rating: High. Rating Moderately Satisfactory OVERALL EFF TBL OLD Overall Achievement of Objectives (Efficacy) Rationale One Objective is rated Unsatisfactory, and one Objective Moderately Satisfactory. Overall Efficacy Rating Moderately Unsatisfactory 6. Outcome Rationale The Moderately Satisfactory rating for relevance of PAs was based on their generally well-defined design to build on initiatives from previous analytical work and country engagement. In most, but not all, cases, PAs were designed as a sequence of successive steps that could enable the achievement of the PDO and were based on an explicitly articulated theory of change. On efficacy, the Moderately Unsatisfactory rating results from the fact that out of nine RIs three were achieved, three were partially achieved and three were not achieved. Private sector-led growth was facilitated by the setup of a new capital markets law that introduced a more thorough regulatory framework, the setup of a more Page 12 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) efficient credit guarantee system and the modest gains made in increasing products subject to lower tariff rates. The introduction of voluntary integrity plans in the relevant database of the Government’s procurement system, though welcome, is hardly relevant to the PDO, while the independence and enforcement capacity of the Competition Authority has not gone as far as originally envisaged and its functioning has been made more difficult since the 2019 elections. On social safety and fiscal equity, the administrative process of merging disparate social security programs in a Single Window System has exceeded the target set, and steps towards achieving more equitable and fiscally sustainable Universal Health Coverage (UHC) were made through UHC implementation by the administrative entities responsible for making it work, namely the country’s provinces. The Fiscal Responsibility Law and the Federal Council for Fiscal Responsibility (FCFR) have both been undermined after 2020 through the removal of quantitative targets regarding tax revenues for the provinces and the recentralization of decision-making authority in the central government. Data on social transfers and the number of beneficiaries is unavailable, while the cost of electricity and transport subsidies went up after macroeconomic conditions deteriorated post-2018. With relevance of PAs rated as Moderately Satisfactory and efficacy as Moderately Unsatisfactory, the overall outcome is rated Moderately Unsatisfactory. a. Rating Moderately Unsatisfactory 7. Risk to Development Outcome Following the implementation of DPF1, elections returned a new government that opted for a policy mix different from its predecessors. One of the new government’s first acts has been to nullify the process of appointment for the members of the Competition Authority. In combination with the decision to transfer the power to impose fines to the Ministry of Commerce, this raises the prospect of diluting the interventionist role of the Authority in issuing fines and sanctioning competition malpractices. New firm creation in the private sector is subject to a new set of administrative requirements, which could inhibit their incorporation in the formal economy and add to their regulatory burden. The government’s ambition to enhance spending at the provincial level has led to a policy reversal regarding the gradual withdrawal of regressive taxes and their replacement with a progressive real estate tax to fund public services, including UHC. Going forward, continued macroeconomic volatility combined with political uncertainty could further erode the Fiscal Pact and weaken the Federal Council for Fiscal Responsibility (FCFR), thereby maintaining regressive taxes and an inefficient resource allocation process that undermines fiscal equity. Barriers to imports have increased through measures introduced after 2019, increasing the risk of reversing the modest progress made towards enhancing the quantity of capital goods subject to lower tariff rates. COVID-19 has had an impact on UHC implementation since it reduced demand for preventative health care, a core element of UHC, and policy implementation is subject to limited human resources and institutional inadequacies related to the need to divert resources towards palliative care. 8. Assessment of Bank Performance a. Bank Performance – Design Page 13 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) Rationale The rationale and design of Pillar I was based on the Argentina Public Expenditure Review (2017), 2018 advisory work on Strengthening Argentina’s integration in the global economy: Policy proposals for trade, competitiveness and investment, as well as the Performance and Learning Review (PLR) of 2017 that enlarged the original focus on sustaining employment at firm and farm level to encompass strengthening private investment and securing an enabling environment to achieve that goal. The rationale and design of Pillar II was based on the Argentina Policy Notes (2015), as well as Argentina: Toward Universal Health Coverage- Challenges and Opportunities” (2017) and “Supporting Effective Universal Health Coverage in Argentina Project” (2018). Analytical Underpinnings: PD1 included detailed documentation as to the analytical underpinnings of the World Bank that supported each PA (Table 4, p.38). The first pillar on strengthening the foundations for private sector- led growth was supported by the 2018 SCD, the Argentina’s Capital Market Assessment and Development Prospects, the 2016 and 2017 Argentina Infrastructure Capital Markets Reports, the 2018 TA on Strengthening Argentina’s Integration in the global economy: Policy proposals for trade, competitiveness, and investment and the World Bank 2018 Report on the State of Transparency in Argentina. The second pillar was supported, apart from the 2018 SCD, by the 2015 Argentina Policy Notes, the 2016 State of Buenos Aires Public Expenditure Review, the 2017 Report on Argentina: Toward Universal Health Coverage—Challenges and Opportunities and the 2018 Argentina Public Expenditure Review. Results Chain: the rationale for each policy action was extensively discussed but not always adequately documented. PD1 included a detailed discussion as to the substance of each prior action, its rationale and its link to the indicative trigger associated with it in the foreseen DPF2. The ICR entailed a table devoted to the theory of change pursued in the operation, including data-based context and evidence to demonstrate the concrete contribution of PDOs to Argentina’s development. The relationship between PAs and the intended outcomes was evident in most cases. Risk identification and mitigation: DPF1 rightly assessed political, macroeconomic and institutional risks as high and flagged those policy areas explicitly in both PDs. Sectoral and social risks were correctly identified as substantial. DPF2 maintained political, macroeconomic and institutional risks as High and elaborated on the link between potential macroeconomic instability and social tensions, as inflation pressures began to mount and the sustainability of reforms became a key objective. Mitigation strategies included collaboration between the World Bank, the IMF and the Government to support a structural reform agenda. On political risks, mitigation relied on the Government’s ability to resist policy reversals based on its track record in Congress over the previous three- year period, during which reforms were enacted despite the Government holding a minority of seats in the Chamber (PD2, p.51). This was not a particularly meaningful mitigation measure in the country context, as evidenced by policy reversals after 2019. Macroeconomic risks were meant to be mitigated through clearer communication between the Government and the financial markets, as well as the public, regarding reform objectives. Extending debt maturities and rebuilding cash buffers were further mitigation strategies. On institutional capacity and implementation, the design of the operation in two phases was designed to mitigate against sustainability risks (PD1, p.49). Policy reforms were frontloaded on DPF1 to sustain their longevity while implementation was foreseen for DPF2. Coordination with development partners: The DPF was coordinated with IMF support to Argentina to assist the country’s economic stabilization, as the exceptional access SBA signed between Argentina and the IMF came a few months before DPF1. “In this context, the World Bank program complements the IMF program’s social Page 14 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) protection measures by contributing to social safety net design and enhanced social monitoring.” (PD1, p.5). There was also alignment between the two Bretton Woods institutions in terms of the need to boost growth through private sector development, one of the two pillars of the DPF. Apart from the Bretton Woods institutions, budgetary support to Argentina during the first operation was also offered by the Interamerican Development Bank (IADB) and the Development Bank of Latin America (CAF). IADB budget support for 2019 on anti- corruption was complementary to foreseen operations under DPF2, while CAF budget support focused on micro financing and SMEs. Rating Satisfactory b. Bank Performance – Implementation Rationale Monitoring and coordination with partners: the DPF1 Program Paper and the first review of the IMF’s SBA took place at roughly at the same time, despite the deteriorating economic outlook in Argentina. There is no data/evidence on corodinating DPF1 with the IADB and/or CAF. The World Bank did not engage with any political actors apart from the incumbent government during DPF1 implementation, although upcoming elections had raised the prospect of possible modifications in DPF operations. Adaptation: DPF1 was not adequately adapted to the changing macroeconomic circumstances in the country by late 2018, which made the realization of outcomes including in the nine RIs less realistic than otherwise possible. DPF2 was approved by the Board, although macroeconomic conditions had deteriorated further compared to the DPF1 period, and the SBA with the IMF had ceased by that time. The ICR explicitly mentions that the operation would “hinge on the IMF’s periodic assessment” of the country’s macroeconomic conditions (ICR, p. 8). The macroeconomic framework was inadequately analyzed and DPF2 was approved despite objective difficulties in implementation stemming from both political and macroeconomic risks. The onset of COVID-19 reinforced changes in policy orientation by the new Argentine government that aimed at protecting households and firms’ incomes. In the absence of a request for cancellation by the new government, the realization of DPF2 DPOs would have been difficult to achieve given baseline scenarios and the alignment of political and macroeconomic risks. Rating Unsatisfactory c. Overall Bank Performance Rationale Page 15 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) Design is rated Satisfactory and Implementation Unsatisfactory. Overall Bank Performance Rating Moderately Unsatisfactory 9. Other Impacts a. Social and Poverty DPF1 included an ex-ante breakdown of the expected welfare of each PA. The cumulative effect of this analysis would lead to an improvement in the welfare distribution for the bottom 40 percentile, which was an explicit goal of Pillar 2. Such estimates hinged on implementation and were not a priori quantified. During DPF1 implementation, poverty went up from 25.6 percent in 2017 to 32 percent by the end of 2018, while extreme poverty went from approximately 4.6 percent in 2017 to 6.7 percent in 2018. DPF2 foresaw an increase in Child Benefit recipients from 2.1 million in 2017 to 2.3 million in 2020 and targeted social assistance to pregnant women to offset rising inflation and utility bills. Between December 2018 and December 2018, real incomes for formal wage workers declined by 11.4 percent and for informal wage workers by 13.5 percent. No data is presented in the ICR on the actual impact. b. Environmental The operation did not anticipate a noteworthy environmental impact at design stage, and none was identified ex post. c. Gender The operation was not designed to have any specific gender effects. d. Other --- 10. Quality of ICR Rationale The ICR provides a compact summary of the context at appraisal and rationale for the operation, explains the evolution of the PDOs, and offers a narrative of the series and the results. It discusses all prior actions and their relevance linked to a “theory of change” (results chain) through a Table that also includes World Bank analytical Page 16 of 17 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review AR 1st Inclusive Growth Programmatic DPF (P167889) underpinnings, context and data points. ICR evidence is generally of high quality with relevance to PAs for both Pillars. The results chain is divided into each of the two pillars of the operation and includes the subobjectives that the operation aimed at. The efficacy section (Achievement of Objectives) is extensive and in line with ICR Guidelines, but not all results indicators are adequately discussed. The sections on other outcomes, Bank performance, risks and lessons are in line with ICR Guidelines. a. Rating Substantial 11. Ratings Reason for Ratings ICR IEG Disagreement/Comments Moderately Moderately Outcome Unsatisfactory Unsatisfactory Moderately Moderately Bank Performance Unsatisfactory Unsatisfactory Relevance of Results Moderately --- Indicators Unsatisfactory Quality of ICR --- Substantial 12. Lessons The ICR rightly underlines the need to take political feasibility variables, and the potential for political instability, more into account at the design stage. This can indeed help improve future operations and their policy programs design. This is especially important in the Argentina country context, the DPFs were designed on the back of extensive analytical work underlining that the stop-go growth pattern of the Argentinian economy has often been fueled by highly volatile pre-election cycles. The design of the Series could have incorporated this key political economy variable more strongly in the series’ design and subsequent implementation. This political economy lesson is valid for the implementation stage as well. In future operations, establishing open channels of communication with all major political actors and gauging their attitude towards reforms would allow for enhanced mitigation against the risk of short- to medium-term policy reversals as a result of political variables unrelated to the Bank. 13. Project Performance Assessment Report (PPAR) Recommended? No Page 17 of 17