RE5TRICTED FILE COPY Report No. P-781 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF CHILE FOR A THIRD EDUCATION PROJECT February 27, 1970 INTERNATICNAL BANK FOR RECONSTRUCTION AND DEVELOI'MENT REPORT AND RECOMIENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO CHILE FOR A THIRD EDUCATION PROJECT 1. I submit the following report and reoommnendabion on a proposed Loan in amount in various currencies equivalent to $7 million to the Republic of Chile for a project to expand and im- prove secondary agricultural schools and primary teacher training facilities. PART 1. - HISTORICAL 2. The proposed loan would be the third Bank loan for educa- tion in Chile. In 1965, the Bank made a loan of $2.75 million to Corporacion de Fomento de la Producci6n (CORFO), to finance the activities of its vocational training affiliate, Instituto Nacional de Capacitaci6n Profesional (INACAP). I am now submitting for your consideration a Bank loan of $1.5 million to further improve and expand INACAP's vocational training facilities concurrently with this project. 3. In 1967 and 1968 UNESCO Missions identified the priority needs of Chile's educational system and helped the Government prepare a specific project to expand and improve secondary schools and teacher training facilities. The project was appraised by a Bank mission in October-November 1968, and negotiations with the Chilean authorities took place in Washington in June 1969. Subsequently, the Government decided to omit seven comprehensive pilot secondary schools from the project, pending a further review of their suitability under Chilean conditions. A Bank mission reappraised the modified project in iNo- vember 1969 and recommended financing it. Negotiations for the re- vised project were resumed in W;ashington on February 4, 1970, and sub- stantially completed on February 9, 1970. The Chilean delegation was headed by Mr. Ernesto Schieffelbein, Director of the Planning Office, Ministry of Education, and included Mr. Oscar Aguero, Coordinator for International Cooperation of the Ministry of Education and Mr. Luis Velasco, Director of CORFO's office in New York. 4. The following is a summary statement of Bank loans and IDA credits to Chile as of January 31, 1970: -2- Loan or Almount (USs nil1ionY Credit Undis- Number Year Borrower Purpose Bank IDA bursed (Loans fully disbursed) 116.4 19.0 366-CH 1963 CORF0 Livestock 19.0 - 3.0 367-CH 1963 OX)RFO Meat and Milk Plants 3.7 - 0.5 431-CH 1965 CORFO Vocational Training 2.7 - 0.2 479-CH 1966 ENDESA/CORFO Power 60.0 - 43.6 558-CH 1968 Republic of Highway Maintenance 11.6 - 10.7 Chile Total (less cancellations) 213.4 of which has been repaid to Bank and others 60.2 Total now outstanding 153.2 Amount Sold 7.2 Of which has been repaid 5.8 1.14 Total now held by Bank and IDA 151.8 19.0 Total undisbursed _8.0 - 58.0 5. The problems encountered in implementing some of these loans have been discussed in my concurrent report on the Second Vocational Training Project. - 3 - PART II. - DESCRIPTION OF THE PROJECT 6. Borrower: The Republic of 5thile. Amount: In various currencies equivalent to $7 0 million. Purpose: To assist in financing a project for the improvement and expan- sion of secondary agricultural education and teacher-training for primary schools. Amortization: In 25 years, including a 10-year period of grace through semi- annual installments beginning March 15, 1980, and ending March 15, 1995, Interest Rate: 7 percent per annum. Connitment Charge: 3/4 of 1 percent per annum. PART III. - THE PROJECT 7. A detailed descrlption of the project is given in the attached Appraisal Report entitled "Appraisal of a Third Education Project in Chile" (PE-6a). B. For the past several years the Government has been carrying out a broadly based educational reforme almed principally at modernizing methods and institutions so as to improve the quality and raise the efficiency of the educational system. Followirig major efforts in recent years to widen educational opportunities, particularly in the country-side, school enrollment is now relatively high in Chile at both primary and secondary levels and there is no serious quantitative shortage of middle level manpower, except in agriculture, fishery and certain industries. However, there is much evidence that the average school leaver is poorly prepared and that the education system needs to be irmproved in quality and reoriented so as to be more responsive to the needs of the labor market. The extent of the Government's efforts in the education sector to date is reflected in the fact that public sector expenditures on education nearly doubled in real terms during 1964-68; total expenditure on education, private as well as public is estimated to have increased from 4.6 percent to more than 5.5 percent of the GDP during the same period. 9. The reform program, based on the National Education Reform Act of 1966 is focused on two critical areas: -h - a) Raising the quality of primary ec6ucation, particularly through improvements in teacher training, and b) expanding and improving technical secondary education. The project for which Bank assistance has been requested is central to the Government's efforts to meet both these priority needs. In addition it will contribute towards providing scarce middle-level agricultural manpower. The proposed project covers: a) the eonstruction and equipping of one new primary teacher-training college and four new agricultural secondary schools and b) the expansion and modernization of 10 existing primary teacher-training colleges and seven agricultural second- ary schools. It also includes technical assistance and overseas training. 10. In a major effort to improve the quality of primary educa- tion, the training of primary school teachers has been upgraded from the secondary to the post secondary level. However, existing facil- ities are inadequate, The project will try to remedy this situation, through the construction of new and the extension of existing buildings and by providing modern equipment. The curriculum will be modernized with greater emphasis on the general education of the students and the acquisition of practical teaching skills throughout the three- year training period. Certain Chilean universities also operate size- able teacher-training programs and the Government has recognized the importance of maintaining a balance between enrollment in the univer- sity courses and in the teacher-training colleges so that the total output of new teachers does not exceed national needs. 11. In the field of agricultural secondary education, the project will contribute to the Government's efforts to provide more and better trained middle-level manpower. The construction or expan- sion of 11 major rural secondary schools will make it possible to phase out a large number of smaller, poorly located schools. The related technical assistance and overseas training will facilitate the introduction of a modern curriculum. 12. The overall coordination and supervision of the construc- tion and equipment of the facilities to be provided under the project will be the responsibility of a special unit to be established by the Ministry of Education. This unit will be headed by a full-time Project Director who will be assisted by a Project Architect. Cone.- struction design, contracting and supervision services will be provided by the Sociedad Constructora de Establecimientos Educa- cionales, S.A. (SCEE), a corpor-ation which carries out all school construction for the Ministry of Education. SCEE has an experienced professional staff and its design standards and construction practices are high, Contracts for construction, furniture and equipment wi-ll be let on the basis of international competitive bidding in accordance with the Bank's procedures; local suppliers of furniture and equip- ment will be accorded a 15 percent preference. 13. The total estimated cost of the project is $14,O million, including contingencies, of which some 76 percent will be for con- struction, 19 percent for furniture and equipment and 5 percent for technical assistance and fellowships. The proposed $7 million loan will cover 50 percent of the estimated total cost of the project. This includes the cost of imported instructional equipment and books, imported building materials, the estimated foreign exchange component of construction and domestically produced furniture, and the foreign exchange cost of technical assistance and overseas training totalling 26 percent of total project costs. In addition the loan will finance local expenditures on the project amounting to 24 percent of project costs. In view of the key importance of the project in Chile's efforts at educational improvement, I consider it appropriate and justified for the Bank to finance up to half of the total costs, with the conse- quent financing of part of the required local expenditures. PARLT IV. - LEGAL INSTRUMEENTS AND AUTHORITY 14. The draft Loan Agreement betwieen the Republic of Chile and the Bank, the report of the committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and the draft Resolution approving the proposed loan are being distributed to the Executive Directors separately. 15. The draft loan documents conform substantially to the docu- ments used for education projects in general. The planning and su- pervision of school construction for the Mlnistry of Education is carried out in Chile by the Sociedad Constructora de Establecimientos Educacionales, S.A. (SCEE), a government owned corporation. Section 5.02 of the draft Loan Agreement provides the terms and conditions upon which SCEE will carry out its part of the project. PART V. - THE ECONOMY 16. An Economic Memcrandum based on the preliminary findings of the recent Economic Yassion to Chile and other 000nomic data-, are attached to my concurrent report on the Second Vocational Training Project. - 6 - PAZR VI. - COI4PLIAINCE TITH AY??ICLHS OF AGREEMENT 17. I am satisfied that the proposed lcoan would comply with the Articles of Agreement of the Bank. PART VII. - RECCEITNDA''TON 18. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments lWashington, D.C. February 27, 1970