Document of

The World Bank

Report No: 23297-BR

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED LOAN

IN THE AMOUNT OF EUR182,800,000 MILLION(US$160.0 MILLION EQUIVALENT)

TO THE

FEDERATIVE REPUBLIC OF BRAZIL

FOR

FUNDESCOLA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)

IN SUPPORT OF THE FIRST PHASE OF THEFUNDESCOLA PROGRAM

May 17, 2002

Human and Social Development GroupLatin America and Caribbean Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective May 2002)

Currency Unit = BRAZILIAN REAL (R$)R$1.00 = US$0.41

US$1.00 = R$2.46

FISCAL YEARJANUARY I -- DECEMBER 31

ABBREVIATIONS AND ACRONYMS

COEP State-based Project Executive Coordination (Coordenacao Estadual Executiva doProjeto)

CONSED National Council of State Education Secretaries (Conselho Nacional de SecretrriosEstaduais de Educa,do)

DGP Central Project Coordinatilon Unit (Dire'do Geral do Projeto)FNDE National Education Development Fund (Fundo Nacional de Desenvolvimento da

Educacdo)Fundescola School Improvement Program (Programa Fundo de Fortalecimento da Escola)FUNDEF Fund for the Development and Maintenance of Basic Education and Teacher Valorization

(Fundo de Desenzvolvimento e Manutencio do Ensino Fundamental e Valoriza,do doMagisterio)

GDE School Development Group (Grupo de Desenvolvimento Escolar), local governmentsupport to PDEs

GT Technical Group (Grupo Tecnico)IBGE Brazilian Census Bureau (anstituto Brasileiro de Geografla e Estatistica)ICB International Competitive BiddingICR Implementation Completion ReportINEP National Institute for Educanonal Research and Studies, a MEC-based agency (Insttuto

Nacional de Estudos e Pesquisas Educacionais).LDB National Education Law (Lez de Diretrizes e Bases de Educa,co Nacional)MEC Brazil's Ministry of EducationMOS Minimum Operational StandardsMOIP Project Operations and Implementation Manual (Manual de Opera,coes e Implementacdo

do Projeto)NCB National Competitive BiddingNEBE Northeast Basic Education Project (II and IIn) ( Projeto Nordeste)PDE School Development Plan (Piano de Desenvolvimento da Escola)PGS Secretariat Management Plan (Piano de Gestao da Secretaria) of the education secretariatPME School Improvement Project (Projeto de Melhoria da Escola) initiated under PDEPNLD National Textbook Program (Programa Nacional do Livro Didatico) of the Ministry of

EducationPPO Research and Operationalization Program of Education Policies (Programa de Pesquisa e

Operacionliza ,co)PTA Annual Work Plan (Plano de Trabalho Anuat) of the projectSAEB National System for Basic Education Evaluation (Sistema Nacional de Avaliaqdo da

Educacdo Bdsica)

SEE State Education Secretariat (Secretaria Estadual de Educagdo)SEED Secretariat of Distance Education (Secretaria de Educagdo a Distdncia), Ministry of

EducationSIED Integrated Education Information System (Sistema Integrado de Infoma,ces

Educacionais), Ministry of EducationSPA Planning and Monitoring System (Sistema de Planejamento e Acompanamento) of

FundescolaSEF Secretariat of Fundamental Education (Secretaria de Educaqdo Fundamental), Ministry

of EducationSME Municipal Education Secretariat (Secretaria Municipal de Educa,co)UE School Council (Unidade Executora)UNDIME National Association of Municipal Education Managers (Unido Nacional dos Dirigentes

Municipais de Educagio)ZAP Priority Attention Zone (Zona de Atendimento Prioritnrio)

Vice President: David De FerrantiCountry Manager/Director: Vinod Thomas

Sector Manager/Director Ana-Maria ArriagadaTask Team Leader/Task Manager Robin Hom

BRAZILFUNDESCOLA lILA (THIRD SCHOOL IMPROVEMENT PROJECT)

CONTENTS

A. Program Purpose and Project Development Objective Page

1. Program purpose and prognrm phasing 32. Project development objective 43. Key performance indicators 4

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 62. Main sector issues and Government strategy 63. Sector issues to be addressed by the project and strategic choices 134. Program description and performance triggers for subsequent loans 14

C. Program and Project Description Summary

1. Project components 162. Key policy and institutional reforms supported by the project 213. Benefits and target population 214. Institutional and implementation arrangements 21

D. Project Rationale

1. Project alternatives considexed and reasons for rejection 232. Major related projects financed by the Bank and other development agencies 263. Lessons learned and reflected in the project design 274. Indications of borrower commitment and ownership 285. Value added of Bank support in this project 29

E. Summary Project Analysis

1. Economic 302. Financial 313. Technical 314. Institutional 325. Environmental 346. Social 347. Safeguard Policies 37

F. Sustainability and Risks

1. Sustainability 372. Critical risks 383. Possible controversial aspects 39

G. Main Loan Conditions

1. Effectiveness Condition 392. Other 39

H. Readiness for Implementation 39

I. Compliance with Bank Policies 40

Annexes

Annex 1: Project Design Summary 41Annex 2: Detailed Project Description 49Annex 3: Estimated Project Costs 56Annex 4: Cost-Effectiveness Analysis Summary 57Annex 5: Financial Summary 69Annex 6: Procurement and Disbursement Arrangements 71Annex 7: Project Processing Schedule 85Annex 8: Documents in the Project File 86Annex 9: Statement of Loans and Credits 88Annex 10: Country at a Glance 92Annex 11: Research on Fundescola Interventions 94Annex 12: Technical Issues Related to Education Reform in the Fundescola Region 98

MAP(S)IBRD 20444R

BRAZILFUNDESCOLA IIlA (THIRD SCHOOL IMPROVEMENT PROJECT)

Project Appraisal DocumentLatin America and Caribbean Region

LCSHE

Date: May 17,2002 Team Leader: Robin S. HomCountry Director: Vinod Thomas Sector Manager/Director: Ana-Maria ArriagadaProject ID: P057653 Sector(s): EP - Primary EducationLending Instrument: Adaptable Program Loan (APL) Theme(s): Education

Poverty Targeted Intervention: N

[Program Financing Data

EstimatedAPI, ,., ", iy Indicative Financing Plan Implementation Period Borrower

' F ,, __ _,_-_t; 4 ., _ _ ___ ,-; - - 0 '(Bank 'FY

IBRD Others Total Commitment ClosingUS$ m % US$ in USS m Date Date

APL 1 160.00 50.0 160.00 320.00 08/01/2002 12/30/2006 Federative Republic of BrazilLoan/Credit

APL 2 226.50 50.0 226.50 453.00 07/01/2006 12/31/2010 Federative Republic of BrazilLoan/C redit I_ _ _ _ _ _ _ _ _ _ _ _ _

Total 386.50 386.5( 773.00[X1 Loan [ ] Credit ] Graint [ Guarantee [ ] Other:

For Loans/Credits/Others:Loan Currency: Euro

Amount (US$m): EUR 182,800,000

Borrower Rationale for Choice of Loan Terms Available on File: l Yes

Proposed Terms (IBRD): Fixed-Spread Loan (FSL)

Grace period (years): 5 ' Years to maturity: 12Commitment fee: 0.85% Front end fee (FEF) on Bank loan: 1.00%

Initial choice of Interest-rate basis: Mlaintain as Variable

Type of repayment schedule:[X] Fixed at Commitment, with the following repayment method (choose one): level[ ] Linked to Disbursement

Conversion options: [X]Currency pC]Interest Rate [X]Caps/Collars:

Financing Plan (US$m): Source Local Foreign Total

BORROWER 160.00 0.00 160.00IBRD 160.00 0.00 160.00Total: 320.00 0.00 320.00

Borrower: FEDERATIVE REPUBLIC OF BRAZIL

Responsible agency: MINISTRY OF EDUCATION

Address: Avenida N-I Leste, Pavilhao (las Metas, Brasilia, DF Brazil CEP 70150-900

Contact Person: Antonio Carlos Xavier Project Website: www.fundescola.org.brTel: +55(61)316-2908 Fax: +55(61)316-2910 Email: xavier@fundescola.org.br

Estimated Disbursements ( Bank FY/US$m):FY 2002, 2003 2004 2005 2006

Annual | 8.69 28.31 38.59 40.43 43.98Cumulative 8.69 37.00 75.59 116.02 160.00

Project implementation period: 4.5 yearsExpected effectiveness date: 07/01/2002 Expected closing date: 12/31/2006AM PAD r., d

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A. Program Purpose and IProject Development Objective1. Program purpose and program phasing:

Overview.' The Fundescola III Project is the third step in Brazil's ten-year Fundescola SchoolImprovement Program. The Program's overall concept and purpose were presented by the Government tothe World Bank in October 1997. It is to help the Ministry of Education improve Brazil's educationperformance by assisting the states and municipalities in the poorest regions of the country, the Northeast,North, and Center-West reduce the educational inequalities in their systems, and increase the effectivenessof their schools so that all children in these regions can successfully complete the eighth grade, the finalyear of the compulsory "fundamer,tal" cycle.

Program Phasing. The Government's overall strategy consists of three steps. The first step wasdesigned to develop an initial set of tools needed to improve school equity and effectiveness, increasingpublic awareness of the need to iimprove school quality, and trying out these tools on a relatively smallscale. The second step focused on improving and expanding the set of tools developed in the first phase,trying them out in additional schools, and more aggressively engaging the education establishment and thepublic sector beyond the schools in the process of school-based development. The third step aims atcompleting the work involved in the development of the tools and processes for increasing schooleffectiveness and educational equity, and at designing and trying out strategies of going to scale with thesetools. The Fundescola projects have been designed to match this strategy.

Fundescola I, signed in June 1998, started the program. It developed and piloted the first set ofschool-based tools, including especially the "school development plan" for improving theeffectiveness of school strategic management, and Escola Ativa for improving the quality ofinstruction and learning in rural, multi-grade schools. This project inaugurated the school"minimum operational slandards" model for improving school system equity, it disseminatedinformation on these iniliatives to state and municipal schools and secretariats throughout theNorth and Center-West regions. In addition, it launched the "priority attention zone" approach, inwhich neighboring municipalities, grouped in microregions. collaborate with one another, with theirstate governments, and with the Ministry of Education on improving schooling in theirjurisdictions.

Fundescola U, signed in December 1999, has greatly improved the school-based tools developedearlier, and added new tools. The first secretariat-based tool was developed and tested underFundescola II. A comprehensive school imRrovement stratey was also introduced with thisProject. This Project brcadened the testing of these school improvement tools, including the newones, and added an additional region into the project (the Northeast). At the same time, FundescolaII continued to support Fundescola I schools in order to promote the sustainability of the earlierinterventions. Awareness of the need to improve school effectiveness and the availability of thenew tools was promoted by means of seminars, workshops, research studies, and especiallythrough the demonstration effect associated with the testing of the school improvement strategy inthousands of schools.

Fundescola m brings in the third step of the strategy by helping local governments integrateFundescola's school improvement reforms into their structures and routines. First, this project willprovide some additional assistance to schools that had begun to introduce Fundescola's schoolingimprovement reforms consolidate these reforms under the responsibility and support of theirSecretariats of Education. Second, Fundescola m will help hundreds of local governments expandthese reforms into thousands of additional schools. Third, Fundescola III will develop and use a

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new set of teaching/learning models, in addition to Escola Ativa and Gestar, for diverse types ofschools and population groups. Finally, Fundescola HI will build the capacity of localgovernments to support continuous improvement in schooling quality, and through incentives andpartnerships, promote the financial, administrative, and managerial permanence of these reforms.In this way, the project will help assure the sustainability of Fundescola-based school improvementby local governments.

Fundescola hIIA and Fundescola HuB: Fundescola Il will be implemented in two phases:Fundescola IA (May 2002 to December 2006) and Fundescola IB (July 2006 to December2010). During the first phase, Fundescola LIA, the Government will finalize the development ofall planned school-based and secretariat-based tools, develop complementary products andmaterials to facilitate the application of these tools, and conduct in-depth evaluations of each tooland its complementary products and materials. It will also initiate a program to help develop thecapacity of municipal and state secretariats and design strategies for going to scale with the toolsand the complementary products, using these secretariats. During the second phase, FundescolaIIB (estimated to have a total project cost of approximately US$450 million), the Government willimplement strategies of going to scale.

Program Mission. The mission of the Fundescola m Project is to improve the educationaloutcomes of children living in the Northeast, North, and Center West regions of Brazil by improving theperformance of their public primary schools and the Secretariats of Education responsible for them.

2. Project development objective: (see Annex 1)

The development objective of Fundescola IILA (the first phase of Fundescola III) is to assisttargeted education secretariats reduce disparities across their primary schools and to increase theeffectiveness of these schools, within each local governments' financial capacity.

3. Key performance indicators: (see Annex 1)

The key performance indicators for Fundescola IIIA, with targets to be achieved by December 30,2006, focus on the improvement of educational equity and school effectiveness, and on the capacity ofparticipating education secretariats to bring about and maintain these improvements in their system.

Indicators for Fundescola HIA (the first phase of the Fundescola IH Project)

Equity:

* The guidelines for minimum operational standards for schools will be disseminatedto at least 50% of the secretariats of education in the participating microregion forthem to promote to their school staff and school communities. (The ProjectOperational Manual specifies Fundescola's guidelines for minimum operationalstandards and definitions of what it means for a secretariat to disseminate andpromote these standards.)

* At least 70% of primary school students will be enrolled in targeted schools in theparticipating microregions meeting these standards.

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Effectiveness:

* Each of the Fundescola-designed schooling improvement products, along with itscomplementary program for improving the secretariat effectiveness inimplementing that product, will be fully developed and tested. In addition,evaluations of secretariats' implementation of these products and complements,and of the irnpact of these products on schools and student outcomes will becompleted. (The Project Operational Manual includes a list of the schoolingimprovement products to be supported under Fundescola IIIA, along with a list ofthe complementary secretariat-based products, and the evaluation criteria.)

* At least 700/o of primary students will be enrolled in targeted schools in theparticipating xnicroregions that are implementing one or more of these schoolingimprovement products, with the support of their secretariats.

Output Indicators for Fundlescola IHB (Phase B of the Fundescola III Proiect)

Equity:

* The guidelines for minimum operational standards for schools will be disseminatedto 80% of secretariats of education in the participating microregions for them topromote to their school staff and school communities.

* At least 90% of primary school students will be enrolled in targeted schools inthese microre,gions meeting these standards .

Effectiveness:

* Each of the Fundescola-designed schooling improvement products, along with itscomplementary program for the secretariat, will be updated and completed.

* One or more strategies for "going to scale" with these products will be developedand tested."

* At least 80% percent of the primary students will be enrolled in targeted schoolsimplementing at least one of Fundescola's schooling improvement strategies, withthe support of their secretariats.

Student Outcomes:

* In the participating microregions, promotion rates will increase from their currentlevels (on average, in 1997, 64.2% in the North, 64.7% in the Northeast, and71.5% in the Center West) to 85%.

* In the participating microregions, achievement rates will increase from their

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current levels. In mathematics, the proportion of 4th grade students achieving atthe elementary level of proficiency will increase from 55%, 52%, and 60% in theNorth, Northeast and Center West regions, respectively, to 62%, 59%, and 68%.In Portuguese, the proportion of 4th grade students achieving at the elementarylevel of proficiency will increase from 59%, 58%, and 62% in the North, Northeastand Center West regions, respectively, to 67%, 66%, and 69%.

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: 20160 Date of latest CAS discussion: May 1, 2001

World Bank Country Assistance Strategy (CAS). The overall goal for Brazil in the CAS is topromote sustainable long-term growth, alleviate poverty, and reduce income inequality. According to theCAS, low educational outcomes and attainment among the poor remain the single most important obstacleto reducing poverty and inequality in Brazil. In line with this assessment, the CAS's education sector goalis to provide the opportunity for all children to complete the eight-year fundamental schooling cycle by2007, and to improve educational attainment and academic performance in basic subjects, particularlyPortuguese and mathematics. Fundescola III will contribute to the attainment of these goals by promotinggreater participation of parents and the broader public in the governance of schools and school systems,reducing the levels of inequality across schools, improving school and system management, and byincreasing school effectiveness and student performance, and by monitoring progress toward obtainingthese goals through project performance indicators. By targeting the three poorest regions of Brazil, and inparticular the Northeast, Fundescola m also adheres to the CAS's geographic focus.

2. Main sector issues and Government strategy:

(a) Education system performance

During the last decade, primary education moved up to a position of priority importance in publicpolicy at the national, state, and municipal levels, and simultaneously gained much more prominence in themedia and more broadly in civil society. For example, since 1995, the federal government raised theexpansion of student enrollment and the quality of learning primary school aged children to a top positionof its policy agenda (MEC, 2001). The federal government's policy for improving primary education isbased on the principles of improving the equity of opportunities for all children and the effectiveness of theschools to guarantee adequate quality teaching and learning. The government seeks to achieve theseimprovements through strategies that help state and municipal governments align their education policiesand programs with these principles, and that increase the engagement of the public in order to promotegreater social control and public accountability. Despite today's relatively low educational attainment levelof 6.7 years for individuals aged 10 or more, (IBGE, 2001), Brazil has made extraordinary progress in thelast half-decade. Improvements include the following:

* the percentage of children aged 7 to 14 enrolled in school increased from 89% in 1994 to 96%in 1999 (MEC, 2001);

* primary school enrollment increased by nearly 27% in the Northeast Region, compared to 13%for Brazil as a whole (MEC, 2001);

* average per student spending (in 2002) cannot drop below R$418 for 1st through 4th grades,

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and R$429 for 5th through 8th grades and special education, compared with expenditure levelsas low as R$25 per student in hundreds of municipalities prior to the introduction of the 1996FUNDEF law;

Despite the substantial progress on initial enrollment rates, poor system performance based ondecades of inequality in financing and low priority given to education, continues to impede Brazil's abilityto achieve higher levels of educational attainment.

Promotion through the primary cycle. High levels of failure of children in primary school eachyear continue to plague Brazil, particularly in the regions served by the Fundescola Program. Even thoughprimary school promotion rates doubled nationally between 1995 and 2000, the percentage of children in2000 asked by their teachers to repeat a year of schooling remains high in the North (over 42 percent),Northeast (approximately 45 percent) and Center-West (over 35 percent) regions remain extremelyhigh-especially in comparison with the South (approximately 25 percent).

Student learning achievement. According to the Brazil's National System for Basic EducationEvaluation (SAEB), student achievement in schools located in the North, Northeast and Center-West statesfalls below the national average and substantially below that of schools of the wealthier states in the Southand Southeast. MEC's SAEB assessment system classifies learning achievement with respect to acontinuous scale of proficiency. The 1999 SAEB assessment results show that less than 60 percent offourth-grade pupils in the Project's three regions surpass the lowest performance level on the scale. Thismeans that in mathematics, children with learning achievement below this performance level are unable todemonstrate understanding of place value, multiply and divide numbers, add fractions with the samedenominator, or solve problems that require more than one step. In terms of literacy, this children withperformance below this level are, for example, unable to recognize that authors use language to expressdifferent emotions, or that conlext can be used to analyze meanings of words in a text passage. In thesciences, these children have no comprehension of basic natural science concepts such as gravity and thetransport of oxygen by the blood; they are also unfamiliar with the use of scientific language to describephenomena.

Completion of the primary cycle. The consequence of low rates of promotion and learningachievement is a low survival rate during, and low completion rate of the primary cycle. In Brazil,although a continual but gradual! increase in investments in educational quality since 1980, especially in thelast decade, has resulted in nearly a tripling of eighth-grade completion rates by 2000, from 12 to 38percent, completion rates of chi:ldren attending school in the states participating in the Fundescola Programremain well behind Brazil's overall average, and especially in states from the south. Figure 1 shows thatthe proportion of 15 to 19 year old children in 1996 who made it through the 8th grade in the Fundescolaregions, which ranges from 20% (in the Northeast) to 30% (in the Center West), is well below thepercentage of 8th grade completers in the South. Differences in survival rates to fourth grade between theFundescola region and the South region are even greater. The worst is for the Northeast region, where thepercent of 15 to 19 year old children attaining 4th grade is only about 20%, whereas for South it is nearly50%. These graphs make it clear that the key education issue in Brazil is not the problem of gettingchildren to enroll in school. Rather, it is the problem of encouraging children to stay in school, progressthrough the system, and attain a complete primary-level education with adequate levels of learningachievement. Fundescola M's challenge is obvious: getting schools to (i) provide opportunities andsupport for children to lear, (ii) help them each year succeed in learning enough to be promoted to thesubsequent grade level, and (iii) encourage them to complete the full primary cycle.

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Figure 1

Centr Oeste, Brazil 1996 Nordeste, Brazil 1996

Atlairtents1 me,antes 1.19 Atainiwnt crorQe,aues 15-19

0.0 1.0

1 3 5 7 9 ~~~1 3 5 79Gladrw O~~~~~~rade

Norte, Brazil 1996 .- 51, BrazU -1"6

Adtaintnin psoble, nge 16&.19 AMaint radpbf,aSesS 1191.0 1.0

0.8 0.8

0o.e 0.6

0.4

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1 3 -5 7 9 1 3 S 7 9Grade Grade

The impac of poverty on student performancB In 1996, at least 23 percent of all Brazilianswere poor, where the poor are defined as individuals living in households with per capita monthly incomesbelow R$65.07. The Northeast, North and, to a lesser extent Center-West are the poorest of Brazil's fivegeographic regions, with poverty headcount ratios of 30, 48 and 16 percent, respectively. Using a higherpoverty line of R$131.97 (which allows for the non-food expenditures made by people whose incomes justallow them to purchase the minimum food basket) results in a poverty headcount index of 45 percent forBrazil as a whole, and regional poverty rates calculated at 60, 75 and 45 percent, respectively, for theNorth, Northeast and Center-West. Poverty affects children's chances of successfully completing aneight-grade education. Studies have shown that parents' demand for schooling for their children depends inpart on their own level of education. Since low education level of the household head is strongly correlatedwith poverty, and most poor households are headed by someone with less than four years of schooling, itfollows that poor children are at a disadvantage: they are less likely to live in a family that can effectivelysupport their children's learning. Moreover, parents' lack of experience with the school system hinders theirability to participate in their children's education and to advocate on behalf of their children with teachersand other school authorities. Finally, poor children generally have access to poorer quality schools thanothers, whether quality is measured by the adequacy of the facility itself, availability of textbooks and otherlearning materials, or teacher qualifications. Poor school quality is linked with both repetition rates and

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nonattendance, particularly low aitendance among older children. One of the consequences of low qualityschooling is that about one in four poor 7-to- 14 year olds (and 40 percent of poor 15-to- 17 year olds) whoare out of school report that "lack of interest" is their main reason for not attending school.

(b) Constraints to improving education system performance.

Substantial national and international, sector analyses, and knowledge built up over a decade ofproject implementation of seven World Bank financed education projects conclude that there are four mainconstraints to improving Brazil's schools and consequent student performance. Annex 13, a technicalannex entitled Constraints Facing Brazilian Education Reformers, provides a more comprehensiveexplanation of these issues.

(i) Many Schools Are Not Using Effective Teaching and Learning Models. One of the moststriking characteristics of so many Brazilian schools is the limited use of proven, effective teachingand learning strategies. Although MEC and state governments have successfully promulgatedsignificant improvements educational standards, changes in classroom practice remain the next, bigfrontier. For decades, and in particular in recent years, Brazilian educators and policy makershave recognized the prol51em of poorly functioning schools and have achieved some success inimproving individual schools. Unfortunately, attempts to raise school quality and student outcomesin large scale have been Frustrated. Brazil's principal constraint to improving student outcomes isthe education community's inability to translate the objective of educating all children into programof coherent, integrated, instrument-based, school-run reforms for thousands and thousands ofschools, in poor as well as less poor communities, throughout the country.

(ii) Local Governments Have Inadequate Policies to Address Educational Inequality. Millionsof children attending public schools located throughout the regions served by the FundescolaProgram lack basic educational opportunities that are available to children attending schools inother parts of Brazil, or even in better endowed schools within the same jurisdictions. Federal lawrequires children aged 7 to 14 to attend school. Yet many school children in the Northeast, North,and Center West regions go to a school that is not possessed of qualified teachers, appropriatereading books, didactic materials, adequate classrooms with appropriate furniture and usablechalkboards, fully functional roofs, windows, walls, toilets, or water fountains. It is not just thefact that schools in these appalling conditions exist, but that they exist in the same jurisdictionswhere good schools may also be found. Research and survey work carried out under Fundescola Iand II demonstrate that in most of the municipalities working with Fundescola, and certainly inevery State participating in the Fundescola Program, good, even excellent public schools can bereadily identified in the (lata. These schools may not be "first world" schools in every sense, butthey are schools to which' middle-class parents from any country in the world would be happy tosend their children. To put it bluntly, local governments have persistently invested in the quality ofsome schools while allowing other schools in their jurisdictions to deteriorate. Because childrentend to frequent schools that reflect residential patterns of economic differentiation, the schools atwhich these manifestly substandard conditions exist in any jurisdiction tend to be attended bychildren from families living at or below the poverty line. Research points out that poor childrendo not become "used to" substandard learning conditions. Instead, repeated deprivation of basiclearning tools compounds the deleterious effect of learning deficits, a situation from which childrenmay never successfully recover. Consequently, students in schools lacking in the basic educationalnecessities in lower primary will begin their upper primary under-prepared and under-motivated,

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and this cycle will continue into the students' secondary school years if they make it that far.Schools below acceptable learning standards thereby contribute to grade repetition and to studentdisaffection, ultimately inhibiting the chances of the poor to escape from poverty.

Local governments (both State and Municipal) have not managed to establish minimal standardsfor teachers and staffing requirements, materials, and facilities encountered by students in thepublic schools. Even in those few instances in which the education secretariats have formallyestablished standards, responsible officials have not been willing or able to determine whetherconditions in their schools meet those standards. Finally, even when system officials know that aschool's quality falls below minimal standards, they have no strategies or budgets to remedy theinadequacies.

(ii,) Parents and the Broader Public are Insufficiently Engaged in School ImprovementProcesses. Research in Brazil, as well as elsewhere, overwhelmingly concludes that parentinvolvement in schooling and in children's learning is strongly related to their attainment andachievement. The more intensively parents are involved, the more beneficial the impact on studentoutcomes. This holds true for all types of parent involvement in children's learning and for alltypes and ages of students. The research also shows that the earlier in a child's educational processparent involvement begins, the more powerful are the effects. Moreover, considerably higheroutcomes are measured when parent involvement is active. In other words, greater benefits accruenot only when parents work with their children at home, but also when they attend and activelysupport school activities, are involved in school governance and policy, and even when they helpout in classrooms. Despite the many potential benefits associated with parent involvement,beneficiary assessment studies and ethnographic research in Brazil reveal that parents are oftenreluctant to participate in their children's schools. Many parents express the belief that schools areonly interested in them insofar as they can provide materials or services, though teachers say theybelieve that parents in fact do have opportunities to become more involved in their schools.Interviews with poor parents reveal that they may not be participating in their schools due to a lackof time or energy, embarrassment or shyness about their own educational level or verbal abilities,lack of understanding or information about the structure of the school and accepted communicationchannels, perceived lack of welcome by teachers and administrators, and teachers andadministrators' assumptions of parents' disinterest or inability to help with children's schooling. Atthe same time, analysis of interview data show that although many parents appear to valueeducation in the abstract, in reality they have little idea of what happens inside the school andclassroom, and are clear about what ought to be happening there.

(iv) Management Processes and Financing are not Aligned on Efforts to Improve Schooling.At the level of the school, when management processes and resources are not aligned on studentlearning, student results are jeopardized. Most schools participating in the FundescolaProgram are very constrained in terms of financial and human resources. Unfortunately,it is frequently the case that when schools make efforts to improve quality themselves,many spend their scarce resources in fragmentary and ineffective ways. Often with theybelieve are in the best interests of their students, school staff implement multiple programsthat are neither aligned with a plan for school improvement nor evaluated for theireffectiveness. Over time, these piecemeal-type of programs represent a major energydrain for schools, both in terms of resources and focus. To make matters worse, accordingto research in the Northeast of BraziL many schools are excessively concerned with state ormunicipal norms and regulations, or are constrained by their own limited experience.

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Disorganized schools are more likely to have staff who blame parents and even the studentsthemselves for low levels of learning, rather than accept their responsibility for assuring children'seducational success.At the level of local government, education secretariats are correspondingly not organized toprovide efficient educatic,nal services and support to schools. Obviously, student learning takesplace at school, not in the secretariat or at the level of the school system. Nonetheless, the systemhas an obligation to focus all efforts on facilitating the teaching/learning processes at the school.With increasing demands for improving educational outcomes, secretariats of education areinundated with a variety of approaches and "silver bullets" for improving their systems. With somuch pressure and need, districts are more than willing to try out many different options. The endresult is often an abundance of well-intentioned plans that are not focused on a single, unifyingvision. This kind of education improvement overload contributes to a defeatist mentality. Instead,school improvement requires that the secretariats of education be endowed with the organizationalstructure and capacity to take optimal advantage of their resources and align them with theobjective of school improvement and equity.

(c) Government strategy to address sector constraints

The federal government hlas given its highest priority to improving access and quality in primaryeducation. In recent years it has initiated a number of reforms including: (a) amendment of the constitutionto guarantee a minimum spending level on primary education everywhere in the country; (b) the support fora law that sets the standards redefining the roles and responsibilities of each government level; (c)implementing a program to directly transfer funds to the schools, in an effort to increase school autonomyand effectiveness; and (d) development of information and a communication program about educationquality and performance through a national assessment system (SAEB) and a sophisticated annual schoolcensus; (e) a textbook quality and an efficient distribution program; and (f) the development anddissemination of new, national curriculum parameters. These reforms, designed to decentralize the fundingof primary education, diminish regional and local disparities, and increase coordination among the varioussystems, will continue to have a profound impact on school quality and system performance.

Increased resources for education. Considering all public programs and levels of government,public expenditures on education totalled US$43 billion in 1997, corresponding to 5 percent of GDP.Primary education received nearly 45% of public spending on education. In 1997, public expenditures oneducation increased by roughly 12% over the previous years. State government spending on educationrepresented the lion's share of this growth, with an increase of 23%, whereas municipal governmentsincreased spending by 16%. Of total spending, the federal share represented about 20%.

Reducing educational inequity by guaranteeing a minimum per-student spending level. With theobjective of reducing the disparities in education finance between municipal and state school systems acrossthe states, Congress approved Constitutional Amendment No. 14/96 on December 9, 1996. Thisamendment, along with Federal Law No. 9.424/96 of December 24, 1996 to regulate this amendment,established the Fund for the Development and Maintenance of Basic Education and Teacher Valorization (FUNDEF), requiring that three-fifths of the 25 percent of total municipal and state revenues earmarked foreducation be redistributed on a per-student basis in each state. The fund guarantees that every primaryschool student, whether enrolled in a state or municipal school, benefits from a spending floor in his or herschool system of R$300 (raised to R$385 for calendar year 2001). Amendment No. 14/96 also requiresthat the federal government top up, with federal funds, any state's FUNDEF that falls below this spendingfloor. FUNDEF should have a strong impact on school quality, particularly to the degree that (a) states,

municipalities and schools effectively use these resources and (b) the public is able to monitor theapplication of these finances.

Improving quality through assessment and standards. Two other important Governmentstrategies for improving education quality and equity are the enhancement of the education indicator systemand the development of National Curriculum Parameters. The indicator system includes the NationalBasic Education Evaluation System (SAEB), the annual school census system, and comprehensiveprograms to disseminate educational results. The development and publication of the National CurriculumParameters serve as a complement to these efforts by establishing learning standards for every grade level,facilitating the design of the SAEB instruments. The publication and distribution of these standards (over1.5 million packages were distributed to all primary school teachers) marked the first time in history thatBrazilians had come to agreement over the parameters of a national curriculum.

Capacity building. The strategy adopted by the Government of Brazil to achieve its equity andquality objectives relies heavily on state and municipal secretariats of education. The secretariats are thekey instrument through which the Government is hoping to reach all the schools and implement its reformmeasures. The government recognizes, however, the constraints that limit the capacity of thesesecretariats, especially in the poorer regions of the country, and has incorporated into its strategy a set ofmeasures to help address them. In fact, the Fundescola program was developed large parte to develop andlaunch this strategy. Tactics include guided and self-administered assessments of capacity, organizationand methods work, systems development, process re-engineering, and training - all aimed at strengtheningthe secretariats both in delivering routine educational services better and in raising the quality and equity ofthe various education systems.

Encouraging public engagement. The Government's strategies and goals for the education sectorare further developed by National Education Council's "1998 National Plan for Education,"which wasformally adopted by the Ministry. The National Education Council's initiatives for the primary educationsector specify a number of goals that Fundescola m supports, including: increasing the proportion ofstudents completing primary school, raising student performance .AA measured by SAEB; elimination of thecategory of uncertified teacher; definition of minimum quality standards for schools; an increase in thecommunity's participation in education; and the promotion of school autonomy. In short, those issues,which are at the heart of the design of Fundescola, have been taken up as the standard of the federalgovernment, in its efforts as champion of educational improvement.

Promoting school autonomy and parent participation. The Ministry of Education's NationalEducation Development Fund (FNDE) has been implementing the now five-year-old "Money Direct to theSchool Program." This program, which was designed to increase school autonomy and reduce inequalitiesacross municipalities, has expanded rapidly since its inception in 1995, transferring resources on the basisof school size and cormmunity participation. Between 1996 and 1999, the Ministry transferred over R$1billion to school councils under this program. During the same period of time, this program stimulated thecreation of 50,000 additional school councils, which were established to receive and manage these funds.

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3. Sector issues to be addressed by the project and strategic choices:

(a) Key sector issues to be addressed by Fundescola m

Education System Equity. Fundescola IlI will help Secretariats of Education establish anddisseminate an effective framework for reducing the striking disparities in learning conditions between theschools under their authority. Schools, in turn, will be provided with assistance and management models tohelp them assure that all of their students have equal opportunities to learn and advance successfullythrough the school system.

School Effectiveness. Earlier projects in the Fundescola Program have developed and testedvarious teaching/learning models iin recent years. They have found several to be effective and Fundescolahas helped Secretariats of Education introduce them successfully into hundreds of individual schools. Butthey have yet to replicate these successful interventions in tens of thousands of schools. This inability to goto scale has been the' result of weak capacity - in particular, the capacity to get organized for large-scaleoperations and to manage them well in a system that is highly fraginented. This constraint will beaddressed by the Fundescola m project. The project includes what is likely to be the first large-scaleintroduction of teaching/learning raodels comprehensively into entire school systems in the North, Northeastand Center-West, with new instruments and technical support for Secretariats of Education pursuing thesereforms. The logistics of doing this, the organizational arrangements, and the management systems andpractices required, will be worked out and included in the project. In this way, this project will itselfbecome an experiment in going to scale, paving the way to future large-scale operations of this kind.

Fundescola III will develop the capacity in Secretariats of Education to provide guidance andsupport to their schools to: (a) design and implement their own strategic plans and schooling improvementprojects; and (b) select and adopt a tested model of effective teaching and learning. Fundescola's focus onincreasing school effectiveness will in turn help schools raising the learning outcomes for all of theirstudents--their principle clients.

(b) Strategic choices

Fundescola m will seek to imprcve effectiveness and equity through a dual strategy of increasing policyalignment and promoting public engagement. Fundescola III will support Secretariats' efforts and buildtheir capacity to align their management processes and resources on school improvement--to achieve theprinciples of equity and effectiveness. The establishment of effective organizational capacity and alignmentof the Secretariat will in turn help schools do a better job of aligning their own activities and resources onimproving student performance and other educational outcomes. Fundescola III will also promote greaterpublic engagement in schools and the entire education process.

Figure 2 provides a schematic analysis of how Fundescola has been organized to achieve the mission,development objectives, and specific objectives of increasing the equity of learning opportunities across theschools in each Secretariat of Education's school system, and to help these Secretariats of Educationimprove the effectiveness of each of their schools. The three legs of this figure correspond to the threecomponents of the project, detailed in the next section.

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Figure 2Work Breakdown Stnucture of Fundescola

Improve Educatonal Outcmes of ChildrenLiving in the North, Northeast, and Center West

Regions of Brazil by Improving their Schools and theSecretariats of Education Responsible for them

IIncrease the Effecdveness of Schools and

Ralse the Equity Across the Schools by HelpingSecretariats of Education Establish a and Sustain

a System-Wide School Improvement Strategy

Assure that Assure that Assure that Schools andChildren have Access Students are Enrolled in Schools School Systems Align Theirto a School that Meets Using Effective Models for Management Practices and Engage the Public

Minimum Operational Standards Teaching and Leaming on Improving Educational Outcomes

Design, Test and Disseminate Design, Test and Disseminate Design, Test and DisseminatGuidelines for Minimum Teaching and Learning Management and MonitorlngOperational Standards Models for Use Models for the Use of

In Schools by Schools Schools

Develop & Test GuideUnes Develop Products 1 Develop Productsfor Minimum Operational and Services and Services_ Standards in |for Improving School _ for Improving School

Schools ] Teaching/Learning Management/Monitoding

Disseminate Guidelines Disseminate Products Disseminate Productsfor Minimum Operadonad and Services oand Servichoolf Standatoa for Improving Schs for mperving Schol

to Schools TeachingtLearning Management/Monitoring

Provide Schools with Fumiture, 1 Demonstrate How Demonstrate HowEquipment, and Support to | Schools Can Use Schools Can UseDemonstrate the Viability of | Teaching/Leaming Management/Monitoring

Minimum Operational Standards Products & Services Products & Services

Increase Capacity and Increase Capacity and Design, Test, and HelpIncentives for Secretariats Incentives for Secretariats Secretauiats Use

to Raise Schools up to to Help Schools Use Management & MonitoingMinimum Operatonal Standards Teaching/Leaming Models Models throughout the System

Develop Complementary Tools Design & Test 1 Design & Testfor Secretariats to Use to Raise Complementary I Complementary

their Schools up to Minimum Products for l Products forOperatonal Standards Secretarlats l Secretadats

Provide Training & lncentives Provide Training 1 Provide Trainingfor Secretariats to use & Incentives for I & Incentives for

Complementary tools to Secretariats to j Secretariats toRaise Standards of Schools Use Complements Use Complements

4. Program description and performance triggers for subsequent loans:

Fundescola Program Context

The Challenge. Since 1998, the Ministry of Education's Fundescola Program has been workingintensively with 19 states and hundreds of municipalities in an effort to improve education systemperformance and outcomes at the level of primary school. The tools, guidance, and technical assistanceprovided to schools and Secretariats of Education during the implementation of Fundescola I and IIhave proven to be effective. The Fundescola strategy has demonstrably contributed to a significantimprovement in educational outcomes for learners in thousands of schools in the North, Northeast, andCenter West. Nonetheless, there are over 80,000 schools spread across 2000 municipalities in these

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regions. The greatest challenge facing the Ministry of Education, beyond assuring the consolidationand sustainability of what has already been achieved, is to develop and introduce strategies to bringFundescola to scale, that is, to deliver the Fundescola school improvement strategy to even greaternumbers of municipalities, including the poorest ones with the weakest institutional capacity. Clearly,the project's role should be to focus on the development of the products, processes, and strategies thatwill allow for large scale improvements in the schools. But beyond Fundescola itself, it is ultimatelythe responsibility of the Ministry take these strategies to the schools, using state and municipalsecretariats as the implementing agencies.

Bringing Fundescola interventions to schools attended by the poorest children in Brazil, and providinga framework through which Fundescola can both be sustained and go to scale will require that largenumbers of education secretariats commit themselves to the school improvement effort. It will alsodemand significant leadership and enhanced capacity in these secretariats for them to both promoteschool improvement and provide technical assistance and support to schools in their jurisdiction willingto sign on to the improvement program. Moreover, for Fundescola to spread and take root, to besuccessfully implemented, and to be sustained over the long term, the principles--equity and quality,and strategies-public engagement and alignment, of Fundescola's school improvement program willneed to be integrated into the mindsets and daily practices of the staff in the secretariats of education,and into the operating procedures of the institutions themselves.

Performance Triggers for l'hase B of the Fundescola m1 Project (for Fundescola IIIB)

Fundescola EII performance triggers for launching Phase B of the program, estimated to be achieved byJuly 2005, are moderately less ambitious versions of the end-of-project targets specified in SectionA. 1, above (Key Performance Indicators).

Equity:

* The guidelines for minimum operational standards for schools will be disseminated to atleast half of the secretariats of education in the participating microregions, and thesesecretariats will have promoted the standards to their school staff and school communities.(The Project Operatioral Manual specifies Fundescola's guidelines for minimumoperational standards .md defines what it means to adopt these standards.)

* In these microregions, an average of at least 60% of primary school students will beenrolled in targeted schools with classrooms meeting these standards.

Effectiveness:

* Each of the Fundescola-designed schooling improvement products aimed at increasingschool effectiveness, along with its complementary program for improving the secretariateffectiveness in implemnenting that product, will be fully developed and tested. In addition,evaluations of secretariats' implementation of these products and complements will becompleted. (The Project Operational Manual includes a list of the schooling improvementproducts to be suppomted under Fundescola IIIA, along with a list of the complementarysecretariat-based products, and the evaluation criteria.)

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* In the participating microregions, an average of at least 60% of primary students will beenrolled in targeted schools that are implementing one or more of these schoolingimprovement products, with the support of their secretariats.

C. Program and Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

Table 1. Project Components and Subcomponents

Indicative -Bank- ofComponent I Sector- OS s -of il' financing= Bank-

I (US$M) Top' 1,*',,1,, ~t,.al_ (US$M) 'financing

1. RAISING SCHOOLS TO Primary Education 0.0 0.0MINIMUM OPERATIONALSTANDARDS1.1 School-Managed Rehabilitation 50.00 15.6 25.00 15.6Subprojects1.2 Provision of Furniture and 40.00 12.5 8.00 5.0Equipment1.3 Provision of Reading Books 5.60 1.8 1.05 0.7

2. ESTABLISHING A SCHOOL Primary Education 0.0 0.0DEVELOPMENT PROCESS2.1 School Strategic Planning 4.60 1.4 1.38 0.92.2 Schooling Improvement 20.00 6.3 10.00 6.3Subprojects2.3 Implementation of 11.80 3.7 8.97 5.6Teaching-Learning Models

3. STRENGTHENING THE System Reform & 0.0 0.0EDUCATION SECTOR Capacity Building3.1 Institutional Development for 9.00 2.8 9.00 5.6Education Secretariats3.2 School Council Strengthening 160.00 50.0 80.00 50.0Subprojects3.3 Project Management, Monitoring, 17.40 5.4 15.00 9.4and Research

0.0 0.0Total Project Costs 318.40 99.5 158.40 99.0

Front-end fee 1.60 0.5 1.60 1.0Total Financing Required 320.00 100.0 160.00 100.0

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Description of Project Components and Subcomponents

COMPONENT 1: AISING SCHOOLS TO MINIMUM OPERATIONA,STANDARDS

This component consists of activities aimed at helping all secretariats in the participatingmicroregions establish a policy to improve the equity across the schools and initiate aninvestment program to raise the conditions of learning in all of their schools up to an agreed setof standards. Specifically, the Fundescola IILA Project will encourage secretariats to adopt theFundescola Program's "Minimum Operational Standards" model as their yardstick forevaluating and improving the equity of their school systems. The Minimum OperationalStandard model was developed by the Fundescola Program as a benchmark for all secretariatsand schools. It consists of a predetermined set of essential inputs, school resources, andconditions that are considered to be minimally necessary for a school to be capable ofproviding learning opportunities to its students. The model covers basic pedagogical inputssuch as books and student materials, school equipment such as desks, chairs, and shelves,physical characteristics such as basic infrastructure, safety factors, and sanitary conditions;and human resources. Fundescola lILA's Operational Manual details the guidelines andchecklists for Mininmum Operational Standards. The Fundescola Program has alreadydeveloped and has been using a School Facilities Survey for use by the secretariats in assessingthe school conditions with respect to these guidelines. During Fundescola ILA, the Projectwill work with secretiriats to: (i) agree, as a matter of policy, on a set of minimum operationalstandards of their own, according to each one's reality and financial capacity, but based on theFundescola Program'n; guidelines; (ii) inform the schools and the school's own community ofthese standards; (iii) measure each of their schools against these standards, (iv) preparemulti-year investment and technical assistance programs , with priority given to schools thatfall farthest from the standard and; based on their financial capacity; (v) implement theirinvestment program to raise the quality all schools to the agreed Minimum OperationalStandards. In this vay, each secretariat will increase the equity across the schools in itssystem, providing the necessary, although not sufficient, conditions for schooling improvement.Components 2 and 3 address the other factors considered necessary by the FundescolaProgram strategy to improve schooling and ultimately educational outcomes.

Subcomponents of Component 1

(1) School-Managed Rehabilitation Subprojects (US$50 million). Fundescola IILA will financethe rehabilitation of 10,000 classrooms by transferring funds to the schools and helping theschool councils and participating secretariats monitor the implementation of the renovations.The guidelines for school rehabilitation, the spaces in the school to be covered under thissubcomponent, and the specifications, are included in the Operational Manual.

(2) Provision of Furniture and Equipment (US$40.0 million). Fundescola IIIA will financethe furniture and equipment for 10,000 classrooms, which are needed for schools to achieve theminimum operational standards. The specifications of this furniture and classroom equipment,and the procedures for acquiring and distributing these goods, are included in the OperationalManual.

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(3) Provision of Reading Books (US$5.6 million). Fundescola HIA will provide 5,000 sets ofreading books to schools implementing teaching/learning models under subcomponent 2.3below. Procedures for selecting and distributing these book modules are included in theOperational Manual.

COMPONENT 2 - ESTABLISHING A SCHOOL DEVELOPMENT PROCESS

This component consists of activities aimed at helping schools be substantially more effectiveat with their primary function: helping students learn. The component will help secretariatsbuild the capacity of their schools to: (i) formulate strategies and action plans to improve theirability to serve the schools' principal client?-their students; (2) strengthen and align schools'administrative, management, and monitoring systems to support this aim; and (iii) enhance theeffectiveness of their teachers and the adequacy of the instructional approaches used in theclassrooms. The basic instruments to be used in this process are the School DevelopmentPlan, the School Improvement Subproject, and tested, integrated programs for classroomdesigned to promote effective teaching and learning. This component will be implementedthrough three subcomponents.

Subcomponents of Component 2

(1) School Strategic Planning (US$4.6 million). This subcomponent will help participatingsecretariats introduce and support school-based strategic and action planning. The keyinstrument for school strategic planning is the preparation and implementation, by the staff andcommunity of the participating school, of a School Development Plan, or PDE. The PDEframework and guidelines went through a first round of development and testing underFundescola I and II, and will be further developed and evaluated during the implementation ofFundescola IIIA. This subcomponent covers the additional development work required tofinalize the version of PDE currently under implementation, as well as to update it based on theevaluation being undertaken under Fundescola II. It covers also the development of'complementary' products and materials needed to help Secretariats introduce, maintain, andsustain school strategic planning in their schools, in addition to training and support to beprovided to these secretariats. During Phase One of Fundescola III (Fundescola IIIA), theDGP will design strategies for going to scale with PDE and its complementary products andmaterials. During Phase Two, DGP will test these strategies and develop complementarymaterials for going to scale, if such materials are considered necessary.

(2) Schooling Improvement Subprojects (US$20 million) finances activities in the SchoolDevelopment Plan that require funding, in particular, the activities identified in the SchoolDevelopment Plan that specify the selected actions needed to increase schooling quality andachieve the strategic targets. These actions include, inter alia, inservice teacher training,assessment, educational materials, and instructional equipment While the MinimumOperational Standards model from Component 1, above, is designed to equalize the learningenvironment across all the schools in each secretariat's education system, the schoolingimprovement subprojects aim to individualize each school's program of action by respondingto school-specific needs and initiatives that school staff and parents believe can improvestudent learning and school quality, as identified during the school strategic planning process.This subcomponent covers two additional items. The first is an in-depth evaluation of SchoolImprovement Subprojects, which will be undertaken towards the end of Phase One. Thesecond is the design of strategies aimed at ensuring that secretariats are able to provide the

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necessary guidance to schools preparing subprojects and to monitor these subprojects, whenthey go to scale with them. This will be undertaken during Phase Two.

(3) Implementation of Teaching-Learning Models (US$11.8 million) will cover activities aimedat the adoption, adaptation, and implementation by .schools, on a voluntary basis, and with thedirect technical support and assistance of their secretariats of education, of one of a variety ofteaching and learning models. Several of these models were developed under Fundescola II,and new ones will be designed and tested under Fundescola hIA. These models are meant tosupport teachers' effbrts to improve student learning achievement by aligning curriculum,instruction, teaching materials, and classroom organization with student learning objectives.Moreover, the learning objectives included in these models are based on Brazil's NationalCurriculum Parameters. The inclusion of teaching-learning designs into the schoolingimprovement strategy is based on a central principle of the Fundescola Program, namely thatschool improvement requires multiple, mutually reinforcing interventions. Component 1 is anequity-oriented intervention that supports secretariats' efforts to raise school quality up to anacceptable level in all the schools. Subcomponents 2.1 and 2.2 help schools align their internalefforts and programs to give priority to student learning. While these two types ofinterventions are important building blocks for a school improvement strategy, they are notsufficient. Even when a school is fully functional and when its staff is fully committed toimproving educational outcomes, teachers and principals may still lack the requisiteknowledge, methods:, and skills to integrate instruction, educational materials, monitoring andevaluation, and classroom organization on the objective of improving learning. Subcomponent2.3 addresses this deliciency.

In particular, this subcomponent covers activities aimed at further development of GESTARand Escola Ativa, along with other teaching/learning models appropriate to different types ofschools. It will also cover the field-testing of these models. It will also cover the developmentof the "complementary products" needed to help secretariats introduce and support the variousmodels in their schools. All models will completed and evaluated in Phase One. Finally,strategies for going to scale with these models will be designed under this component. Themodels will be fine-tmed, and the strategies for going to scale will be tried out, in Phase Two.

COMPONENT 3 - STRENGTHENING THE EDUCATIONAL SYSTEM

This component will cover activities aimed at strengthening the capacity of secretariats ofeducation in the targeted microregions to deliver their education services and to implement allof the components of this project. It will do so by guiding secretariats of education through astrategic planning process to clarify their mission, focus more effectively on their principalclients - their schools, carry out more effective school monitoring and support, and followmore efficient management practices. Second, this component will promote greater publicengagement in education, in particular, greater parent participation on school councils.Greater public involvement will contribute to increased social accountability, thereby helpingto keep schools ancL their education secretariats focused on increasing equity and schooleffectiveness. Finally, the component will support project coordination and research on projectimplementation and impact. The component has three sub-components.

(I) Institutional Development for Education Secretariats (US$9 million). The key objective ofthis component is to help secretariats of education, via strategic planning exercises, develop

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and implement Secretariat Management Plans (PGS). These tools will be introduced on a trialbasis during Fundescola IIIA, with local governments being invited to partner with Fundescolain order to design and evaluate the effectiveness of these instruments and processes.Specifically, these systems are being developed to help guide secretariat leadership teams onexercises to help them clarify their mission and align their policies, programs, and supervisionand support activities on helping all of their schools be effective. The managementstrengthening programs will also assist Secretariats' efforts to improve their decision-makingand their monitoring of school performance. Through the implementation of the PGS, theSecretariat will be able to effectively implement Fundescola-developed products on their own,sustain policy-strengthening activities for their schools, and adopt permanent mechanisms tosupport these initiatives, including through the direct transfer of funds to their schools. Inaddition, for secretariats that are implementing a PGS, Fundescola will provide incentives forthem to adopt, initially on a trial basis, a system that promotes the continuous improvement oftheir schools towards an agreed set of "standards of excellence." This system will bedeveloped and tested under Fundescola IILA based on the following three, integratedinstruments: (a) school self-evaluation; (b) secretariat-managed school external evaluation (atype of quality assurance inspection); and (c) a supervision program of the secretariat aimed atproviding qualified technical-assistance to schools to help them achieve the standards ofexcellence.

(2) School Council Strengthening Subprojects (US$160 million) will provide funding to schoolcouncils for them to finance a activities aimed at engaging parents more in schoolimprovement, and helping parents take greater responsibility in improve the conditions of theirschools. Greater public involvement will contribute to increased social accountability, therebykeeping schools and their education secretariats focused on increase equity and quality. Thissubcomponent will transfer financial resources to the school councils (UEs), with the amountto be based on school enrollment (approximately US$5.00 per student on a yearly basis).School Council Strengthening Subprojects will be supported in all of the jurisdictions of theparticipating microregions, including in the municipalities of the microregions that areexpected to enter Fundescola IIIB. This transfer of resources, which constitutes, on average,only about 2 percent of the total annual public expenditure at a typical school, strengthens theschool council by authorizing and empowering the council members to decide on whatpurchases will most improve the conditions for students, and then to carry out the purchase andsee the effect of their decision. Public engagement in school govemance is stimulated by thissubcomponent because of fact that this fund is controlled by an organization composed ofparents, and not by the local government. For a school to receive the funds, it has to have afunctioning and legal school council. Fundescola I and II both included this activity as ameans of setting the stage for Fundescola reforms in schools and local govemments in theproject's microregions. Research carried out on the use of these funds during theimplementation of Fundescola II has shown that these funds are used by parents mostly toacquire books and other instructional materials, equipment and fumiture, maintenance suppliesand services, paper, chalk, pencils, and pens, and computer supplies, among other items. Over85 percent of the funds in this subcomponent will be transferred to schools located in theparticipating microregions. The remaining 15 percent will be transferred to schools located inthose microregions that are most likely to participate in the second phase of this project,Fundescola IIIB.

(3) Project Management, Monitoring, and Research (US$17.4 million) finances Fundescola'sincremental management, technical assistance activities, and supervision responsibilities in the

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Ministry of Education. A major element in this subcomponent is the research on itsimplementation and impact. Given that primary schooling in Brazil is the responsibility ofstate and municipal governments, over which the federal Ministry of Education has nodirect authority, the project design recogn3izes that to improve schools, the Ministrywill have to mobilize the state and municipal governments to undertake the reformsdeveloped and tesled under the Fundescola Program. Clearly a key element thefederal government would need in its effort to convince state and municipalgovernments to aclopt Fundescola-based reforms is a set of solid, high quality,quantitative and qualitative empirical research studies, carried out by independent,respected specialists and institutions, that examine every aspect of the program'sobjectives and interventions. For this reason, the research to be financed out under thissubcomponent will go well beyond comprehensive monitoring to evaluate programinterventions and impact. In addition to assessing the impact of specific instruments andmodels on student learning, the research program will examine the adoption and integration ofFundescola-type reforms by local governments, policy reforms in those governments, and thesustainability of such reforms.

2. Key policy and institutional r eforms supported by the project:

The project's key policy challenge is for local governments, particularly municipal Secretariats ofEducation, to adopt a set of policies that clearly defines support to schools as the top priority. Asdiscussed above, the Secretariat of Education's support to schools should be based on two, incontrovertibleprinciples: (i) improving school eifectiveness, which means the schools' ability to focus on student learningand raise student outcomes; and (ii) raising inter-school equity, which means reducing disparities inopportunity to learn standards between schools under their responsibility. Fundescola has developed andcontinues to develop "tool kits" designed to help Secretariats of Education consider these policies,understand their central importance, and implement and sustain them successfully. Fundescola hasdemonstration schools and districts that characterize these two principles. Fundescola also carries outmassive training and consciousness-raising programs to promote these concepts and the Fundescolaapproach to system-wide improvement in schooling. Despite these efforts, historical patterns of poorplanning, lack of coordination and articulation within and between jurisdictions and levels of government,and the continued presence of pollitical patronage, puts the sought after policy reforms at risk. FundescolaIII will be designed to account for these constraints to the degree possible. Nonetheless, the key risk to theproject's success is not its immediate implementation but rather its long-term sustainability.

3. Benefits and target population:

The priority benefit population conisists of the children located in the municipalities in microregions withthe highest number of poor families distributed across the 19 states of the project's three regions.

4. Institutional and implementation arrangements:

4.1 Central level coordination

At the federal level, the Project Coordination Unit (DGP) within the Federal Ministry of Educationhas been responsible for project preparation and will be charged with the administration of Fundescola III.The DGP has already demonstrated, through its capable performance of similar duties under Fundescola Iand II, that it is institutionally and technically ready to: (a) serve as principal project counterpart to theWorld Bank and key government and international agencies; (b) rely on the state-based Project ExecutiveCoordination (COEP) and on monitors/supervisors hired to support project implementation at the

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microregion level; (c) analyze and approve state, intra-state, and microregion projects and annual workplans; (d) establish and sign agreements with states, municipalities, and other government and internationalagencies; (e) determine, together with the states, the definition of minimum operational standards; (f)conduct project-related regional, state, and municipal analysis; (g) analyze and submit to the World Bankthe relevant documentation for the acquisition of goods and services and expenditure receipts; and (h)prepare the progress reports and participate in the mid-term and final review according to World Bankprocedures. Despite DGP's proven track record in project implementation, and in view of the magnitude ofits role in Fundescola III, the Project will support, under Component 3, training and capacity building in theareas of project administration (particularly the administration of large, external contracts) and projectmonitoring, as well as activities to promote the integration of some of the DGP's technical roles into otherfunctions within the Ministry of Education.

4.2 State and Municipal Coordination and Implementation

At the state level, Fundescola III will operate by means of the Project Executive Coordination Unit(COEP) within each state education secretariat, which: (a) serves as the key administrative project unit atthe state level; (b) prepares the Annual Work Plan with the participation of the municipalities in that stateand submits this plan to DGP for approval and registration in the SPA; (c) coordinates project executionacross municipalities and state school systems; (d) houses the DGP monitors and supervisors; (e)coordinates communication and cooperation among the local government agencies involved inproject-related activities; (f) procures goods and services according to the guidelines of the World Bank; (g)records and certifies expenditures; (h) prepares progress reports; and (i) monitors and evaluates the outputsand outcomes of Fundescola in each state. Since Fundescola III will be working with the poorest and mostdifficult to reach municipalities, Ministry staff expect that COEPs will have a much more technical role inimplementation of Fundescola IMl, in comparison with Fundescola H and Fundescola I. This new role willneed to be carefully explored end developed during project preparation. Part of this preparation willinclude capacity assessment and work load analysis vis-a-vis institutional strengthening needs for theparticipating municipalities, as well as the implications for capacity enhancement of the COEPsthemselves.

At the state and municipal level, each participating education secretariat is responsible for: (a)assisting schools in designing their own school development plan and school improvement projects; (b)fostering the operation of school councils and community participation; and (c) monitoring the delivery ofgoods and services procured by the state Project Executive Coordination Units (COEP). Finally, guidanceand training for school leadership in the creation of a school development plan and school improvementproject will be offered through municipal-based School Development Teams (GDE). These teams will becomposed of municipal education professionals who will themselves be trained by the federal (DGP) andstate (COEP) level coordination units.

4.3 School level coordination

At the school level, a leadership team composed of the principal and the pedagogical coordinator orother lead staff at the school will be responsible for: (a) participating in Fundescola's school developmenttraining program; (b) involving the entire staff of the school as well as parents in the creation andimplementation of a school development plan and corresponding school improvement projects; (c)accepting visits and technical assistance from DGP-contracted monitor/supervisors; (d) taking advantage ofthe ongoing school development support offered by the school's respective GDE or COEP; (e) managingthe use of Fundescola-transferred funds for implementing the school improvement project, includingpurchasing goods and services, maintaining accounting records for these purchases, and providing

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accounting information to DGP during routine audits and review. Finally, the school team is responsiblefor selecting and implementing the appropriate teaching-learning model.

4.1 Project monitoring

The predecessor project, Fundescola II, developed and operates a broad range of indicators and amanagement information system (MIS) to track the implementation progress and outputs, as well as toalign its components and maintain accountability. Each coordination unit within the DGP responsible for asubcomponent has developed its ciwn MIS system, and has used their own system to track progress andtake decisions. For Fundescola II, the DGP will pursue the following strategies use indicators as aneffective tool for improving implenmentation and policy reform.

* DGP managers to agree ol1 a set of comprehensive summary indicators that provide an integratedinformation base about the project as a whole, not as separate products.

* DGP will set a time frarne (e.g. quarterly, biannually or annually) for updating the summaryindicators.

* DGP will design standardized forms to simplify existing detailed information by expressing them incategorical variables (e.g. type of interventions in each product) and continuous variables (e.g. costand scale score on the quality of each intervention) for technical supervisors to fill in and for stateseventually to collect. The information collected thus form the raw data for distillation andintegration into a comprehensive database.

* DGP will increase regular communication and technical assistance to states and municipalities indata collection, cleaning, entry and use for monitoring purposes.

* DGP will develop a system to integrate these indicators from separate databases.

* DGP will set a date each year (e.g. every July) for publishing and reporting these indicators (byregion, state, microregion, and municipality) publicly, in additional to making the databaseavailable to the public through its web site. This is both for public accountability, as well assetting a competitive context for states and municipalities to perform and to provide data in time.

At the State level, COEPs will essentially use the same indicators on process, output and outcomes ofFundescola interventions products in each state during the life of the project. However, to be sustainable,these indicators should become tools for the state to monitor the implementation process, output andoutcomes of its own policy and programs. Technical supervisors of COEPS complete the data collectionforms and enter the data into the COEP database for transmission to DGP on a regular basis. Statesupervisors will eventually take over this function as part of their monitoring responsibility. The States andMunicipalities will be able to use the same form to monitor implementation of Fundescola type ofinterventions funded by themselves outside of the project.

D. Project Rationale

1. Project alternatives considered and reasons for rejection:

Adaptable Program Loan (APL) versus Specific Investment Loan (SIL) design. Fundescola III

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was originally conceived as a traditional specific investment loan, like its predecessor projects Fundescola Iand II. There are two reasons for changing the investment modality to the APL design. First, given thatthis third Fundescola project is larger than the first and second Fundescola projects, and is supposed to beimplemented over a six year period, rather than a 3 year period (as with Fundescola I and II), both theBank and Ministry of Education agreed that phasing the project in two steps would make the execution ofthe project more manageable. Implementation targets for the completion of the first phase of FundescolaIII (Fundescola IIIA) will be established to trigger the launch of the second phase (Fundescola IIB).Moreover, given the Fundescola III's focus on sustainability and expansion, the APL modality allowsgreater flexibility in the design, components, and implementation arrangements. Second, the financialuncertainty facing Brazil's federal government argues for caution with regard to the amount of debt (asBorrower) the government is carrying at any point in time. Under the APL modality, the federalgovernment can lower debt exposure and commitment fees, and will request a second loan only when theimplementation triggers are met.

Top-down versus bottom-up design. Alternatives for improving the quality of primary schoolingincluded: (a) implementation of an entirely top-down model in order to ensure greater consistency acrossschools and more effective control at the national level; and (b) establishment of a completely bottom-upschool-driven method for determining needs and resources. The first alternative was discarded as priorproject experience and education sector evaluations have demonstrated that local interests need to beconsidered in order to ensure effective implementation and greater sustainability. Time and time again,top-down, input-oriented strategies have failed to substantially affect the teaching-learning process in theclassroom. Such a top-down strategy would also have run counter to recent government cornmitment fordecentralization through such programs as direct school transfer programs, school lunch programs andtextbook selection. The fully bottom-up alternative was rejected based on the evaluation of capacity at theschool level that indicated that school principals are not yet politically or technically capable of adequatelyexpressing and rapidly attaining their needs for school inputs within the structure of the current system.Moreover, without appropriate public demand and accountability, municipal education secretariats havenot assumed their responsibility for strengthening schools and supporting quality improvements. Inaddition, the slow pace of a fully bottom-up approach would dampen political support for the project inparticular and increased school autonomy in general. Furthermore, project components such ascoordirration of teacher certification and quality assurance of selected inputs were found to be morecost-effective if carried out at a higher level than the school. For these reasons, a more integrated form ofproject implementation that includes both top-down and bottom-up methods was selected.

Bolsa-Escola Type Project. An demand-stimulus approach was also considered. Analysissuggested that this type of demand-stimulating program has better chances of success where schools canoffer poor children better opportunities for successfully completion of primary school Beneficiaryassessment analysis and classroom observation studies (carried out under the "Call to Action" program)demonstrated that children's persistence in school and their parents' expectations about educationalattainment are low when they believe that the school offers a low quality education. Consequently, thisalternative was rejected in favor of a project that complements the recently-launched Bolsa Escolaapproach by attacking the supply-based problems of the project's participating microregions, namely thelack of planning, low expectations, and poor school quality.

(a) Bolsa Escola is a program developed and implemented by the federal government of Brazil andadministered by the Ministry of Education. It is designed to provide modest income subsidies to thefamilies of the nation's poorest children as an incentive for them to attend and stay enrolled in primaryschool. These financial incentives will be administered locally by municipal governments, who areresponsible to compile the list of participants and monitor their adherence to program guidelines and

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receipt of the benefits.

(b) Fundescola III will serve both to complement and reinforce the Bolsa-Escola program. Althoughmost municipalities in the project's target regions have not drawn up the list of participant yet, it isclear that thousands of children will receive the dual benefits of the Bolsa Escola and Fundescola. Ofcourse, the direct objective:; of Fundescola differ from those of Bolsa Escola. In particular, theobjectives of Bolsa Escola are to promote children's enrollment and continuation in the school system,providing a push-incentive for children's participation and continuance at school. Fundescola's purposeis to assure that children's school experiences are effective, meaningful, and productive, providing apull-incentive for children's enrollment and perseverance in school. The two programs target the poorin different, but also complementary ways. The Bolsa Escola program is targeted to poor children,restricting benefits to children whose families meet income-needs tests. Fundescola provides mostsupport to the worst schools, which tend to serve the poorest children. These are schools whereleaming conditions and resources are well below minimum standards, and where the classroom leamingopportunities are the most dis;advantaged.

(c) Fundescola III will also include a number of activities designed to further enhance the synergybetween the Fundescola Program and Bolsa Escola program. In particular, the project design includesthe development of three new models to support the schooling of the poorest children. First, two newclassroom-learning designs will be developed and tested; one will serve the learning needs of ruralchildren who complete 4th grade in a school running the Escola Ativa program; the other will focus onchildren attending schools in the most precarious conditions with respect to material and humanresources. Both of these designs will benefit schools with higher concentrations of Bolsa Escolabeneficiaries. Second, Fundescola III will develop, test, and help municipalities and states implement amodel to professionalize school management,. These school management tools are to be designedespecially to help schools organize their routines and improve their operating procedures, and monitorstudent attendance and performance. Schools with weaker administrations or less qualified principals,again most likely to receive the poorest students, will be targeted to receive this assistance on a prioritybasis.

Private Sector School Improvement. Another project option would have given a larger role tothe private sector in promoting or supporting school improvement. It is important to point out that theprivate sector already plays a large role in the Fundescola program. First, all education materials,including especially textbooks, are published by the private sector. Second, Fundescola contracts firmsproduction of software systems, educational learning kits, furniture, other equipment, and research. Third,school renovation work is undertaken by firms contracted by school councils and parent organizations.Fourth, schools contract locally for educational advice and services using funds from their SchoolImprovement Projects. Finally, Fundescola contracts various firms and NGOs to develop teaching-learningmodels employes NGOs and private firms to develop and test materials.

One key area in which the private sector has a potential role to play is in providing technicalassistance services to reforming schools. Several industrialized countries, notably England, New Zealand,and Australia, have been experimenting with incentives to encourage private technical assistance suppliers,such as management training organizations or private schools, to help schools implement reforms. A largebody of research, however, suggests that even in these countries the private sector has been slow to provideassistance services to schools. For example, in England, the 1988 national education finance reformtransferred education funding to the schools themselves. These transfers included the funds earmarked forteacher training and other school support services, previously under the control of the Local EducationAuthority. Schools then had the choice of buying support services from their Local Education Authority

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(LEA) or from the private sector. Even today, twelve years after the reform, most schools, especiallyprimary schools, continue to purchase the overwhelming majority of these services from their LEAs, asprivate vendors have not materialized in adequate numbers, and as LEAs have been quite flexible inadapting the services they provide to meet the demands of the schools. Fundescola would start off at aneven greater disadvantage given that the private education market is very small, and the schools needingtraining and support services are widely dispersed. Moreover, support services from the private sectorwould be particularly desirable in municipalities where local governments are too fragile or ill equipped toprovide relevant support. Unfortunately, these are the very same locations where the availability of skilledprofessionals, either as individual consultants or in consulting firms, is extremely limited. Consequently,the decision taken by the designers of Fundescola m is strengthening the capacity of local secretariats ofeducation in the larger microregions, and providing incentives and training to encourage state secretariatsof education to support weaker municipalities in smaller microregions.

2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).

Latest SupervisionSector Issue Project (PSR) Ratings

(Bank-financed projects only)Implementation Development

Bank-financed Progress (IP) Objective (DO)

Primary education access and quality Northeast Basic Education I S S(completed)

Primary education quality Urban Basic Education Project, S S"Monhangara" (completed)

Primary education access and quality Northeast Basic Education II S Sand III Projects (completed)

Primary education quality Innovations in Basic Education S S(completed)

Primary education access, quality, and Bahia Education Project S SmanagementPrimary education access, quality and Ceara Education Project S SmanagementPrimary education quality and equity Fundescola I (completed) S SPrimary education quality ParanA Education Project S SPrimary education quality Minas Gerais Education Project S SPrimary education quality and equity Fundescola II S SOther development agenciesUnicef Child Rights focus Support to

NGOs (ongoing)Ford Foundation Ceara Early Childhood

Development Project I

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

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3. Lessons learned and reflected in the project design:

Following the lessons learned from the design and implementation process of Fundescola I(FY1998, Loan 4311-BR) and Fuidescola II (FY2000, Loan 4487), the Northeast Basic Education Project(NEBE II, FY 1993, Loan 3604-EBR and NEBE Ill, FY1994, Loan 3663-BR), and prior Bank experiencein Brazil, Fundescola III will incorporate those project aspects that were successful in achieving theirintended objectives, avoiding those aspects that, upon evaluation, were deemed incomplete or unattainable.

First, the design of Fundescola III benefits from the implementation experience of its sisterprojects, Fundescola I and II. Lessons include the need to give higher priority to social mobilization andcommunication efforts in promoting the school-based development approach; the benefits to funding asecond and third round of school improvement projects, providing an incentive for schools to stay focussedon the issue of quality improvement and practice the planning skills they have learned; and providingincentives for municipalities to expiand the school-based development approach to additional schools.

Importantly, research was carried out by The National Institute for Education Research (INEP) onthe impact of key interventions from Fundescola I and II have influenced the design of Fundescola III (seeAvaliacdo de Desempenho: Fatores Associados, mimeo., July 2 00 1,S59pps). In 1999, a research samplewas selected, which was composed of 158 schoools located in six States distributed across all three ofFundescola's regions (North, Northeast, and Center West), including 55 schools with the PDE interventionand the remainder without PDEs. INEP contracted consultants to survey these schools and to collectdetailed background information on the students and their families, their teachers, the principals, andcharacteristics of the schools themselves. Achievement tests in Portuguese and Mathematics, equated withthe SAEB, were also developed by INEP and administered by consultants to all of the fourth grade studentsin the sample schools. Students have now take these test three times: in April of 1999 (close to the Marchstart of the school year) in November 1999 (at the end of the school year), and in November 2000. As ofthe July, 2001 study, data from the November 2000 test administration had not been included in thedatabase INEP researchers analyzed, consequently the results examine the value added during the 1999school year.

Among the numerous variables included in the research study are teacher education attainmentlevel, teacher performance on (the same) achievement tests, student previously repeated, teacher self-reporton curriculum coverage, mother's education level, indicators of student's socioeconomic status, and a binaryindicator of school participation in the PDE intervention. Despite the extremely short timeframe (less thanone year), most of the regression models estimated find a positive and significant difference for studentsenrolled in schools implementing Fundescola's PDE intervention, with the coefficient on PDE strongerwhen using the November 1999 Portuguese test as the dependent variable rather than the 1999 mathematicstest. Other results are consistent with standard expectations, including a correlation between achievementand such variables as student SES, student attendance and promotion rates, mother's education, teacherexperience, teacher completing the curriculum. In addition, performance is higher for boys in mathematicsand girls in Portuguese. The research shows that students enrolled schools implementing PDEs alsoperform better with respect to other dependent variables such as student's report card scores and studentpromotion rate (both based on teacher's own assessment of student achievement rather than thestandardized tests).

It is important to point ouit that this research focused on only one of Fundescola's interventions.Other interventions, such as the Minimal Operational School Standards interventions, Escola Ativa,Proformaqdo, and Gestarare being examined separately. Nonetheless, given that the PDE is considered thecore intervention of Fundescola, the results form the study referred to above give strong support to the

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Fundescola School Improvement Strategy.

Second, international project experience has also influenced the formation of the Fundescolaprogram, including (a) the lessons from Chile, Uruguay, and other Latin American countries in promotingschool improvement projects for the procurement of context-appropriate materials and increasingstakeholder input; and (b) the Colombian Escuela Nueva program, which achieved effective results in themodular use of textbooks, capacity-building of teachers, student-centered learning, evaluation of studentattainment, and community participation for multi-grade schools, and finally, the valuable and welldocumented experience of New American Schools in the United States, which promotes whole-schoolreform through the development of structured but adaptable packages of "school improvement designs" thatinclude materials, strategies, assessment, and linked training activities, along with ongoing technicalsupport to schools and education districts.

Third, the current nationwide evaluation process of textbooks (PNLD) was adopted and developedby MEC based on the previous experience of the Northeast Basic Education Projects, which introducedinnovative procurement procedures. The purchase of textbooks is now made through the teachers' choicebased on a guide containing titles recommended by education specialists and teachers. This guide classifiesthe books according to content and pedagogical quality, promoting improvement by the publishers.Textbook distribution for the entire country has improved significantly since the first delivery made underthe Northeast Basic Education projects. The books now arrive at the start of the school year, their arrival inthe school is being monitored through a special operation introduced by MEC, and a new delivery systemis being implemented by the post office. The selection and delivery of basic school supplies to schoolsunder the Fundescola projects is modeled after this successful example of local selection combined withcentral procurement and oversight.

Finally, to promote effective personnel management in basic education, the project derives lessonsfrom the positive experience of the Northeast Basic Education Project in the training and capacity-buildingof municipal and state secretaries in the Northeast (Municipal Education Secretaries Support Program[Prasem]). The project coordination unit will continue to build upon the success of the Northeast BasicEducation Project, especially in terms of effective management techniques and built-in accountabilityrequirements.

4. Indications of borrower commitment and ownership:

Government commitment to the Fundescola program is manifest in: (a) the origins, context andcontent of the project design and the implementation record of Fundescola I and II.

The overall Fundescola Program has its origins in a series of 13 studies of the causes of schoolfailure in the Northeast region of Brazil which formed the basis for the sector study, "Brazil: A Call toAction" published in 1997. The process of conducting and reviewing both the research andrecommendations for this study was a broadly collaborative one, involving the federal government, theWorld Bank, UNICEF, representatives from federal universities in the Northeast, representatives frompolitical groups concerned with education, including the National Association of Municipal EducationManagers (UNDIME), and state Secretaries of Education. The recommendations contained in the reportwere widely discussed and agreed, and they form the basis of the design of many of the Fundescolaactivities and strategies. As discussed earlier (see key policy and institutional reforms supported by theproject), the Fundescola Program also directly supports the implementation of a number of important recentchanges in the legal, financial and operational framework governing the education sector. Governmentcommitment to the policy reforms supported through the Fundescola program has already been

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demonstrated.

Fundescola III irnplementation will benefit directly from the advanced execution of the FundescolaI and Fundescola II projects. The fact that 98 percent of the Fundescola I loan has already been disbursed,and nearly 50 percent of the Fundescola II loan has been disbursed demonstrates clearly the highimplementation capacity of the Ministry, the project team, and the local executing agencies.

5. Value added of Bank support in this project:

Informed Cooperation: As the chief external financing institution in the area of basic educationover the past ten years, the Bank has had the opportunity to develop a well-informed and close familiaritywith the key education challenges in Brazil and has come to recognize windows of opportunity. Moreimportantly, over the last few years it has built up a fluent dialogue with the leading education authoritiesand institutions of Brazil. This dialogue has grown despite the presence of ideological differences between anumber of the key actors, and across changes in the political landscape. "A Call the Action" and threeyears of the "Prasem" workshops are excellent examples of the Bank's ability to facilitate dialogue andgenerate consensus around critical issues in the sector. The Bank has also been actively promoting, forBrazilian Ministry, State, and Muaicipal education leaders and technical staff, the sharing and exchange ofideas on international education sector experience. Consequently, the Bank has been able to play the roleof the "critical friend" in policy dialogue, has provided continuity, has promoted the exchange ofinternational experience, and ha3 served as a key counterpart in supporting the implementation ofdevelopment projects and policy reform.

Recent cooperation and exchanges developed with Brazil's major national professional associationsof education managers, namely the National Council of State Education Secretaries (CONSED) and theNational Association of Municipal Education Managers (UNDIME), have also provided the Bank withdetailed information and analytical perception of local, state and regional needs and demands. Especiallyimportant is the Bank's ability to use global knowledge to create local solutions in the areas of educationevaluation and assessment, governance reforms and management restructuring, teacher certification andprofessional development prograrns. Derived from experience gathered from supporting basic educationprojects in other countries, particularly with regard to the school development process, and assembled fromthe Bank staff's analysis of education systems and school reform in England, Scotland, Australia, and theUnited States, the Bank is able to share its technical know-how with its clients in Brazil. In addition, theBank has facilitated a series of exchanges, discussions, and site visits with staff and experts from the NewAmerican Schools Program and with several reforming school districts in the United States (for example,with Memphis, Tennessee and Chicago, Illinois), and with research organizations involved in studyingschool-based reform (Rand Corporation and American Institutes for Research). Study visits taken byFundescola staff and local govermnent implementing agencies to New Zealand, Australia, England, France,Ireland, and Spain have also provided a broader world view of education reform that has inspired some ofthe innovation of the Fundescola program.

Poverty Focus: The World Bank's Brazil-specific project experience and sector work on educationand poverty have made the institution well prepared to incorporate poverty targeting into an educationproject. In particular, lessons from the Edurural project (completed in 1990), studies and instrumentsprepared under the ongoing Fundescola I and II projects, and recent urban and rural poverty assessmentshave facilitated the identificatiori of key poverty and regional imbalance issues associated with theeducation sector. This knowledge base has informed the strategic choices made in the design of FundescolaIII. The project focuses on Brazil's three poorest regions, the North, Northeast and Center-West, and on themunicipalities in the microregions with the lowest levels on the Human Development Indicators. Finally,

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the project's focus on raising all schools to a certain standard and compensating for past inequalities differsfrom Brazil's historical approach to equity in spending, which has, at best, centered on providing the sameresources to all.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):* Cost benefit NPV=US$ million; ERR = % (see Annex 4)O Cost effectivenessO Other (specify)

Underlying Fundescola HI's economic analysis is the fact that, despite the latest improvements inperformance and enrollments, the North, Northeast and Center West regions still lack large-scale,integrated interventions to improve their public primary education systems. The development objective ofthe project is to increase the capacity of education secretariats and to focus their attention on the dual tasksof augmenting the effectiveness of the primary schools in their system and of raising levels of equity acrossthese schools.

The cost-benefit analysis was undertaken in the following manner: (a) the costs were estimated; (b) the flowmodel was estimated for each participating region the state system; (c) a historical trend was applied for theflow models, taking into account the method introduced by Ruben Klein of Cesgranrio in Rio de Janeiro, inorder to estimate how the flows of students would look without the project; (d) the impact of the project onthe flows was estimated to the year 2010; (e) the number of students that conclude each grade waspredicted and the difference between the flows with the project and without the project were determined; (f)given these differences, the out-of-school benefits were calculated by using both the private rate of return toeach grade of education and the increment in productivity related to the increase in the proportion ofschools meeting SAEB learning standards; (g) in performing the sensitivity analysis, the NPV and the IRRwere calculated and tested for different scenarios.

In the calculation of the IRR and the NPV, the sensitivity analysis considered twelve possible scenariosinfluenced by potential outcomes of income flows and productivity growth. The IRR results are as follows:

The Internal Rate of Return for all scenarios are satisfactory (the IRR ranges from 19.16% to 29.84%).Even in the "Worst" case, the return rate of the project is greater than the Bank's standard discount rate of10-12 percent, which indicates the capacity of the project to generate substantial benefits. Besides thesatisfactory IRRs and positive NPVs, the project does not yield to a high variability across the scenarios,suggesting a high probability that gains will be positive and significantly above the minimum requirementfor investment yield.

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Worst Middle Poor Middle Good BestIRR - 0% prod. 19.16% 21.62% 25.23% 29.00%In c _ _ _ _ _ _ _ _ _ _ _ _ _ _

IRR1 - 1% prod. 19.24% 21.94% 25.60% 29.42%Inc__ _ _ _ _ _ _

IRR - 2% prod. 19.52% 22.26% 25.96% 29.84%In c__ _ _ _ _ _ _ _ ___ _ _ _ _ _ _ _ _

NPV - 0% prod. R$ 535,30 1,735 R$ 687,804,031 R$ 930,928,837 R$ 1,174,059,936In c _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

NPV - 1% prod. R$ 539,7565,422 R$ 712,188,452 R$ 958,361,267 R$ 1,204,540,437IncNPV - 2% prod. R$ 561,810,742 R$ 736,572,872 R$ 985,793,696 R$ 1,236,360,827In c I _ _ _ _ _I_ _ I__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

2. Financial (see Annex 4 and Annex 5):NPV=US$ 284.9 million; FRR = 21.9 % (see Annex 4)These are based on the sensitive analysis summarized above, with the information derived fromthe scenarios highlighted in bold.

Fiscal Impact:

The analysis reveals that the loan can be absorbed by the Government without serious negative impact onthe Government's debt capacity and debt/GDP ratio. Three issues were important in analyzing FundescolaIII's financial impact: (i) whether it places an excessive burden upon the Federal treasury; (ii) whether it isfinancially sustainable, and (iii) what its role will be given the present fiscal situation. The analysisexamined the impact of Fundescola III on net public debt and on outstanding Federal debt. The analysisalso examined the impact of mandated Federal education expenditures. Fundescola HI is not likely tocreate new expenditure since expmnsion of the existing school system is not among its objectives. On thecontrary, if its goals are achieved, Fundescola III will lead to a much more efficient school system and thussave resources.

3. Technical:

As indicated in Section B4, one of the key roles being played by Fundescola is the development of theproducts, process and strategies thtat will help the Ministry of Education bring educational improvement tothousands and thousands of schools. It is the Ministry's role to take these products, processes andstrategies to the schools, and the Ministry will do so by providing incentives, encouragement, and supportto state and municipal secretariaes who would in turn serve as the change agents. The success of theMinistry in achieving the objectives of educational reform depends very much both on the soundness of thisoverall approach and on the effectiveness of the products, processes and strategies developed.

From a technical and logistical point of view, the overall approach is sound. The products, processes andstrategies need to be developed cost-effectively by highly skilled people who specialize in productdevelopment. Thus, their development is given to the professional teams assembled by Fundescola. But,the introduction of these products, processes and strategies on a large scale does not require the same levelof skill and specialization, and cannot be centralized. Thus their dissemination, and the training, supportand monitoring that go along with it, is given to the secretariats of education. There is no other sensible

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way to reach the thousands and thousands of schools.

The effectiveness of the products, processes and strategies depends on the extent to which Fundescola'sDGP is structured to follow sound product development practices, and actually follows them. During thepreparation of the project, the project team carried out an analysis of both of these factors and helped DGPintroduce work procedures that follow the product development cycle. It also helped DGP restructure itselfin ways that will ensure adherence to these work procedures. Both the procedures and the neworganizational structure are presented in the Operational and Implementation Manual (MOIP).

4. Institutional:

During the preparation of this project the project team carried out an institutional capacity analysis of anumber of state and municipal secretariats of education, as well as the DGP. The analysis of thesecretariats was aimed at getting an initial understanding of their capacity to deliver services - sufficient tohelp design, and include in the project, a capacity building sub-component where additional analyses will beundertaken. The analysis of the DGP was aimed at getting a full understanding of its capacity toimplement this project. Being the key implementer, the capacity of DGP is considered to be core capacity.It must be in place when the project commences, or immediately thereafter, if the project, including itscapacity-building sub-component, is to be well implemented. The analyses focused on the following factorsof institutional capacity:

* The organizational setting within which these institutions are operating and the division oflabor in them.

* The leadership in each of these institutions and, in particular, the existence of clear vision,strategies, objectives and plans.

* The financial, human and material resources available to the institutions to carry out theirwork, and

* Some of the prevailing work practices followed by them.

With respect to DGP, the analysis included a detailed review of the way it planned to implement theproject. The three components and nine sub-components of the project were broken down and re-groupedinto 14 distinct operations. Each operation was broken down into tasks and a logistical plan was developedfor it. An accountable unit and an accountable manager was identified within DGP for each of theseoperations. The logistical plans also served as tools to assess the time required for each operation, theresources involved and the counterpart costs.

4.1 Executing agencies:

Executing agencies: The key implementing agency is the General Project Direction (DGP) of theMinistry of Education. This department has developed a high degree of management autonomy andcapability with the Ministry. Nonetheless, much of the success of Fundescola III will hinge on thewillingness and capacity of the state and municipal secretaries to adopt the school-based reforms.Consequently, one of the key objectives of Fundescola II is to help Secretariats of Education establishdifferentiated and effective organizational "homes" for key institutional functions related to implementing,supporting, and sustaining school-based development processes. This objective will be pursued through thedevelopment of systems to help Secretariats integrate school-based reform into their operating structures.

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The role of international agencies in support of project implementation. The Ministry ofEducation will require high levels of technical support in order to effectively carry out its coordination rolein Project management. Likewise, effective transformation of the COEPs and the GDE's into institutionscapable of effectively executing and sustaining the education reforms inspired by the project will requiresignificant levels specialized management support. For example, Fundescola I and II benefited greatlyfrom the support of the United Nation's Development Program (UNDP). UNDP's supported the Ministryof Education through, inter alia, the contracting of consultants and specialized consulting firms in the areasof strategic planning, design and delivery of, and support for, project implementation and monitoringsystems, and technical assistance and intensive support services for dissemination and communicationprograms. Through several years of collaboration, the Ministry of Education and all of State Secretariatsof Education involved in the Fundescola Program have established close working relationships with theUNDP. This high degree of trust and cooperation has led the Ministry of Education to seek additionalsupport from a specialized international agencies during the implementation of Fundescola IIl.

4.2 Project management:

The federal Project Coordination Unit (DGP) has experience in managing the implementationFundescola I and II. A key issue being addressed under Fundescola III is how much of this managerialexperience at the federal and state (COEP) levels can be eventually absorbed by the parent institutions --MEC and the local (State and Mimicipal) secretariats of education. This issue is addressed below underSustainability and Risks

4.3 Procurement issues:

Procurement under the Project cortsists of workshops, training, hiring of consultants, procurement of schoolfurniture and ventilation fans, printing of textbooks, production of training video-tapes, independentprocurement reviews and payment of salaries of professional staff performing activities for projectimplementation. At a central level, project activities will be implemented by Fundescola's ProjectImplementation Unit (DGP). At the State level, procurement will be implemented by the Secretariat ofEducation and at a school level, procurement will be carried out by communities. At both central and Statelevels, procurement of Goods will be carried out in accordance with World Bank Guidelines Procurementunder IBRD Loans and IDA Credits (January 1995, revised January and August 1996, September 1997and January 1999); recruitment of consultants' services (consulting firms or individuals consultants) fortechnical studies, training and reviews, will be carried out in accordance with the Bank Guidelines onSelection and Employment of Consultants by World Bank Borrowers (January 1997, revised September1997 and January 1999). For the school grants component, procurement will follow the procedurespresented in the Operational Manual (MOIP).

4.4 Financial management issues:

The Project's planning and financial monitoring system "Sistema de Planejamento e Acompanhamento -the SPA," is DGP's computerized system for monitoring and generating Statements of Expenditure - SOEs,the basis for the Project to prepare: application forms to disburse funds and request disbursements from theBank through STN - Secretary do Tesouro Nacional. This system has been operating for other Ministry ofEducation implemented Bank finamced projects such as the Second and Third Northeast Basic EducationProject and Fundescola I and II for at least 4 years, and has demonstrated its capacity to maintain adequateexpenditure records and generate reports showing the actual expenditures. Moreover, the SPA was adaptedunder Fundescola II to generate physicalVfinancial management reports acceptable to the Bank. The DGPmanages Fundescola with the support of (a) Financial and (b) Budget Coordinating Units, which areresponsible for the financial management and procurement related matters for the project. The Financialand Budget Coordinating Units consolidates all financial data generated at the implementing agencies,including states and other Secreitariats of the Ministry of Education through the SPA. The SPA is

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structured on the basis of a "chart of accounts," and includes an accounting module integrated into thesystem. The system has demonstrated its capacity to maintain adequate expenditure records and generatereports showing the actual expenditures, which are well documented for expenditure tracking.

It has been agreed with DGP that a set of model project management reports, acceptable to the Bank, willbe submitted for review at negotiations. This package of model reports should cover expenditures anddisbursements, procurement and contracts, and information related to financial audits. Duringimplementation, these reports, updated monthly , will be available to the Bank supervision team asrequired.

Audits are handled by the Federal Government's General Accounting Organization, or "Federal ControlSecretary--SFC. " The SFC acts as a completely independent auditing agency and has played an importantrole in assuring the quality of project accounts and in identifying any accounting errors or discrepancies.The SFC has become mnore involved with the Fundescola Program on matters related to financial qualitycontrol during the preparation of Fundescola III. The SFC has agreed with the Bank based on the protocolof understanding between the Secretariat and the Bank, that SFC will continue to perform audits forFundescola as a priority in their work program.

5. Environmental: Environmental Category: C (Not Required)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.

There are no major environmental issues envisioned, as the project will finance the rehabilitation of existingprimary schools. Absolutely no new school construction will be financed by this project. Guidelines forschool repair and renovation by school-council contracted labor were reviewed by Bank environmentalspecialists during the preparation of Fundescola I and II. These government documents have been updatedand the revised, and the current editions were already cleared by the Bank. Periodic supervision missionswill include Bank environmental specialists to verify that guidelines are being followed adequately.

5.2 What are the main features of the EMP and are they adequate?

(not applicable)

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft: N/A

(not applicable)

5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environmental impacts and proposed environment management plan? Describe mechanismsof consultation that were used and which groups were consulted?

(not applicable)

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

(not applicable)

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.

Fundescola II's ability to achieve its educational goals as an equity oriented project may beaffected, both positively and negatively, by various social factors. Three of the most positive factors at play

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are the solid and increasing political support provided by the government to basic education, the brand-newand many-faceted national consensus for and commitment to education, and parents' continuing demand foreducational services for their children in spite of serious economic constraints.

Studies exploring stakeholder perspectives reveal that there is a widespread belief in the value ofeducation, and a general belief arnong most stakeholders that the quality of primary education needs to be,and can be, improved. Available evidence also suggests that although economic pressures on poor familiesand limited access to higher levels of primary education continue to be problems, poor quality education isthe primary reason behind school failure and dropout. For example, 1996 LSMS data indicates that 23percent of poor 7-14 years old and 41 percent of poor 15-17 years old who were out of school cited "lackof interest" as their main reason for not attending, though less than 1 percent of the same group felt theyhad already attained the desired level of schooling.

There is also a fair degree of overlap in opinions regarding what needs to be changed. Betterphysical conditions for schools, more and better material and equipment, a more relevant curriculum, andbetter qualified teachers are mentioned again and again in interviews across a range of stakeholders. Thedesign of the Fundescola progran takes these perspectives into account, while also attempting to addresssome of the root causes of the problems identified. Thus, for example, repair of school buildings andequipping of classrooms are included in the project, within a larger framework of promoting the use ofminimum operating standards and state and municipal cooperation in microregional planning.

Attitudes and perspectives that present a challenge for the project include: (1) a sense ofdisconnection and lack of shared perspectives between schools and their communities; (2) the lack of acommon view among teachers and principals that student learning is their main priority; (3) teachermisperceptions about repetition and literacy teaching; (4) lack of clarity about the role of the school; (5) thepersonalization of school failure; and (6) a fairly widespread "disempowerment syndrome" wherebyeveryone complains about the system, but few (be they parents or municipal secretaries of education)assume the responsibility for change. Fundescola's main mechanism for working at the level of the schooland community (where many of these attitudes prevail) is the school development plan. Conceived as a jointschool-community exercise, the school development plan is also the most likely entry point to begin toaddress many of the issues outlined above. Messages and activities developed under the project's socialmobilization and communication component should also help reinforce alternative perspectives. As aconcrete incentive for schools to participate in the school development process, Fundescola HI includesfinancing for school improvement projects developed as part of the overall school plan.

At the state and municipal level, the project represents a fairly radical departure from the statusquo and will doubtless entail a range of attitude and behavioral shifts. By encouraging states andmunicipalities to cooperate rather than compete for resources, the project will help to clarify responsibilitiesand raise issues of accountability that have hitherto been obscured. This process is likely to have itspolitically uncomfortable aspects. The challenge for the project will be to demonstrate to both states andmunicipalities, that they can "(1o well by doing right" in the educational arena. Here again, socialmobilization and communications activities included under the project should be helpful, both inmaintaining pressure on political figures to do the right thing, and in helping to publicize the successes ofthose that do. Training for state and municipal education staff should give them a technical basis fordecisions that in the past have tended to be ruled by politics. Concrete incentives for municipalities to "buyin to" and expand project approaches have will be included in the Fundescola III design.

6.2 Participatory Approach: How are key stakeholders participating in the project?

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The design of the program emphasizes deep community engagement and parental involvement.Ever since the first phase of the Fundescola program, a large number and variety of consultations werecarried out to identify evaluate key stakeholders' most important values regarding education. Some of theconsultations took a more formalized format (for instance, responding the LSMS or participating instructured workshops); others, more were informal (meetings in schools and with community groups). Themain result of this process is the confirmation of a general sense of disempowerment on the part of teachersand parents. In a sense, the project was designed specifically to address these feelings of disengagement.Parents and teacher became the key stakeholders at the school and community level; together they areresponsible for developing the school's strategic objectives and action plans, receiving financial andtechnical support from the government via the project, and re-directing this support according to thepriorities identified in their own strategic plan. Thus, not only is the project participatory by design, it isalso participatory in its implementation.

6.3 How does the project involve consultations or collaboration with NGOs or other civil societyorganizations?

The main civil society organization that is intrinsic to project design is the school council, which iscomposed mainly of parents associated each school, one per targeted school. Its function is to elaborate theSchool Development Plan with the school staff, and manage the additional finances the school receivesunder the project to improve the school's operational conditions, and to implement the annual SchoolingImprovement Subprojects. Participation is deeply rooted within communities. The key stakeholders for theproject are students, parent, teacher and local governments (through School Development Plans). Theschool council engages or manages contracts with local organizations, NGOs, private associations, andother institutions to acquire services for the training of their teachers.

The School Development Plan is a strategic planning process initiated by school leaders andprepared with the participation of the school community. It allows each school to assess its quality, defineits values, mission, goals and strategic objectives, and action plan for reaching and improving.Furthermore, it promotes an enhanced process of community development.

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

Essentially, the School Development Plan helps local government support the community's effort toimprove their schools. In fact, promotion of, and support for public engagement is one of the keyobjectives of the project. The process helps the local government recognize the uniqueness of each schoolsupport its search of identity and values.

6.5 How will the project monitor performance in terms of social development outcomes?

Annex 1, and especially section 4.1, highlights the intense monitoring and evaluation for thisproject. Besides monitoring the number of schools using Fundescola interventions, every one of the schoolsparticipating in the program will be monitored for the level of implementation of the interventions, and thequality of such implementation. In addition, through research studies, student performance in theseschools will be monitored.

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7. Safeguard Policies:7.1 Do any of the following safeguard policies apply to the project?

Policy ApplicabilityEnvironmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes 0 NoNatural Habitats (OP 4.04, BIP 4.04, GP 4.04) 0 Yes 0 NoForestry (OP 4.36, GP 4.36) O Yes * NoPest Management (OP 4.09) O Yes * NoCultural Property (OPN 11.03) 0 Yes * NoIndigenous Peoples (OD 4.20) 0 Yes 0 NoInvoluntary Resettlement (OP/BP 4.12) 0 Yes 0 NoSafety of Dams (OP 437, BP 4.37) 0 Yes 0 NoProjects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 NoProjects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* 0 Yes 0 No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

F. Sustainability and Risks

1. Sustainability:

Transforming Secretariats of Education. By mid-2001, only three states and 7 municipalities (albeitseveral of the larger ones) have expanded at least some aspects of the Fundescola strategy to all schoolsin their jurisdiction. The litmnus test for achieving the type of ownership described in the precedingparagraph is for large numbers of Secretariats of Education to adopt Fundescola policies and methods,adapt them to their own context and conditions, integrate them into their strategic plan as well as theirroutine operations, and then transform themselves into Fundescola-inspired systems. This is asignificant challenge for Fundescola m with regard to the microregions in which Fundescola I and 11have already been working. But that challenge pales in comparison to that of transforming municipaleducation secretariats suffering from the lowest levels of Human Development into model adopters andimplementers of the Fundescola school improvement strategy.The Role of the State Government. The State Secretariat of Education has a critical role to play insupporting the weaker municipal governments and helping sustain the education reforms introduced bythe Project. Although it is not their legal responsibility, it is up to the State governments to take thelead in the process of providing technical assistance to these municipalities, in creating an informationculture, and in supporting their implementation of a school improvement strategy. Clearly larger citieshave the greatest capacity to manage their own systems, and States progressively transfer operationalresponsibility and even entire primary education systems to these local governments. Such actionwould lead to a gradual reduction on the burden borne by State Secretariats of Education.Correspondingly, State governments interested in improving education outcomes for all of its citizenryshould increase their efforts in providing assistance to those jurisdictions where education indicatorsare pulling down the statistics for the entire State. Fundescola IIl will work with the State's FundescolaCoordinating Group in the 'Secretariat of Education to build their capacity and help provide incentivesfor them to work as partners with the poorest municipalities attempting to transform themselves intosustained Fundescola districts.

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2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

Risk Risk Rating Risk Mitigation MeasureFrom Outputs to ObjectiveA lack of political commitment or N The project will provide differentiated supporttechnical support to schools of state and to schools, municipalities, or states dependingmunicipal education secretariats on their level of commitment and effort.

Rewards, incentives, or technical assistance willbe offered to promote partnerships and higherlevels of sustained commitment. Socialmarketing will also be used to foster communitypressure for adopting Fundescola-type reforms.

Low level of cooperation among the state M The project will use the microregion forum toand municipal systems promote inter-regional collaboration and

pressure to maintain the engagement of each ofthe members of the forum.

End of decentralization of resources M Fundescola III will support local workshops todirectly to schools (on the part of federal launch the project, will disseminate findings ofgovernment) research currently underway for the program.

Political and public awareness of the project'ssuccess at local levels will also help maintainpressure on the Ministry of Education tocontinue with the "money to schools" program.

Lack of community and political Ncommitment for reform including demandfor quality services, social mobilizationand monitoring.

Low commitment for improving the N Project will continue to support and disseminateeducation results as a means of poverty research that examines relationship betweenreduction and national development. education and poverty.From Components to Outputs

Overall Risk Rating M

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

In contrast to Fundescola I and II, which were conceived, prepared and implemented during the twoterms of the Cardoso presidency, the third project of the Fundescola Program will be gearing up and reachfull implementation phase under a new federal administration and numerous new state governments. Thisbrings a new challenge to the program. Although previous political changes had in fact occurred during theimplementation of projects I and II, President Cardoso's supported and maintained Minister of EducationPaulo Renato throughout his tenure, and the Minister did not change any of his key staff, including theProgram's management, since the beginning of the Program.

The political and administrative changes at the federal level will include in a new Minister ofEducation and a variety of new state Secretaries of Education. In addition, these changes may bring somenew management arrangements to the project. Nonetheless, major changes would only happen if the

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federal government's process of school-level decentralization and school autonomy that is in place were tobe modified.

At state level, the change s that are expected may repeat previous government changes at the statesadministration, with immediate eifects on the COEPs structures and staff. This kind of changes has beenabsorbed by the support of the local technical team of supervisors and monitors.

The political changes at mlunicipal level will take place only in the midterm of projectimplementation. At this time, management arrangements will be able to anticipate any potential problem.

With regard to financial issues, although the national economic growth rate is expected todecrease, the financing laws and arrangements, especially the Education Salary Tax, the federal share ofwhich finances project counterpart funds, and the FUNDEF law, which assures a funding floor for publiceducation, is not expected to be modified or even interrupted during the life of Fundescola Im.

Finally, there is a strong social mobilization in favor of education in Brazil, and a continuouslyincreasing pressure of the citizemy for additional years educational attainment. Although the expansion ofsecondary education may request firther investments by the states, municipal governments will maintaintheir emphasis on primary education, seeking higher quality.

3. Possible Controversial Aspects:

None

G. Main Loan Conditions

1. Effectiveness Condition

A. The Project's Operational Manual (the MOIP) has been approved by the Bank, and

B. At least 10 Participation Agreements, acceptable to the Bank, will have been signed by all parties.

2. Other [classify according to covenant types used in the Legal Agreements.]

H. Readiness for Implementation

[ 1. a) The engineering design documents for the first year's activities are complete and ready for the startof project implementation.

Z 1. b) Not applicable.

Z 2. The procurement documenits for the first year's activities are complete and ready for the start ofproject implementation.

Z 3. The Project Implementatioia Plan has been appraised and found to be realistic and of satisfactoryquality.

[0 4. The following items are lacking and are discussed under loan conditions (Section G):

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1. Compliance with Bank Policies

1 1. This project complies with all applicable Bank policies.OI 2.. The following exceptions to Bank policies are recommended for approval. The project complies with

all other applicable Bank policies.

Robin S. Hom Ana- i Vinod ThomasTeam Leader Sector Manager/Director Country Director

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Aninex 1: Project Design Summary

BRAZIL: FUNDESCOILA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)Key Performance Data Collection Strategy

jHi.rarchy of Objectives Indicators Critical AssumptionsSector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)Achieve universal primary Increased average years ofeducation by 2007; and schooling for economically

active populations in targetedregions.

Improve academic Increased percentage of youthperformance in basic subjects, that have completed primaryparticularly Portuguese and school in the Northeast,mathematics. North, and Center West

Regions.Reduce inter-regional 3. Reduced disparity indisparity in educational schooling attainment betweenoutcomes. the Northeast, North, and

Center 'West regions.

Program Purpose: End-of-Program Indicators: Program reports: (from Purpose to Goal)By 2010: By 201(1:Improved educational The guidelines for minimumoutcomes of children enrolled operatioinal standards forin public primary schools in schools will be disseminatedthe targeted microregions of to 80% of secretariats ofthe North, Northeast, and education in the participatingCenter West regions. microregions for them to

promote to their school staffand school communities.

At least 90% of primaryschool students will beenrolled in targeted schools inthese microregions meetingthese standards .

Each of theFundescola-designedschoolinig improvementproducis, along with itscomplementary program forthe secietariat, will beupdateel and completed.

One or more strategies for"going to scale" with theseproducts will be developedand tested."

At leasi. 80% percent of theprimary students will beenrolled in targeted schools

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implementing at least one ofFundescola's schoolingimprovement strategies, withthe support of theirsecretariats.

Improve promotion rates intheir schools: In theparticipating microregions,promotion rates will increasefrom their current levels (onaverage, in 1997, 64.2% inthe North, 64.7% in theNortheast, and 71.5% in theCenter West) to 85%.Improve student achievementlevels in their schools: In theparticipating microregions,achievement rates willincrease from their currentlevels. In mathematics, theproportion of 4th gradestudents achieving at theelementary level ofproficiency will increase from55%, 52%, and 60% in theNorth, Northeast and CenterWest regions, respectively, to62%, 59%, and 68%.In Portuguese, the proportionof 4th grade studentsachieving at the elementarylevel of proficiency willincrease from 59%, 58%, and62% in the North, Northeastand Center West regions,respectively, to 67%, 66%,and 69%.

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Ke3i Performance Data Collection Strategy .Hlerarchy of Objectives Indicators . Critical Assumptions

Project Development Outcomia / Impact Project reports: (from Objective to Purpose)Objective: Indicators:To assist targeted secretariats The guidelines for minimum INEP, SAEB, and LSE Continued Basic Educationof education to reduce the operational standards for reports. Policies, particularly indisparities across their schools will be disseminated reference to financing, equity,prinary schools and increase to at least 50% of the Specially contracted SAEB quality and evaluation.the effectiveness of these secretariats of education in the sample of targeted schools Consolidation of mechanisms,schools, within each local participating microregion for during the years SAEB is programs and system withingovernment's financial them to promote to their administered. the scope of Basic Educationcapacity. school staff and school with emphasis on: FUNDEF,

communities. (The Project Studies and surveys using a Bolsa-Escola, Text books,Operational Manual specifies representative sample of School Lunches, NationalFundescola's guidelines for schools assisted by the project. Curriculum Standards andminimumn operational SAEB.standards and definitions of Increase in the articulationwhat it means for a secretariat between these policies,to disserainate and promote programs, systems andthese standards.) mechanisms, and states and

municipalities initiatives.At least 70% of primaryschool students will beenrolled in targeted schools inthe participating microregionsmeeting these standards.Each of theFundescola-designedschooling improvementproductr,, along with itscomplermentary program forimproving the secretariateffectiveness in implementingthat product, will be fullydeveloped and tested. Inaddition, evaluations ofsecretariats' implementationof these products andcomplements, and of theimpact of these products onschools and student outcomeswill be completed. (TheProject ODperational Manualincludes a list of the schoolingimprovement products to besupported under FundescolaLEiA, along with a list of thecomplementarysecretariat-based products,and the evaluation criteria.)

At least 70% of primarystudents will be enrolled in

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targeted schools in theparticipating microregionsthat are implementing one ormore of these schoolingimprovement products, withthe support of theirsecretariats.

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HIerar K Cerformance I 'uata Collection Strategy I-Hierarchy, of;ObJectiVesW * ;W fndicAto-X i;= -- ;. Crtl'A "tirtio 0Ss

Output from each Output ilndicators: Project reports: (from Outputs to Objective)Component:1. Raising Schools toMinimum OperationalStandards

1.1 School-Managed 1.1 10,000 or moreRehabilitation Subprojects classrooms and their

corresponding sanitarymodules financed with projectfunds;

1.2 Provision of Furnitureand Equipment 1.2 10,000 or more

classrooms equipped andprovided with furniturefinanced. by the project;

1.3 Provision of ReadingBooks 1.3 5,000 sets or more of

supplementary reading books(modules) delivered toschools implementingteaching/learning models.

2. Establishing a SchoolDevelopment Process

2.1 School Strategic Planning 2.1 2,000 or more schools,

with at least 100 studentsenrolled, elaborated andimplemented their PDEs.

2.2 Schooling Improvement 2.2a 2000 or more schools

Subprojects implemrnmted "initial-phase"

PMEs.

2.3 Implementation of l lTeaching-Learning Models 2.3a 2,'500 or more rural

multigrade schools,implemented the Escola Ativamodel.

2.3b. 700 or more schoolswith PDE havingimplemented the Gestarteaching-learning model;

2.3c Two or more newteaching-learning modelsdeveloped and tested byFundescola.

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3. Strengthening theEducation Sector

3.1 Institutional Developmentof Education Secretariats 3.1a 30ormoreSecretariat

Management Plans (PGS)elaborated and implementedby Education Secretariatswithin the Project's targetedmicroregions.

3. lb 20 or more EducationSecretariats adopted at leastone of the followinginstruments and/or systems:

* systems to support schooldevelopment planning(alignment withPDE/PME);

* systems to support schoolequity improvement andmonitoring (LSE andPMFE);

* systems to assess andmonitor school andstudent performance;

* system to support schoolimplementation of at leastone teaching-learningmodel.

3.2 School Council 3.2 85% of schools with moreStrengthening Subprojects than 20 students, in targeted

areas, received an annualtransfer of funds.

3.3 Project Management, 3.3a Quarterly projectMonitoring and Research progress and implementation

reports, providing results onall Logframe indicators,generated by project'supgraded ImplementationMonitoring System.

3.3b At least 4 major studieson the implementation andimpact of each of Fundescola'skey principles and strategies,including especially studies of

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the adoption, integration,expansion, and sustainabilityof Fundescola- type reformsby local. governments, andstudy rnsults domestically andinternationally disseminated.

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',' arh of Objectivs ; KeylPet nnnce DtaP CollectioMn, |, 1,____,ierarcihy of lbjdctiv6s' < iIndicatorsl-A asumptrotsg

Project Components / Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)1. Raising Schools toMinimum OperationalStandards1.1 School-Managed $50,000,000Rehabilitation Subprojects1.2 Provision of Furniture $40,000,000and Equipment1.3 Provision of Reading $5,600,000Books

2. Establishing a SchoolDevelopment Process2.1 School Strategic Planning $4,600,0002.2 Schooling Improvement $20,000,000Subprojects2.3 Implementation of $11,800,000Teaching-Learning Models

3. Strengthening theEducation Sector3.1 Institutional Development 9,000,000of Education Secretariats3.2 School Council 160,000,000Strengthening Subprojects3.3 Project Management, $19,000,000Monitoring and Research

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Annex 2: Detailed Project Description

BRAZIL: FUNDESCOLA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)

Component 1: Raising Schools to Minimum Operational StandardsSubcomponent 1.A: School-Managed Rehabilitation Subprojects

This subcomponent provides financing and technical assistance to schools in order to help them attainthe Minimum Operational Standards level of functioning. Fundescola will support the rehabilitation orimprovement of school security, sanitary facilities, structural integrity, and operational conditions ofschools without altering the constructed area or internal layout of the school building. Also, it willprepare schools to receive and maintain furniture and equipment.

Within this subcomponent, Fundescola prioritizes the rehabilitation of school space used by students.This means that top priority will be given to classrooms, and in view of the need to ensure adequatehygienic and sanitary conditions, priority will also be given to the rehabilitation of school bathrooms.Once these spaces are addressed, remaining funds may be used by the school to rehabilitate or guaranteethe adequacy of other school rDoms.

Each school benefiting from this subcomponent needs to have a legally-established school council, alongwith a school bank account The school councils, which are responsible for the management of fundstransferred to schools, define, plan, and manage the implementation of activities financed under thissubcomponent. Technical staff from the responsible state or municipal education secretariat willprovide guidance and technical support to the school councils. Fundescola will audit the physical andfinancial execution of these activities.

Emphasis will be given to schools that are implementing a School Development Plan (see subcomponent2A) or the Escola Ativa rural multigrade model (see subcomponent 2C).

Fundescola will use the following criteria to assess school eligibility for financing under thissubcomponent: The school should:

be located in a Fundescola targeted microregionbe a public state or municipal school.have a school council of its own, or in joint venture, registered with the National Fund forSchool Development (FNDE);should be identified as eligible in Fundescola's School Status Assessment.

Projected Results

Students studying in approximately 10,000 classrooms in targeted microregions will benefit fromimproved school facilities, including toilet modules and the rehabilitation of classroom infrastructures.

Subcomponent 1.B: Provision of Furniture and Equipment

This subcomponent finances the acquisition of basic furniture and equipment for schools eligible underthe terms of the previous subcomponent. Classroom and school items include, inter alia, desks andchairs for students, tables and chairs for teachers, fans, and classroom storage cupboards. Specialattention will be given to the durability and ergonomic specifications of furniture, as well as the mobility

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of chairs, desks, tables and blackboards within the classroom.

Projected Results

These materials will reach approximately 10,000 classrooms.

Subcomponent 1.C: Provision of Reading Books

This subcomponent will provide a kit of supplementary reading books to rural multigrade schools thatadopt and implement the Escola Ativa teaching/learning model within the scope of the FundescolaProgram as well as to other schools implementing new teaching/learning models to be developed underFundescola IIIA.

Projected Results

Approximately 5,000 schools that are implementing Escola Ativa other new teaching/learning modelswill be provided with a kit of supplementary reading books via support from the Fundescola III project.

Component 2: Establishing a School Development ProcessSubcomponent 2A: School Strategic Planning

This subcomponent supports the preparation, monitoring and evaluation of the school strategic planningprocess, leading the preparation and implementation of School Development Plans (PDEs) within thetargeted microregions. Under this subcomponent, a structured training and technical assistance programwill be provided for state and municipal secretariats of education throughout the 36 microregions, aswell as for principals and teachers spanning at least 2,000 schools. This subcomponent helps the schoolalign its programs, policies, and resources on students and their educational outcomes.

The PDE process is initiated by the school leadership and prepared with the participation of the schoolcommunity. It helps each school to assess its quality, define its values, mission, goals, strategicobjectives, and annual action plans for improving the educational experience for the students. Theultimate objective of this subcomponent is to improve teaching quality, raise promotion rates, reducefailure and dropout rates, and increase student learning achievement Further, it is designed to promotegreater public engagement in the education system, and ownership of the school, which in turn leads toincreased school effectiveness.

The methodology used to prepare and implement the School Development Plan follows strategicplanning principles. The school principal takes on the responsibility for the guidance and coordinationof the development plan. All school staff school and the school community participate in the diagnosis ofschool quality constraints, the establishment of a monitorable strategic plan with indicators, objectives,and quantitative targets, and the specification of activities designed to help the school staff andcommunity achieve the agreed targets.

The School Development Plan is divided into two major components:

A Strategic V'ision, in which the school identifies:* the values agreed by the school community;* the vision for the future of the school;* the mission, or "raison d'etre" of the school;

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* the strategic objectives for the next two to five years.

A Strategic Support Plan, in which the school defines a set of strategies, goals, and an actionplan that will help it achieve its strategic objectives.

The selection criteria for schools to be eligible for PDEs are:

* To belong to a Fundescola microregion* To have a legally-established school council.* To have a principial with strong leadership qualities;* To meet Minimumn Operational Standards.

Projected Results

School Development Plans will be implemented in at least 2,000 schools.

Subcomponent 2.B: Schooling Improvement Subprojects

This subcomponent finances activities identified in the PDE by directly transferning funds to schoolcouncils. The Schooling Impiovement Subproject consists of an action plan that a school selects fromits School Development Plan i(PDE). These activities have been specified in these PDEs as critical toimproving student learning, the ultimate goal of the school, and as key steps towards achieving thePDE's targets.

These subprojects are appraised, selected and financed according to the following criteria:

consistency with Fundescola objectives and procedures,* coherence with the school's Development Plan

expected impact on student performance and school management capacity.

The implementation of any particular Schooling Improvement Subproject should not last more than oneyear, and the threshold of funds for each beneficiary school is proportional to the number of students, asfollows:

Range Level Number of Students Total in R$1 From 100 to 199 students R$ 4,400.002 From 200 to 500 students R$ 6.200.003 Between 501 and 1,000 students R$ 10.000.004 Between 1,001 and 1,500 students R$ 12,000.005 Over 1,500 students R$ 15,000.00

Projected Results

2,000 schools will implement "initial phase" PME activities funded by Fundescola hIA.

Subcomponent 2.C: Implementation of Teaching-Learning Models

This subcomponent finances the development and supports the implementation of school-level, orclassroom-level programs designed to help improve teachers' effectiveness at improving student learning

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outcomes. It provides support for the research, development, testing, and dissemination of a variety ofteaching-learning models that consist of an integrated package of didactic support materials, classroommethodologies, sample lesson plans, student evaluation instruments, content-rich teacher developmentmaterials and training linked to the model, and routine technical assistance. A variety of models are tobe developed as appropriate for different types of learning situations, different student populations, anddifferent content areas. All developed models in this subcomponent are optionally available for schoolsand secretariats of education.

The primary objective of this subcomponent is to develop a menu of tested approaches that allows eachschool to select a model that best suits its context, philosophy, and priorities. At least four models willbe supported by this component. Two of them have already been developed and are being implementedand/or expanded under Fundescola II. These are

* Escola Ativa (or "Active School'), a school improvement strategy geared towards multi-gradeteachers for working in small, multi-grade, mostly Ist-4th grade schools, particularly thoselocated in rural areas;

Escola Ativa is designed to maxiniize the quality of teaching in multi-grade classes bycombining a series of elements and tools with pedagogical/managerial techniques.

Escola Ativa is based on the following concepts:Active learning centered on student;Cooperative learning;Continuous evaluation;Flexible promotion.

Combined elements are:- Learning guides;- Group work;- Learning corners;- Active, Student government;- Parent and community participation;- Teachers trained in the Escola Ativa approach;- Microcenters.

The selection criteria for schools to be eligible for Fundescola's Escola Ativa program are:- To belong to a Fundescola Microregion";- To have only multi-grade classes;-To have an approved Escola Ativa school kit for each student.

Projected Results

The Escola Ativa design will be introduced and implemented in at least 2,500 newmulti-grade rural schools.

* GESTAR (or "School Learning Management Program') is a pedagogical management andinstructional support program aimed at helping teachers dramatically improve the educationaloutcomes of their students in mathematics and Portuguese for 1st through 4th grade students.To achieve this end, three main activities are included: Re-organizing of teaching content based

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on student assessment; continued in-service training, including self-paced modules, for theteaching staff based on knowledge shortfalls diagnosed by means of the same studentassessment instruments,, and learning support activities to help teachers develop knowledge andskills in their pupils.

The following are components of the Program that promote classroom impact:

- School space for collective study;- Strong articulation between study and work;- Study circles;- Theory and practice notebooks- Teacher training monitored and guided by tutors.

The following are the criteria for municipalities and schools to be eligible for Fundescola'sGESTAR Program:

- To belong to a Fundescola Microregion- To have schools that have implemented School Development Plans- To have a coordination team in the Secretariat of Education- To have no programs that conflict with the pedagogical proposal of GESTAR- To have approval from school principals and teachers- To select and make available full-time tutors for the Program

Projected Implementation

700 schools from municipalities and states will adopt the GESTAR program.

* At least two, new teaching/learning models will be developed and implemented within the scopeof Fundescola IIIA: these are an upper-level GESTAR for grades 5 to 8, and an alternativeteaching/learning mod'el to GESTAR, oriented to small size urban and single-grade ruralschools, grades I through 8.

Component 3

Subcomponent A - Institutiornal Development for Education Secretariats

The purpose of this subcomponent is to help secretariats of education, via Fundescola-led strategicplanning exercises carried oui: by leadership teams in participating secretariats of education, developand implement their own Secretariat Management Plans (PGS). These PGS tools will be introduced ona trial basis during Fundescola IIIA, with local governments invited to partner with Fundescola todesign and evaluate the effectiveness of these instruments and processes. Specifically, these systemsare being developed to help guide secretariat leadership teams on exercises to help them clarify theirmission and align their policies, programs, and supervision and support activities on helping all of theirschools be effective. The management strengthening programs will also assist Secretariats' efforts toimprove their decision-making and their monitoring of school performance. Through theimplementation of the PGS, the Secretariat will be able to effectively implement Fundescola-developedproducts on their own, sustain policy-strengthening activities for their schools, and adopt permanentmechanisms to support these initiatives, including through the direct transfer of funds to their schools.In addition, for secretariats that are implementing a PGS, Fundescola will provide incentives for them

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to adopt, initially on a trial basis, a system that promotes the continuous improvement of their schools

towards an agreed set of "standards of excellence." This system will be developed and tested underFundescola LIA based on the following three, integrated instruments: (a) school self-evaluation; (b)

secretariat-managed school external evalution (a type of quality assurance inspection); and (c) a

supervision program of the secretariat aimed at providing qualified technical-assistance to schools to

help them achieve the standards of excellence.

The following are the supporting tools for educational management provided to educational systems by

Fundescola:

* Monitoring and evaluation systems for school effectiveness* School supply monitoring system* Support system for the implementation of teaching and learning models

By adhering to PGS methodology, the secretariat of education will:

* implement Fundescola products on its ownsustain policy-strengthening for schools and systems that have implemented Fundescola products

* adopt permanent mechanisms for direct transfer of funds to schools

Fundescola will also assist the Secretariats of education employ software for the statistical,

administrative, and financial information needed for effective decision-making. Fundescola grants the

software and the technical assistance during the implementation and production stages, while the

secretariats are responsible for providing facilities, equipment, necessary staff.

Projected Results

The Secretariat Management Plan will be implemented in 30 secretariats of education.20 or more Education Secretariats adopted at least one of the following instruments and/or systems:

-systems to support school development planning (alignment with PDE/PME);-systems to support school equity improvement and monitoring (LSE and PMFE);-systems to assess and monitor school and student performance;-system to support school implementation of at least one teaching-learning model.

Subcomponent B - School Council Strengthening Subprojects

This subcomponent promotes greater school autonomy by providing a small budget to all schools with

more than 20 students in the North, Northeast, and Center-West regions. Funds reach the school

councils for financing the School Council Strengthening Subproject by direct transfer from the federal

government (FNDE). The procedure is regulated by federal legislation, which sets criteria, conditionsand processes for direct school funding.

This subcomponent is designed to stimulate the active engagement of parents and teachers in the

governance of the school, to promote school autonomy by providing funds that can only be used subject

to the decision of parents and teachers at the school, and to contribute to school performance by

financing goods and services identified and prioritized by the school council as needed to raise school

outcomes. School councils will use their subprojects for the acquisition of teaching materials, books,

equipment for school management, and other goods or services on which school councils come to an

agreement. School councils must draw up a plan for the utilization of these funds, and must account for

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the use of these funds vis a vis the plan. Fundescola's DGP supports schools in their correct utilizationof these funds by providing training and guidance materials to schools, and monitors schools' planningand accounting.

Projected Results

85 percent of schools with more than 20 students in the targeted areas of Fundescola DIlA will benefitfrom this subcomponent.

Subcomponent C - Project IManagement, Monitoring, and Research

This subcomponent aims to ensure effective coordination and implementation of Fundescola DI.Fundescola management will rely on the Program General Management Unit (DGP) and the StateExecutive Coordination for tha Program (COEP) to effectively administer the project to all beneficiariesat the school, municipal, and raicro-region levels.

Established by the Ministry oi Education to manage the activities needed for the total compliance of theLoan Agreements of Fundescola, the DGP will manage end activities of the Program. It will alsomanage all administrative and logistical support needed for the development of all activities of Program.

Given that primary schooling in Brazil is the responsibility of state and municipal governments, overwhich the federal government has no direct authority, the project design recognizes that to improveschools, the Ministry will have to mobilize the state and municipal governments to undertake the reformsdeveloped and tested under the Fundescola Program. Clearly a key element the federal governmentwould need in its effort to convince state and municipal governments to adopt Fundescola-based reformsis a set of solid, high quality, quantitative and qualitative empirical research studies, carried out byindependent, respected specialists and institutions, that examine every aspect of the program's objectivesand interventions. For this reason, the research to be financed out under this subcomponent will go wellbeyond comprehensive monitoring to evaluate program interventions and impact. In addition toassessing the impact of specific instruments and models on student learning, the research program willexamine the adoption and integration of Fundescola-type reforms by local governments, policy reformsin those governments, and the sustainability of such reforms.

Projected Results

At least 4 independent researcli studies will be completed under Fundescola IILA.Bi-Annual reports, with Project implementation indicators, will be produced.

By Component:

Project Component 1 - US$95.60 irnillion

Project Component 2 - US$36.40 million

Project Component 3 - US$ 188.01) million

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Annex 3: Estimated Project Costs

BRAZIL: FUNDESCOLA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)

iET,L'*,X;caIx * 'Foreign . 'otalP'.,.,rojectCosttByComponent. US $million .- US $million US $miilion

1. Raising Schools to Minimum Operational Standards 0.001.1 School-managed rehabilitation subprojects 40.70 40.701.2 Provision of Furniture and Equipment 31.36 0.64 32.001.3 Provision of Reading Books 5.00 5.00

2. Establishing a School Development Process 0.002.1 School Strategic Planning 4.00 0.20 4.202.2 Schooling Improvement Subprojects 16.45 16.452.3 Implementation of Teaching-Leaming Models 9.55 9.55

3. Strengthening the Education Sector 0.003.1 Institutional Development of Education Secretariats 7.16 0.14 7.303.2 School Council Strengthening Subprojects 137.00 137.003.3 Project Management, Monitoring and Research 13.31 0.24 13.55

Total Baseline Cost 264.53 1.22 265.75Physical Contingencies 2.11 0.08 2.19Price Contingencies 50.29 0.17 50.46

Total Project Costs 316.93 1.47 318.40Front-end fee 1.60 1.60

Total Financing Required 316.93 3.07 320.00

, . , . , ,,-....... ,, ,>" , ,,^y-,;= *Loca. . .il -2Foreign T6tal'ProiectCostByCategory, ,.'4. Sl$m ilion 'US $million US.$millior

A. Goods 0.00For the Borrower 6.44 0.34 6.78For States and Municipalities 47.34 0.73 48.07

B. School Subprojects 230.05 230.05Training & Consultants for the Borrower 18.46 0.40 18.86Training & Consultants for States and Municipalities 9.06 0.00 9.06

D. Administrative Expenses 5.58 0.00 5.58

Total Project Costs 316.93 1.47 318.40Front-end fee 1.60 1.60

Total Financing Required 316.93 3.07 320.00

Identifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes, is 320 (US$m). Therefore, the project cost sharing ratio is 50% of totalprject cost net of taxes.

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AnFiex 4: Cost Benefit Analysis Summary

BRAZIL: FUNDESCOLA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)

Summary of Benefits and Costs:

Undergirding Fundescola III's economic analysis is the fact that, despite the latest improvements inperformance and enrollments, the North, Northeast and Center West regions still lack large scale,integrated interventions to improve their public primary education system. The development objective ofthe project is to increase the capacity of education secretariats and to focus their attention on the dual tasksof augmenting the effectiveness of the primary schools in their system and of raising levels of equity acrossthese schools.

The cost-benefit analysis was undertaken in the following manner: (a) the costs were estimated; (b) the flowmodel was estimated for each participating region the state system; (c) a historical trend was applied for theflow models, taking into account the method introduced by Rubens Klein, in order to determnine how theflows of students would look without the project; (d) the impact of the project on the flows was estimated tothe year 2010; (e) the number of students that conclude each grade was predicted and the differencebetween the flows with the project and without the project were determined; (f) given these differences, theout-of-school benefits were calculated by using both the private rate of return to each grade of educationand the increment in productivity related to the increase in the proportion of schools meeting SAEBlearning standards; (g) in performing the sensitivity analysis, the NPV and the IRR were calculated andtested for different scenarios.

In the calculation of the IRR and the NPV, the sensitivity analysis considered twelve possible scenariosinfluenced by potential outcomes of income flows and productivity growth. The IRR results are as follows:

Worst Middle Poor Middle Good Best

IRR- % prod. 19.16% 21.62% 25.23% 29.00%

IRR- 1% prod. 19.24% 21.94% 25.60% 29.42%In c _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

IRR- 2% prod. 19.52% 22.26% 25.96% 29.84%

NPVo- 0% R$ 535,301,735 R$ 687,804,031 R$ 930,928,837 R$1,174,059,936

NPV - 1% R$ 539,756,422 R$ 712,188,452 R$ 958,361,267 R$ 1,204,540,437prod. Inc__ _ _ _ _ _ __ _ _

prod. Inc R$ 561,810,742 R$ 736,572,872 R$ 985,793,696 R$ 1,236,360,827

Yhe Internal Rate of Return for all scenarios are satisfactory (the IRR ranges from 19.16% to 29.84%).Even in the "Worst" case, the return rate of the project is greater than the Bank's standard discount rate of10-12 percent, which indicates the capacity of the project to generate substantial benefits. Besides thesatisfactory IRRs and positive Nl?Vs, the project does not yield to a high variability across the scenarios,suggesting a high probability that gains will be positive and significantly above the minimum requirementfor investment yield.

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Main Assumptions:

1. Project Context

In Brazil primary education has become an important priority for the federal government.Substantial progress was made in the last half-decade, as indicated by the following: (i) thepercentage of children aged 7 to 14 enrolled in school increased; (ii) primary school enrollmentexperienced major growth in all regions; and (iii) the FUNDEF law assured a minimum level ofper-student spending, increasing educational expenditures in hundreds of poor municipalities.

Nonetheless, the improvements in performance and enrollments are still insufficient, and muchprogress is still necessary, especially in the North, Northeast and Center-West regions. Forexample: (i) although primary school promotion rates doubled nationally in the last five years,repetition rates remain extremely high in those regions (causing age/grade gaps, over-enrollmentand dropping out); (ii) student achievement in the North, Northeast and Center-West regions fallsbelow the national average (less than 25% of fourth-grade pupils in those regions exceed thelowest performance level of SAEB); (iii) the completion and survival rates of the primary cycleare still very low in those regions as compared to the ones registered in the South and Southeast;and (iv) there is a notable social and economic difference between the Brazilian regions, where theNorth, Northeast and Center-West are the poorest ones, with 48%, 30% and 16%, respectively,of their populations living in households with per capita monthly incomes below the poverty line(US$ 65.00, in 1996).

Thus, large scale, integrated interventions to improve primary education in the North, Northeastand Center-West regions of. Brazil would appear to be highly warranted. The Fundescola IIIProject constitutes an example of such an intervention.

2. Project Development Objective, Key Performance Indicators and Components

The development objective of the Fundescola III Project is to increase the capacity of educationsecretariats and to focus their attention on the dual tasks of augmenting the effectiveness of theprimary schools in their system and of raising levels of equity across these schools.

The key performance indicators and targets to be achieved by 2010 are the following:

* In the participating microregions, at least 80 percent of primary school students will beenrolled in schools meeting Fundescola - based minimum operational standards.

* In the participating microregions, at least 80 percent of primary school students will beenrolled in schools implementing at least one of the Fundescola-based school effectivenessstrategies.

* In the participating microregions, promotion rates will increase approximately 20percentage points in the Northeast, 22 percentage points in the North and 15 percentage

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points in the Center West.

In the participating municipalities, the proportion of fourth grade students meetingSAEB-based acceptable learning standards in targeted schools will increase 2 percentagepoints from the levels that will be achieved by Fundescola I.'

The main components of Fundescola III are the following:

Component 1: Raising ')chools to Minimum Standards

Subcomponent 1.1: School-Managed Rehabilitation SubprojectsSubcomponent 1.2: Provision of Furniture and EquipmentSubcomponent 1.3: Provision of Reading Books

Component 2: Establishing a School Development Process

Subcomponent 2.1: School Strategic PlanningSubcomponent 2.2: Schooling ImprovementSubcomponent 2.3: Implementation of Teaching-Learning Models

Component 3: Strengthening the Education Sector

Subcomponent 3.1: Funding School CouncilsSubcomponent 3.2: Inslitutional Development for Education SecretariatsSubcomponent 3.3: Project Management, Monitoring and Research

3. Cost-Benefit Analysis

3.1. Methodology

One might argue that an economic analysis of the project would require adopting acost-effectiveness approach, since some of the benefits of the project, such as test scores and thenumber of students enrolled, are not measured in monetary units. Nevertheless, we assume thatcost-effectiveness analysis was already utilized in the preliminary stage of the project, when theimplementation strategy was selected based on a comparison of the cost-effectiveness ratios forall possible interventions. Thus, this document focuses on the selected intervention strategy anddoes not present further cost-effectiveness analyses for the project.

This economic analysis provides a cost-benefit analysis of the project and a correspondingsensitivity analysis for alternative scenarios.

The Cost-Benefit analysis of Fundescola III is undertaken in the following manner:

(a) The costs are estimated,

(b) A flow model is estimated for each participating region.

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(c) A historical trend is applied for the flow models, taking into account the methodintroduced by Rubens Klein2, in order to determine how the flows of students would lookwithout the project.

(d) The impact of the project on the flows is estimated to the year 2010 taking intoconsideration four possible scenarios based on the percentage of schools undertalkngPDEs.

(e) The number of students that conclude each grade is predicted and the difference betweenthe flows with the project and without the project are determined.

(f) Given these differences, the out-of-school benefits are calculated by using both the privaterate of return to each grade of education and the increment in productivity related to theincrease in the proportion of schools meeting SAEB learning standards.

(g) In performing the sensitivity analysis, the NPV and the IRR are calculated and tested fordifferent scenarios.

The main assumptions underlying the estimation and prediction of costs and benefits across timeare the following:

(a) The average exchange rate of R$/US$=2.80 is applied to all cash flows throughout theperiod 2002-2010.

(b) The estimated marginal cost, unemployment rate, and the proportion of students thatstudy and work are constant over time.

(c) For each grade, there are a large number of children out of school that would likelyoccupy the spot generated by the promotion of a student in the system. Therefore, areduction in the years of schooling due to greater promotion rates will not reduce theoverall number of students enrolled.

(d) The increase in salary due to productivity gains is proportional to the improvement inSAEB test scores.

(e) Expected earnings related to the education level can be determined by Mincerian rate ofreturn estimates.

3.2. Costs

3.2.1. Direct Costs of the Project

The projected cost and financing of the project were converted from US$ to R$. The averageexchange rate for the period 2002-2010 was assumed to be equivalent to the one estimated in

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November of 2001 by the Fundacao Getulio Vargas for the year 2002 (R$ 2.80 = US$ 1.00).Although not perfect, this is a reasonable estimate, given Brazil's managed floating currencyregime and the commitment of its policymakers to keep inflationary pressures low and tominimize volatility in the currency market. Furthermore, if it is assumed that the real exchangerate will be constant over timre (PPP holds), it can be said that the estimated direct costs arealready discounted for possible inflationary movements.

Table 01 displays the projected direct costs of the Project for the years 2002 - 2010 in BrazilianReais.

Table 01 -- Project Direct Costs* (In R$ 1,000,000)

12002 12003 12004 12005 J2006 12007 12008 12009 12010Direct Cost 134.4 168.0 196.0 420.0 410.8 168.0 336.0 1168.0 163.1

* The direct costs for period 2007-2010 are based on preliminary information.

Table 02 shows the distribution of the costs among the project participants and thereby points outthe contribution of each to the project's implementation. The Present Value of the total costsindicates the project's attractiveness to each participant.

Table 02 - Estimating Costs* (Present Value in R$)

Category Total Cost Cost to the IBRD Cost to theBorrower

Project Cost 1,257,22.8,575.30 628,614,287.65 628,614,287.65* Based on prelinminary information.

3.3 Benefits

3.3.1 Benefits Associated with the Improvement of Student Flows

Flow Model and Estimation o,fParameters

The estimation of the flow model was based on the approach developed by Klein (1995 and1999), which considers promotion, repetition and drop-out rates, as well as the percentage ofstudents transferred from other: school systems and the proportion of students previously enrolledin the system that registered after initial enrollment.

The main difficulty was not the calculation of the student flow, but rather the correct estimation ofthe various student achievement rates mentioned above. Since data sets tend to display distinctrates for the same year and grade, it is hard to tell which estimates should be used for the flowcalculation. Moreover, the estimation process is complicated by the fact that the magnitudes ofthe rates are different for public and private systems.

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The estimation method adopted is based on the fact that enrollments, promotion and repetitionrates are expected to oscillate in accordance with a historical trend independently of any externalintervention. In other words, we assume that it is very unlikely that the observed promotion andrepetition rates will be exactly the same in the future.

The flow of students was estimated for the public schools systems of the three benefited regions.First, the student flows for the without-project scenario were estimated for the period 2001-2010,and then the scenario with the intervention was determined for the same period. Next, the numberof students that would conclude each grade was predicted for every year until 201 0.4 Finally, oncethe number of concluding students per grade was estimated for both scenarios, the difference wastaken, in order to determine the increment in the number of concluding students attributable to theintervention5 .

Tables 03, 04 and 05 display the additional concluding students in each grade in the best scenario,where Fundescola III benefits 100% of the primary students of the participating microregions.Observe that the tables display the aggregated data for the North, Northeast and Center-Westregions.

Table 03: Additional concluding students in the North region

1 2 3 4 5 6 7 8 Total

2002 1,996 7,261 676 5,586 4,532 3,940 3,426 3,033 36,521

2003 10,006 9,996 10,301 8,174 7,751 7,055 5,988 72,081

2004 21,581 16,172 15,245 14,720 10,352 9,983 10,286 9,477 107,817

2005 35,356 26,152 20,048 16,071 12,428 10,248 11,120 _12199 143,621

2006 49,917 38,868 28,495 19,205 12,092 10,649 9,396 11,511 180,132

2007 57,961 52,793 39,765 25,782 12,764 9,234 8,213 15,912 222,425

2008 54,513 61,026 52,310 45,828 16,461 8,485 14,143 22,229 274,995

2009 36,680 57,670 68,574 69,520 32,938 14,878 21,901 33,538 335,699

2010 10,023 39,094 78,304 98,6101 53,739 39,514 37,484 40,907 397,675

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Table 04: Additional concluding students in the Northeast region

= 1 2 = 4 5 6 7 8 Total

2002 2943 18,212 17,79 16,928 11,462 12,974 10,704 9,727 100,728

2003 33,372 22,746 31,341 26,578 19,693 22,181 21,496 19,420 196,828

2004 79,966 44,663 34,102 33,537 19,193 23,394 28,090 28,463 291,409

2005 135,020 8449 5 4 31,098 15,696 13,216 22,063 32,503 383,647

2006 191796 135,838 82,600 39,614 499 9821 1,273 18,225 475,307

2007 226,737 191,139 128,247 65,829 1,288 (16,156) (20,782) 2,490 578,793

2008 -23-32738 959 17E648 15s586 13,672 (27,161) (45,058) 7,277 70430 1

2009 223,824 235,615 211,857 201,833 49,403 (23,250) (63,305) 1,702 837,679

2010 187,561 223,667 215,14 246,100 121,781 20,0531 (57,370) (22,199) 934,758

Table 05: Additional concluding students in the Center West region

1 2 3 4 5 6 7 8 Total2002 277 2,099 1,82 1,270 138 482 761 575 _7444

2003 7,164 2,209 3,218 1,841 (371) (494) 196 348 14,111

2004 15,604 7,701 2,742 1,973 (1,501) (2,442) (1,886) (1,149) 21,043

2005 23,515 15,552 6,868 247 (3,143) (4,969) (5,266) (4,144) _ 28,661

2006 30,263 23,270 13,698 2,676 (6,465) (7,986) (9,226) (8,626) 37,604

2007 35,397 29,852 20,632 8,054 (7,038) (12,558) (13,624) (13,680) 47,036

2008 39,793 34,729 26,442 13,669 (4,546) (15,259) (19,560) (19,107) 56,161

2009 44,2611 38,698 30477 18,091 (1,167) (15,185) (24,160) (26,046) 64,968

2010 42,652 36,52 42 1,330 (14,053) (26,229) (32,083) 1 7

Marginal Rates of Return with Schooling

The private rates of return were calculated using high quality, up-to-date data from Brazil's yearlyhousehold survey, PNAD (Pesquisa Nacional por Amostragem de Domicilios). The data werethen applied to an adapted Mincerian wage equation, which is:

Log Y = i i di + 1 Age + 2 Age2 + 3 Black + 4 Female +

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Where Y is the hourly wage received in all occupations the week before the survey and di is adummy variable having the value 1 if the individual has completed the i-th grade level of educationand the value 0 otherwise, so that a person having completed the fourth grade will have:

dl = d2 = d3= d4 = 1 and d5 = d6...d15 = 0.

In other words, the coefficient i shows the marginal log rate of return to the i-th grade level ofeducation. The equation was estimated for those between 15 and 65 years receiving positiveincome and living in an urban area during the week before the survey.

Table 06 provides the private rates of return to education for the North, Northeast, andCenter-West and the estimates for dummy variables associated with personal characteristics suchas gender and race (black or not black).

Table 06 - Private (log) Rates of Return to Education

OLS ResultsNorth Northeast Center West

N 9,310 N 38,377 N 15,182R2 0.4336 R2 0.4299 R2 0.4762

Logy Coef. Std. Err. Coef. Std. Err. Coef. Std. Err.S 1 .1250565 .0510001 .0966122 .0210669 .1484377 .0407844S 2 .1832415 .0398992 .1422833 .0177706 .2067085 .0333637S3 .2119872 .0365626 .2615792 .016827 .2946314 .0305245S 4 .375886 .0338265 .3758965 .0152652 .4049962 .0258883S 5 .3985928 .0354678 .4638196 .0168149 .5217767 .0297672S 6 .4493781 .0430484 .5199976 .0213661 .6031285 .03344S 7 .48393 .0406056 .6116913 .0211766 .6365371 .0325335S 8 .6491801 .0341628 .7475181 .0172099 .7643907 .0282485S9 .7217799 .0470745 .8407385 .0266162 .7947714 .0394935

S 10 .8573613 .0445917 .9239882 .025973 .972957 .0369066S 11 1.140362 .0291346 1.228756 .0135027 1.266056 .0256103S 12 1.465537 .0721108 1.595397 .0396914 1.635115 .0570308S 13 1.619498 .0854219 1.849126 .0457924 1.786782 .0606712S 14 1.777542 .0782068 1.037009 .0326016 1.830025 .0559455S 15 2.13045 .0381828 2.356669 .0190525 2.349898 .0293373Age .0731219 .0028422 .0657369 .0013931 .0722807 .0023295Age2 -.0007022 .0000361 -.000644 .000017 -.000691 .0000295Black -.0707488 .0428729 -.073553 .0156727 -.128265 .0306277

Female -.3086441 .0157484 -.335103 .008181 -.317745 .012291-cons -1.781925 .0570705 -1.84352 .0279844 -1.72183 .0473376

Source: PNAD (1999)

3.3.2 Benefits Associated with Gains in Productivity

The improvement in the SAEB test scores indicates an increase in the overall education quality ofthe school system. A reasonable way to quantify this benefit is by assuming that gains in laborproductivity are proportional to the increase in the quality of education. The benefits due toquality improvements lead to higher academic achievement, which will eventually take the form of

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higher labor productivity and a relative increase in earnings.

The main assumptions behind thlis analysis are that wage levels reflect the marginal productivity oflabor and that growth in marginal productivity will be related to the improvement in SAEB's testscores. However, it is very unlikcely that there is a linear relation between test scores and wages.Some studies suggest, at best, a weak connection between these two factors. Thus, in thesensitivity analysis section, the estimation of the NPV and IRR will take into consideration threepossible outcomes regarding productivity growth: 0%, 1%, and 2% growth in salary with theproject implementation.

The last step in determining the total amount of benefits was to multiply the number of additionalgraduates per grade by the expected earnings, taking into account the average unemployment rate6

for the North, Northeast, and Center West regions. Unfortunately, only a portion of the additionalgraduates will have the opportunity to enter the job market, which lowers the estimated benefitsof the project.

The calculation of the total benefitsI ook into account the expected additional graduates caused bythe project through the year 2010 (project implementation period). The income surplus generatedby the project was then determined and the total benefits estimated to the year 2025 (15 yearsafter the implementation period and 5 years after the graduation of the last "benefited" cohort)'.

Sensitivity analysis / Switching values of critical items:

4. Sensitivity Analysis and Switching Values

4.1 Switching Values

The first step of the sensitivity analysis is to identify which variables most affect the projectoutcomes by switching the values of the aggregate variables. The primary goal is to find theswitching value of a variable at which the project's NPV becomes zero or the IRR is equivalent tothe discount rate.

Table 08 presents the switching values of the relatively more important variables in order ofdeclining sensitivity. The student income flow must decrease more than 36% to make the NPVnegative if other things remain as expected, whereas a 57% growth in the direct cost would makethe IRR of the project equivalent to the discount rate (12%). The project does not seem to bevery risky, since it is reasonable to assume that the examined variables are unlikely to present suchhigh variations in their values.

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Table 07 - Switching Values*

Variable Switching ValueIncome Flow -36.16%Direct Cost 56.65%

* Based on data for the "Middle Poor" scenario, as defined below.

This analysis presents some shortcomings: the variables give very rough estimates of thesensitivity of the project and do not assist in judgments concerning the range of likely variation orthe specific measures that could reduce the risks associated with the project. In addition, likeother approaches to sensitivity analysis, the switching values estimation does not take intoaccount the probabilities of event occurrence.

4.2 The IRR for Different Scenarios

The second step of the sensitivity analysis is to establish different scenarios for the project byassuming four possible outcomes of the income flows, as determined by the percentage of schoolsbenefited by Fundescola III. The income flow impacts will determine changes in the benefits,whereas the costs are not expected to be altered.

The "Worst" scenario is that 70 percent lof primary school students will be enrolled in schoolsmeeting Fundescola - based minimum operational standards. The scenario that is most likely totake place is the one entitled "Middle Poor", where 80 percent of primary school students will beenrolled in schools meeting Fundescola - based minimum operational standards (see ProjectDevelopment Objective and Key Performance Indicators). The "Middle Good" scenario assumesthat 90 percent of primary students will be enrolled in schools meeting Fundescola - basedminimum operational standards. The "Best" scenario is one in which it is assumed that all primarystudents in the participating microregions will be enrolled in schools meeting such standards.

The sensitivity analysis also considers three possible outcomes regarding productivity growthrelated to the improvement in tests scores. Each scenario will present three estimates for IRR andNPV: one in which there is no increase in salazy, another in which there is a 1% wage increase,and finally one in which the salary is expected to grow 2% with the implementation of the project.

According to Table 08, both the Net Present Value and the Internal Rate of Return for allscenarios are satisfactory (the IRR ranges from 19.16% to 29.84%). Even in the "Worst" case,the return rate of the project is much greater than the Bank's standard discount rate of 10-12percent. Besides the satisfactory IRRs and positive NPVs, the project does not yield to a highvariability across the scenarios, suggesting that there is a low risk of default associated with itsimplementation.

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Table 08 - Internal Ratesa of Return and Net Present Values of Possible Scenarios

Worst Middle Poor Middle Good BestIRR - 0% prod. 19.16% 21.62% 25.23% 29.00%Inc .-IRR- 1% prod. 19.24% 21.94% 25.60% 29.42%IncIRR - 2% prod. 19.52% 22.26% 25.96% 29.84%IncNPV - 0% R$ 535,301,735 R$ 687,804,031 R$ 930,928,837 R$1,174,059,936prod. Inc

NPVr - 1% R$ 539,756,422 R$ 712,188,452 R$ 958,361,267 R$ 1,204,540,437prod. Inc

NPV - 2% R$ 561,810,742 R$ 736,572,872 R$ 985,793,696 R$ 1,236,360,827p rod._Inc _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _

Besides the assumptions presented in section 3.1, there are additional possible sources of underor overestimation of the rates presented above:

* In the student flow estimation, no allowance was made for continued schooling. Forinstance, in the fundamental cycle the fact that students finishing the eighth grade maysubsequently achieve greater rates of return from secondary and higher education isdisregarded.

* Other benefits, such as, health insurance, vacation, 13th salary, and retirement plans werenot taken into account in the calculation of the income flows.

Despite the limitations associated with the underlying assumptions of this analysis, it is certainthat the Fundescola III project should be implemented, given its low risk of default and thesubstantial benefits that it will generate. The economic analysis reveals that the investrnent inthe North, Northeast and Center-West regions (raising school minimum standards, establishinga school development process, and strengthening the Education Sector) will yield rates ofreturn that are significantly greater than the Bank's standard discount rate.

Endnotes:

See PAD of Fundescola I.

2See Rubens Klein, "Producao e Ulilizacao de Indicadores Educacionais" (1995).

This assumption is based on the fact that the net enrollment rates for fundamental education in the North,Northeast and Center West regions (90.4%, 90.0%, and 93.9%, respectively) are relatively low. In addition,there is a large contingent outside official age-grade limits who is seeking to reenter school, as indicated by thehuge discrepancies between the rngions' net and gross enrollment rates (90.4% vs. 150.9% in the North, 90% vs.135.5% in the Northeast, and 93.9% vs. 137.7% in the Center West). These rates indicate excess in demand,clearly suggesting that, for the tixae frame under analysis, there will always be someone wishing to enroll in the

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system.

The concluding students calculation took into consideration the promotion/approval parameter suggested byBarros and Mendon9a (1996), and Gomes Neto (1992).

For older children, time in school represents a real cost because the family forgoes the services of the child inhousehold activities, in the family business, or on the farm. Where opportunities for wage employment exist, thestudent and the family forego income while the child is in school. There is an important issue that should bediscussed: an increase in school quality will allow the student of the primary level to graduate sooner, therebyreducing the opportunity cost for that individual. The benefit associated with the savings in time resulting from adecrease of the years of schooling should be considered as a benefit generated by the project. However, this gaindoes not seem to be quantitatively important in determining the final economic rate-of-return values. See theEconomic Analysis of the Project Appraisal Document on a proposed credit to Bolivia, May 25, 1998.

Some of the analyzed states are still incapable to produce high quality statistics, moreover the Brazilian Instituteof Geography and Statistics (IBGE) do not provide "regional" unemployment rates that take into account both"open" and "occult" figures. In order to overcome this shortcoming, the "youth" unemployment rate of the stateof Bahia (estimated by PED - Pesquisa de Emprego e Desemprego) was adopted for all regions.

Per student cost: the reduction in repetition rates, and the resulting improvement in student flow should result insavings to the Federal Government. Moreover, the increase in school quality should lead to lower marginal costsin the future. As stated in assumption "c", the improvement of school quality and the subsequent reduction inrepetition rates and increase in promotion rates will not have any impact on the overall number of enrollments.This means that there will always be a potential student outside the system willing to take the place of a peer.Hence, an increase in the number of students promoted from the 8th grade, for instance, will imply aproportional increase of new enrollments in the subsequent year. The number of enrollments will still be thesame; the difference is that the students will move more rapidly from one grade level to the next.

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Annex 5: Financial Summary

BRAZIL: FUNDESCOLA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)

Years Ending

1__ 1!TATIeN!FI,R,pYeair 1 Year 2 Year 3 Year 4 Year 5 I Year 6 Year 7

Total FinancingRequiredProject Costs

Investment Costs 30.8 72.8 81.4 80.5 46.1 0.0 0.0Recurrent Costs 1.5 0.9 1.3 1.4 1.3 0.0 0.0

Total Project Costs 32.3 73.7 82.7 81.9 47.4 0.0 0.0Front-end fee 1.6 0.0 0.0

,Total Financing 33.9 73.7 82.7 81.9 47.4 0.0 0.0

FinancingIBRD/IDA l6.9 36.8 41.3 40.9 23.7 0.0 0.0Government :17.0 36.9 41.4 41.0 23.7 0.0 0.0

Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0User Fees/Beneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Project Financing 33.9 73.7 82.7 81.9 47.4 0.0 0.0

Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0Main assumptions:

Fiscal issues and the Fundescola Program

Much of Fundescola is designed to enhance the efficiency of educational expenditures. Theinnovations in educational management, both at the school and the local-government levels, are expectedto have as one of their main results an increase in the efficiency of the participating education systems.In other words, if Fundescola succeeds in achieving its objectives, the dollar efficiency of othereducational outlays should be greater.

Also important is the fact that Fundescola III will be implemented with the National EducationDevelopment and Maintenance Fund (FUNDEF) already in effect. The complementarity between thetwo programs (FUNDEF and Fundescola) means that Fundescola should have a special efficiencyenhancing role for the R$5 billion that the FUNDEF reserves every year for the states of the North,Northeast, and Center-West.

The effect of the project on public finances is small. Notwithstanding the fact that it is a verylarge education project, Fundescola is too small and spread out over time to have any relevant effect onpublic sector finances in Brazil. The entire Fundescola program (US$ 1.3 billion comprising all threeloans and including counterpart funds) amounts to a less than 0.5% of net public debt and less than0.8% of Federal debt. Cons,titutionally mandated Federal educational expenditures are expected toamount to more than R$ 10 billion, making the 2002 counterpart funds of R$34 million amount to less

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than 1% of Federal educational expenditures. In other words, the Fundescola Program will have anegligible impact on the Ministry's recurrent budget.

Post-Implementation Period

With respect to the Fundescola hIa Project (the first part of the Fundescola III APL), the project'sexpected recurrent liability during the post-implementation period is approximately R$7 million(equivalent to US$3 million in December 2001) per year. This would represent 0.04% of the Ministryof Education's CYO1 budget of R$16.1 billion (equivalent to US$6.9 billion). A conservative growthprojection of the Ministry of Education's budget is about 2% per year. This was in fact the Ministry'sbudget growth rate from 1994 to 1998, and is the projected growth rate of the Ministry's budget fromits 2001 actual budget to its 2002 requested budget. Consequently, the expected project liability at theclose of the Loan would represent about .038% of the forecasted Ministry budget for CY06.

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Annex 6: Procurement and Disbursement Arrangements

BRAZIL: FUNDESCOLA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)

Procurement

Summary of the procurement arrangements. The procurement under the Project consists ofworkshops, training, hiring of consultants, procurement of school furniture and fans, printing oftextbooks, production of training video-tapes, independent procurement reviews and payment ofsalaries of professional staff performing activities for project implementation. At a central level,project activities will be implemented by Fundescola's Project Implementation Unit. At the Statelevel, procurement will be implemented by the Secretariat of Education and at a school level,procurement will be carried out by communities. At both central and State levels, procurement ofGoods will be carried out in accordance with World Bank Guidelines Procurement under IBRDLoans and IDA Credits (January 1995, revised January and August 1996, September 1997 andJanuary 1999); recruitment of consultants' services (consulting firms or individuals consultants)for technical studies, training and reviews, will be carried out in accordance with the BankGuidelines on Selection and Employment of Consultants by World Bank Borrowers (January1997, revised September 1997 and January 1999). For the school subprojects, procurement willfollow the procedures presented in the Operational Manual (MOEP) pursuant to para. 3.15 of theGuidelines. The Bank's Standard Bidding Documents and Standard Request for Proposals willbe used for the Bank-financed ICB goods and consultant services, respectively. For all NCBprocurement of goods, the model standard bidding document issued by SEAIN (Secretaria deAssuntos Internacionais) in June 2001 will be used. The project's procurement arrangements foreach component are summarized in Table A.

National procuremenm' environment: The Bank and the Government of Brazil have recentlycompleted the first stage of study on government procurement concluding that the legalframework and implementation of the government procurement in Brazil are generally acceptableand guarantee adequate transparency.

Procurement Responsibility: There would be three levels of implementing agencies: (a) at thecentral level, the Dire.,o Geral do Projeto (Central Project Coordination Unit, the DGP) of theMinistry of Education will carry out the hiring of consultants and procurement of largerpackages (such as books, school furniture, and fans); (b) the participating States will carry outprocurement activities using procurement methods established in the Loan Agreement under thesupervision and support of Fundescola's DGP; and (c) the communities will contract smallschool rehabilitation works (estimated to cost less than US$ 100,000), purchase goods toimprove school quality, consisting of, inter alia, educational materials, school and classroomequipment, school supplies, and materials for physical maintenance, grouped into small packagesestimated to cost less than US$15,000. Communities will also hire services for school oreducational support, estimated to cost less than US$15,000 per school per year. All procurementto be implemented by the participating communities will follow the procedures described in theOperational Manual (MOIP). The DGP will be responsible for the overall project procurementactivity, including conmpliance with procedures and timetables agreed with the Bank.

Procurement Implementing Capacity: The capacity assessment of the DGP was completed andan action plan for its improvement was developed. Under de-centralized activities to beimplemented by the participating States, Fundescola's DGP will carry out upstream procurement

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activities, inter alia, capacity assessment of the implementing capacity of the States, preparationand review of procurement plans, development and monitoring of improvement action plans,justification of risk classification, delivery of procurement ex-post reviews, and prior reviewactivities. In order to discharge the above responsibilities, Fundescola counts with an organizedprocurement team consisting of two experienced procurement specialists and one juniorprocurement specialist. The team, which is already familiar with the Bank's procurementguidelines, will assess the implementing capacity of the selected States, and will determine thelevel of risk of each beneficiary, using a methodology acceptable to the Bank. The ParticipationAgreement to be signed between each State and Fundescola will establish the obligation to forFundescola to carry out the assessment before procurement responsibility is delegated to thatState. The procurement team will prepare the procurement section of the various directives. Theprocurement team and support staff will participate in a workshop that will focus on the meansto ensure that the participant States will follow the procurement arrangements as set forth in theLoan Agreement. The workshop would focus on the Bank's procurement policy and proceduresand their application to the procurement arrangements planned for project implementation. Inaddition, Fundescola's procurement group will set up a technical assistance and problem-solvingsystem in order to provide timely advice on procurement-related matters to the participatingStates and communities. It is expected that a specific telephone number will be made availableand disseminated to all implementing agencies of the project. Fundescola's procurement teamwill also carry out procurement ex-post reviews on the participant States during the regular visitsto monitor the preparation of evaluation reports in NCBs and ICBs. The Bank will be furnisheda copy of the findings of the ex-post exercises.

Procurement Plan and Plan of Action: The procurement plan will be a key implementationelement and management tool. The actions as detailed in the procurement plan will triggerdisbursements, selection of procurement methods, level of prior review and performanceindicators. The DGP prepared an overall procurement plan for the tasks to be carried out duringthe project implementation, including activities to be carried out at state and community levels.This plan was discussed during appraisal and will be used as a model for project implementation.The general procurement plan consists of: (i) contract packaging, applicable procedures andprocess scheduling; (ii) a consultant selection process plan for the project's consultant services,including contract packaging, applicable procedures, shortlists, selection criteria. Theprocurement plan and consultant selection process plan will be updated quarterly.

Methods for Bank-Financed Procurement: Procurement of Goods under the project will becarried out in accordance with World Bank Guidelines Procurement under IBRD Loans andIDA Credits (January 1995, revised January and August 1996 and September 1997).Recruitment of consultants' services (consulting firms or individuals consultants) for technicalstudies, training and reviews, will be carried out in accordance with the Bank Guidelines onSelection and Employment of Consultants by World Bank Borrowers (January 1997, revisedSeptember 1997 and January 1999). The Bank's Standard Bidding Documents and StandardRequest for Proposals will be used for the Bank-financed ICB goods and consultant services,respectively. For all NCB procurement of goods, the model standard bidding document issuedby SEAIN (Secretaria de Assuntos Intemacionais) in June 2001 will be used. The project'sprocurement arrangements for each component are summarized in Table A.

Bank-Financed Goods: The project will finance goods consisting of school furniture and fans,printing of school books, and the production of videotapes. The thresholds defining theprocurement methods will be set forth in the Loan Agreement and applied equally to all

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participating States and DGP. DGP will be in charge of the procurement actions to be carriedout by all participating States; DGP will write the bidding documents, monitor the evaluation ofproposals and speak to the Bank. Concurrently, DGP will be doing procurement capacityassessment of the participating States and upon consultation with the Bank will be entitled todecentmlize procurement function to States. ICB procedures will be used for all goods groupedinto packages by all executing agencies into contracts of more than US$350,000 (approximatelyUS$ 40.40 million). NCB procedures will be used for goods contracts that cannot be groupedinto packages of at least US$ 350,000, up to an aggregate amount of US$ 10 million. Shoppingprocedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines will beused for goods estimated to cost less than US$100,000 equivalent per contract.

Bank-financed Works: The works in the Project include small rehabilitation of existing schoolswhich will be contracited by obtaining quotations from qualified contractors, with communityparticipation, or through other local arrangements acceptable to the Bank and included in theOperational Manual and not to exceed US$ 100,000, pursuant to paragraph 3.15 of theGuidelines.

Bank-Financed Consultant Services: The proposed Project would finance consultant servicesand training for an estimated total cost of about US$29.5 million. The Project's selection andemployment of consullants will be carried out under arrangements acceptable to the Bank (TableAl), using the Bank's Standard Forms and Contracts. Consultant services for School StrategicPlanning, Implementation of Teaching-Learning Models, and Research activities may beprocured using the "Selection Under a Fixed Budget" method in accordance with the provisionsof paragraphs 3.1 and 3.5 of the Consultant Guidelines. Consultant services, including inter aliathe staff of Fundescola's DGP (Project Management Unit), for which individual qualification andexperience are the paramount requirement for the assignment - will be procured under contractsawarded to individual consultants in accordance with the provisions of Section V of theConsultant up to a maximum aggregated amount of US$ 15,000,000.

Quality and Cost procedures will be used for selection of consultants for all contracts estimatedto cost more than US$ 100,000. Consultant services including foreign and local ad hoc expertiseand contractual services - for which individual qualification and experience are the paramountrequirement for the assignment - will be procured under contracts awarded to individualconsultants in accordance with the provisions of Section V of the Consultant Guidelines.

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Procurement methods (Table A)

Table A: Project Costs by Procurement Arrangements(US$ million equivalent)

Procurement MethodExpenditure Category .ICB. . NCB . her Consultng Total Cost

Sdrvlces1. Goods (except thosefinanced by School Grants)

(a) Borrower 5.6 0.7 0.2 6.5

(b) Participating states & (5.6) (0.7) (0.2) (6.5)municipalities

34.9 9.3 4.2 48.4(7.2) (1.8) (0.8) (9.8)

2. Subprojects 230.0 230.0(School-Managed, (115.0) (115.0)School Rehabilitation, andSchool CouncilStrengthening)

3. Training and Consultants(except by school grants)(a) Borrower 20.6 20.6

(b) Participating states & (20.6) (20.6)municipalities 9.1 9.1

(2.7) (2.7)

4. Administrative Expenses 3.8 3.8(3.8) (3.8)

5. Bank Front-end fee - 1.6 - 1.6(1.6) (1.6)

Total 40.5 10.0 239.8 29.7 320.0(12.8) (2.5) (121.4) (23.3) (160.0)

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Table A1: Consultani: Selection Arrangements (in US$ thousand equivalent)

Type of Estimated Selection Method Prior review MaxinumContract Contract Size Aggreg.

Amount (inUSD)

Firms >200k Quality and Cost AllFirms <200k and All, except technical

>100k evaluation reportFirms <100k NoneFlrms Parts B. 1, B.3, Selection under a As per all, above

and C.3 (ii) Fixed-BudgetIndividuals > 50k Section V of the All 15 million

GuidelinesIndividuals < 50k Section V cf the TORs and all agreed idem

Guidelines reportingrequirements(detailed inOperational Manual)

TABLE A.2: Thresholds for Procurement Methods and Prior Review of Goods(in US$ thousand equivalent)

ICB DGP prior review Bank's prior review Ex-post Review

Type A >350k All ICB; All NCB. All ICB; First NCB of goods Procurement audit asin each participating State may be needed; regular

supervision

Type B >350k All ]CB; All NCB. All ICB; First NCB of goods One procurement auditin each participating State in Project

Type C >350k All ]CB; All NCB. All ICB; First NCB of goods Annual procurementin each participating State audits

Fundescola's >350k All ICB. No procurement audits;DGP regular supervision

Procurement Review and Methods: The Bank's procurement review will be outlined in the LoanAgreement as per tables Al. and A.2 above and in accordance with Appendix 1 of theGuidelines for Procurement. All ICB will be subject to Bank's prior review, irrespective of theestimated amount of contract. DGP will prior review the first procurement actions of the smallerprocurement methods carried out by the States. With regard to consultant services, Bank'sreview will be in accordance with Appendix 1 of the Guidelines for Selection and Employmentof Consultants and the provisions stipulated in the Loan Agreement. The Bank will prior reviewthe larger assignments estimated cost more than US$ 100,000 for firms and US$ 50,000 forindividuals. A review process similar to that for individual consultants, will apply to training and

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workshops.

Methods for Non-Bank Financed Procurement. It is expected that DGP will hire the support ofan international agency, along with the Brazilian Cooperation Agency (ABC) for the contractingof goods and services, as well as individual consultants, as needed for direct implementationunder cost sharing arrangement and a procurement procedures checklist approved by the Bank.Considering the long-lasting relationship between Fundescola and an international agency, it isexpected that the mutual collaboration relationship will be taken to a higher level based on anaction plan to be prepared by the parties.

Advertising. A General Procurement Notice for hiring of consultant services, and the ICBgoods and consultants services should be published in the United Nations DevelopmentBusiness, no later than June 2002. The Notice will be updated annually for outstandingconsultant services and ICB goods. In addition, detailed consultant services and assignments willbe advertised, as they become available, in at least one national newspaper of a large circulation,and in the webpage of United Nations Development Business. Furthermore, the implementingagencies may also advertise some of the Project's studies in an intemational newspaper or atechnical magazine.

Procurement Records. Detailed procurement records, reflecting the Project's supply of goodsand consultant services, including records of time taken to complete key steps in the process andprocurement activities related to supervision, review and audits, will be maintained by DGP.These records will be maintained for at least two years after the Project's closing date. Therecords for goods will include public notices, bidding documents and addenda, bid openinginformation, bid evaluation reports, formal appeals by bidders and outcomes, signed contractswith related addenda and amendments, records on claims and dispute resolution, and any otheruseful information. The records for consultant services will include public notices for expressionof interest, request for proposals and addenda, technical and financial reports, formal appeals byconsultants and outcomes, signed contracts, addenda and amendments, records on claims anddispute resolution and any other useful information. The participant States will retain all thebidding documents used, invoices, price comparison, bids received, bid evaluation reports and allrelevant documentation. The audit, the procurement post-review supervision by the Bank and theindependent audit reviews by independent consultants are particularly important due to the largeamount of funds associated with the school grants category, and the fact that ParticipatingSchools will be receiving and managing funds to implement two other subcomponents: schoolingimprovement subprojects and school rehabilitation subprojects.

Frequency of procurement supervision missions proposed: The Bank will carry ex-post reviewsthrough an annual supervision mission on procurement. The Bank's project supervision willretain a part time local implementation officer that would review the procurement reporting andwill carry out procurement reviews in the participant States.

Independent Procurement Reviews of the School Subprojects. In order to ensure compliancewith the operational manual rules, the participant States will be subject to independentprocurement reviews to be delivered on a yearly basis. DGP will provide the Bank, no later thansix months after the end of each year, reports prepared by independent procurement experts,acceptable to the Bank. The terms of reference for the independent procurement reviews will bein accordance with internationally accepted standards.

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Procurement Risk Assessment. There is Country Procurement Assessment (CPAR) for Brazildated 1993. A new CPAR in collaboration with federal authorities is under way. The preliminaryresults of this review indicate that the judicial protests or recurso continue to be a major causefor delays in the government procurement. Another finding indicates that the use ofCOMPRASNET and c,f E-purchasing (pregdo eletronico) and other modem procurementmethods will add efficiency and transparency to government procurement. Fundescola has a teamof about 50 staff entirely dedicated to implement the Project and with a solid and vast experiencein Bank-financed operations. In fact, most of the team has worked together in NEBE (NortheastBasic Education) and Fundescola I and II, which are previous projects supported by the Bank.The procurement unit has three staff. Two of them are very well acquainted with Bank-financedprocurement and the ot:her one has just been hired and participated in the training session inFaxinal do Ceu (November 26-30, 2001). The risk of the participant States will be establishedwith the application based on a self-assessment, independent review by qualified staff at the DGPand confirmation by the Bank in each case. Based on this approach, a capacity assessment foreach participant State will be available before DGP approves any ICB or NCB for execution bythat State. Fundescola will be trained in the use of the Bank's toolkit for determination of theprocurement implementing capacity and establishing risk assessment. Fundescola will be usingthe same questionnaire and may use this methodology to classify the risk of the participant Statesfollowing this rule: four or more items classified as High Risk will determine a High Riskclassification; two or three items above classified as High Risk will determine an Average Riskclassification; one or none items classified as High Risk will determine a Low Risk classification.Based on the risk estirrtate, the estimate is that about 50%, 25% and 25% of the States may beclassified respectively as moderate, high and low risk. Fundescola's risk was rated averageprovided that it implements the action plan in files. The capacity assessment of the DGP as wellas the action plan for the improvement of the procurement capacity includes: Development of acontract management umit, improvement of the correspondence control system, update of theprocurement plan on a quarterly basis,hiring of independent procurement reviews for the Statesand school grants, development of a plan for upgrading the relationship with UJNDP, post-reviewof shopping acquisitions to be carried out by Fundescola staff on the State level, implementationof the call center to assist States and communities and Capacity assessment of the participatingStates.

Tablle A.3: Overall Procurement Risk Assessment

! I~~~~~~~~11lellienltillg gencyType of Agency Expected % Participant States in the

Risk Rating

Low Type A 25%

Average Type B 50%

High Type C 25%

Remedies: School subprojects will build on the existing control, supervision, audits, reporting andimplementation rules of Fundescola applicable to the transfer of funds that appear to be competentand robust. Complementing these measures, Fundescola has agreed to hire independentprocurement reviews to be delivered on a yearly basis. In order to strength contract implementation

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supervision, Fundescola will create a contract management unit which will be responsible tomonitor all ongoing contracts signed by Fundescola. This unit will certify that contractrequirements were fulfilled before issuing a payment order.

Misprocurement will be declared when any contract has not been procured in accordance with theagreed procedures in the Loan Agreement. Consequently, any contract subject to the applicationof the Bank's guidelines for procurement and for selection of consultants which violates theguidelines will be declared misprocured and the Bank will cancel the portion of the Loan allocatedto the contract. For the case of school subprojects, where the Operational Manual procedures willbe applied, misprocurement will include: failure to award to then lowest evaluated bidder; lack ofrecords and information pertaining to the bidding and award; disqualification of lowest pricewithout a sound reason, deviations from the approved procurement plan without prior approval,and impeding the carrying out of audits or ex-post reviews.

Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review

v ,- ..' Confra tsValue~' <,, ,,;........... ,ConCtiaci Subject to',Threhold ,"I -roc Prurement Prir evie

lExpenditure Category, ,', , (US$ thousands)- Method (US millions)

1. Goods >350 ICB All**>100 and <350 NCB First contract of eachparticipating State

<100 Shopping None2. Services

>200 QCBS/fixed budget* All***2.1 Firms (including technical eval.)

>100 and <200 QCBS/fixed budget* All***(except technical eval.)

2.2 Individual <100 QCBSIfixed budget* Review of TORs only

>50 Individual All***

<50 Individual TORs and all agreedreporting requirements

(detailed in MOIP)

3. Miscellaneous <100 Shopping None

Pursuant to Table A. I ** The standardization of: (a) technical specification for goods; (b) place of delivery; and (c)bidding documents will facilitate prior Bank review; The standardization of global TORs and model contract formswill facilitate prior Bank review.

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Disbursement

Allocation of loan proceeds (Table C)Table C: Allocation of Loan Proceeds

Expenditure Category Amount in US$million |Financing Percentage1. Goods:

(a) Borrower 6.5 100% of all expenditures, excludingduties and taxes

(b) Participating states & 8.9 100% of foreign and 19% of localmunicipalities expenditures

2. School Subprojects 115.0 50% of all expenditures

3. Training and Consultant Services:

(a) Borrower20.3 100% of all expenditures, excluding

duties and taxes(b) Participating states &municipalities 2.6 30% of all expenditures

4. Administrative Expenses 3.8 100% of all expenditures, excludingduties and taxes

5. Bank front-end-fee 1.6 100%6. Unallocated 1.3

Total 160.0

Administrative Expenses include incremental operating cost incurred on account of projectimplementation, management and supervision, including office maintenance, office supplies,communication services, office machinery, vehicle maintenance, vehicle acquisition and spare parts,travel or allowances for Project staff.

Financial Management Assessjment and Disbursement

Country Issues

A CFAA has recently been conducted for Brazil and a draft report has been prepared with the finalreport to be completed following a workshop including the Bank and relevant government officials.The report presents findings that state that Brazil has sound financial management and accountingpractices which allows for the transparent budget elaboration and its execution. The report providesadequate assurance that there are no major accounting or financial management accountability issues.There are no issues at country level which could negatively affect the use of funds.

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Strengths and Weaknesses.

DGP has been responsible for implementing Fundescola I, H and Projeto Nordeste, this means thatthey have accumulated substantial experience in Bank's procedures. DGP is well organized to respondto the workload required to implement the project activities established in the PAD. On the other hand,the audit report submitted to the Bank, contained some contract management weaknesses issues whichcould imply in lack of management control.

Implementing Entity.

DGP is responsible for the administration of Fundescola I, II and Projeto Nordeste, all financed by theBank, and it is staffed with a financial manager and administrative assistants. DGP has accumulatedlots of experience during these years of projects implementation and during this period it hasdemonstrated a sound institutional capacity and implementation capacity.

Staffing.

DGP's staff is sufficient in number and capability to successfully manage Fundescola III. Staffingincludes a competent financial manager plus assistants. The staff have demonstrated good knowledgeof Bank financial, disbursement and procurement procedures which should ensure smooth projectimplementation.

Results of Assessment: With experienced staff on board, the management risk can be reduced, andfinancial management reports can also be promptly generated.

Accounting Policies and Procedures.

DGP through FNDE uses the SLAFI system to record all financial transactions related to each of theprojects under implementation by DGP. SIAFI complies with the Budgetary Law No. 4,320-64. Theproject accounts can be identified in SIAFI, as it has its own accounting codes, and project expensescan also be identified based on sources of funds and categories of project expenditure. DGP has inplace a monitoring and planning system - SPA, which is the system to monitor the projectsexpenditure in a very detailed level. SPA can generate a range of management reports to allow theproject financial team to prepare SOEs and report on the progress of the project implementation.

Results of the assessment DGP has developed a system, "SPA"that has been in use for 5 years. Allexecuting agencies (States and Municipalities) are linked to SPA and DGP can extract all projectexecution information to prepare the financial reports as well as SOEs. It makes use of the projectinformation archives-both planning and financial execution. An accounting module has beenincorporated to SPA which will permit the extraction of specific financial reports for the Project. Itwill facilitate and support project report generation and audits. It also has a procurement module -Selecao, Licitacao e Contrato- SLC that will conform to the specific requirements of the Bank'sprocurement officer and will generate management and control reports required by the Bank and forefficient project management.

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FLU)GMRAPAA GERAL DE EXECUVAO FINANCEIRA DO PROJETO FUNDESCOLA

Ux EXEWUMR COEP D-P CQDE am(O-Oo) wFMM

- - ---

+ G + .. _ 1 a . .. -p.. ~ J

X 3 _ 7 L~~~~~~~~~~~ne

I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~*~S

The financial management system will generate a set of management reports, however, disbursementswill be made on the basis of statements of expenditure (SOEs), except for goods aboveUS$350,000.00 equivalent, and contracts with consulting firms above US$100,000.00 equivalent andwith individuals above US$50,000.00. In these cases all contracts information has to be attached tothe Summary Sheet (SS). The information required for the compilation of SOEs would be maintainedby the Direcao Geral do Projeto (DGP) and executing agencies in the MIS data base. The SOEs willbe submitted to the Bank as per cash flow requirements.

Internal Audit

In order to strengthen the DGP's internal controls, an internal audit function is being created and theterms of reference is very comprehensive. This will help the DGP to identify, early on, any potentialrisks or problems related to financial and procurement operations.

Results of the assessment: Financial staff in the DGP are very experienced, with more than 10 yearsof experience implementing Bank-finance projects (including the Second and Third Basic EducationProjects, Fundescola I, and Fundescola II). They are also knowledgeable on Bank procedures as wellas on issues related to the design and implementation of education projects. The unit will be workingvery closely with the SFC (the external auditors).

External Audit

Following the' arrangements for Bank-financed projects in Brazil, the annual financial audit of theproject accounts for the period January 1 to December 31 of the year will be carried out by SecretariaFederal de Controle - SFC, acceptable to the Bank to perform the Bank's financed projects. SFC willsubmit to the Bank no later than June 30 in the year following the year for which the project accountshave been reported. The Auditor's TOR has been discussed and it will be submitted to the Bank, forfinal review. It will include the issuance of a management letter on intemal controls six months aftereffectiveness. The format of the project financial statements has been established. Audits carried outon the year 2000 regarding the implementation of Fundescola I and II identified a number problemsarising mainly from an inadequate system for contract management. The problems identified in SFC'saudit report were examined and discussed with the Bank's financial and procurement teams in theCMU, the Bank's task team, and the DGP. As a consequence of this review, and in agreement withthe audit agency SFC, a series of specific recommendations were issued. During the FinancialAssessment of the Fundescola III project, agreements on the implementation of these recommendationswere reached by all parties. In the 2001 audit, a follow-up report will be prepared by the SFC anddiscussed with the Bank and project financial staff. Throughout the implementation of Fundescola m,including especially at the initial stage of operations, the Bank's FMS and procurement staff willclosely monitor the DGP's implementation of the SFCs recommendations and maintain the Task TeamLeader informed of satisfactory progress.

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Audit Report Due DateEntity Not ApplicableProject June 30th following the year of which the

expenditures have been reportedSOE June 30th following the year of which the

e xpenditures have been reportedSpecial Account June 30th following the year of which the

e xpenditures have been reportedContract Clauses June 30th following the year of which the

____________________ expenditures have been reported

Disbursement Arrangements for School Subprojects.

As with Fundescola I (Ln. 4311-BR) and Fundescola II (Ln. 4487-BR), the basis of disbursements forSubcomponent 1.1 (School,-Managed Rehabilitation Subproject), Subcomponent 2.2 (SchoolingImprovement Subprojects), and Subcomponent 3.1 (Funding School Grants) will be signedParticipation Agreements based on a model agreement approved by the Bank and included in theOperations Manual. The Bank recognizes that the project gives a great deal of responsibility to theschool for managing these funds. Nonetheless, the development of management capacity in schools isone of Fundescola's main aims. Under the Fundescola III project, schools participate in intensivecapacity building exercises for planning, strategic development, procurement, and financial monitoring.All participating schools receive a set of clearly-written guidelines, which have been reviewed andagreed to by the Bank, that include instructions for managing these funds, and sample forms forshopping, keeping records, rnaintaining financial books, and on making accounting records availablefor periodic supervision visits by the Fundescola's DGP or the Bank. Bank supervision of FundescolaI and II has demonstrated that the Fundescola model successfully incorporated this decentralization ofimplementation down to the school level. Each Participating School maintains separate accounts for allproject expenses (with separate accounting for school-managed rehabilitation subprojects, schoolingimprovement subprojects, and school grants. Moreover, the DGP is fully experienced in supportingschools in their implementation of these school-based responsibilities. Although it is DGP'sresponsibility under Fundescola III to visit schools receiving direct support from Fundescola, Banksupervision visits will continue to carry out periodically supervision assessments of schools'recordkeeping with respect to the three subcomponents associated with school grants.

Reporting, Monitoring and'Information System

With SPA in place, DGP will generate a set of project management reports including financial,physical/financial, procurement an contracts and audit. In addition, the system has been upgraded toprovide additional accounting information that will be used by the Project Team to ensure track thevarious and numerous operations at the level of local governments. This will help assure efficient andtimely implementation. One of the results of the financial management assessment is that the DGPresponded adequately to the recommendations made by the FMS during the implementation ofFundescola I and II. When Fundescola III begins operations, the DGP will have the capability ofproducing high quality reports that will provide up-to-date and detailed information on thephysical/financial progress of the Project's components. It was agreed with the Borrower that thesereports would be generated each quarter and submitted to the Bank task team on a timely basis.

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Special Account and Disbursement Arrangements

The financial management system will generate a set of management reports, however, disbursementswill be made on the basis of statements of expenditure (SOEs), except for goods aboveUS$350,000.00 equivalent, and contracts with consulting firms above US$100,000.00 equivalent andwith individuals above US$50,000.00. In these cases all contracts information has to be attached tothe Summary Sheet (SS). The information required for the compilation of SOEs would be maintainedby the Direcao Geral do Projeto (DGP) and executing agencies in the MIlS data base. The SOEs willbe submitted to the Bank as per cash flow requirements.

In order to facilitate project implementation, the Borrower will establish a special account in USDollars, in a commercial bank, with an authorized allocation based on projected disbursements forfour months, so as to initiate disbursements under the traditional disbursement methodology. Thisauthorized allocation is US$ 16 million. The implementation process of the project requires thesimultaneous transfer of financial resources to the schools, which are the final executors of theproject.

Directpayment: minimum application amount must be above 20% of Special Account deposit.

Results of the Assessment: The Special Account will be open in the due course by the NationalTreasury Secretariat - STN. STN is responsible for keeping the reconciliation of the special account,and is also responsible for reviewing SOEs prior to their submission to the Bank. STN has staff withextensive experience in the Bank's disbursement procedures and the secretariat's internal controls canbe considered adequate. Instructions on disbursement will be described in the disbursement letter,which the Government will receive once the loan is declared effective.

Retroactive Financing

Project expenditures made after July 1, 2001, not to exceed US$16 million, will be eligible forretroactive financing from the loan.

Action Plan

It has been agreed with DGP that a set of model project management reports, acceptable to the Bank,will be submitted for review at negotiations.. This package of model reports should coverexpenditures and disbursements, procurement and contracts, and information related to financialaudits. During implementation, these reports, updated monthly, will be available to the Banksupervision team as required.

Supervision Plan

The task manager will ensure that early in project start-up there will be a Bank sponsored projectlaunch, which will involve Bank specialists in procurement, financial management, and legal issues.Supervision missions will be undertaken at least twice a year, although it is likely that additionalsupervision activities will be carried out given the task team leader's frequent missions to Brazil towork on other projects. The supervision missions will periodically include a financial managementspecialist and a procurement specialist. PSRs will be updated after each mission. When appropriatethese reports will include coverage of all issues related to financial control and audit issues, and themonitoring of the procurement plan. The major responsibility for procurement and financial

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management supervision and client assistance in these areas will be provided through the CMUBrasilia-based Implementation Team that is fully staffed to carry out these fumctions.

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Annex 7: Project Processing Schedule

BRAZiL: FUNDESCOLA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)

Project Schedule Planned, aTime taken to prepare the project (months) 7 8First Bank mission (Identification) 07/11/2001 07/11/2001Appraisal mission departure 01/07/2002 01/07/2002Negotiations 02/19/2002 04/22/2002Planned Date of Effectiveness 07/22/2002

Prepared by:

Robin Horn, World Bank Task Manager

Antonio Carlos Xavier, Fundescola Director, Brazil Ministry of EducationAntonio Augusto Neto, Fundescola Technical Coordinator, Brazil Ministry of EducationRonyse Avelino Pacheco, Fundescola Budget Coordinator, Brazil Ministry of EducationDuilio Braga, Fundescola Financial Coordinator, Brazil Ministry of EducationAntonio Emilio Marques, Former Fundescola Director, Brazil Ministry of EducationJose Amaral Sobrinho, Fundescola Education Management Coordinator, Brazil Ministry of EducationMayra Lumy Tapia, Fundescola Monitoring Specialist, Brazil Ministry of Education

Preparation assistance:

Julie B. Nannucci, Language Program Assistant

Bank staff who worked on the project Included:

Name SpecialityEliezer Orbach Institutional Development

Alberto Rodriguez EducationEfraim Jimenez ProcurementAlexandre Borges Oliveira ProcurementMaria Madalena dos Santos Education PolicyAna Cristina Accioly de Amorim EducationKin Bing Wu Education EconomicsTulio Correia Financial ManagementOmowunmi Ladipo DisbursementEduardo Brito Legal

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Anniex 8: Documents in the Project File*BRAZIL: FUNDESCOIA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)

A. Project Implementation Plaii

Annex 7. List of Supporting Documents

DOCUMENTS SUPPORTING PROJECT PREPARATION

A Call to Action: Combatting School Failure in the Northeast of Brazil. World Bank, Brazil Ministry ofEducation, Unicef, December 19, 1997. (World Bank Sector Stuty Report No. 18358-BR). Thisreport summarizes findings and recommendations from thirteen commissioned studies, not listedseparately here.

Avaliacao e Desempenho: Fatores Associados: Resultados da 4a Serie-1999. Relat6rio Preliminar.Instituto Nacional de Estudos e Pesquisas Educacionais--INEP, Brasilia, 2001.

Censo Escolar 1998: Sinopse Estatistica da Educacao BAsica. Instituto Nacional de Estudos e PesquisasEducacionais--INEP, Brasilia, 1999.

Censo Escolar 1999: Sinopse Estatistica da Educacao Basica. Instituto Nacional de Estudos e PesquisasEducacionais--INEP, Brasilia, 2000.

Censo Escolar 2000: Sinopse Estatistica da Educacao Basica. Instituto Nacional de Estudos e PesquisasEducacionais--INEP, Brasilia, 2001.

Projeto de Melhoria da Escola. Terceira Edigao. Fundescola, MEC, Brasilia, 2001.

Sistema Nacional de Avaliagio da Educasao Basica, SAEB/95: Resultados Estaduais. Instituto Nacionalde Estudos e Pesquisas Educacionais--INEP, Brasilia, 1997.

Sistema Nacional de Avalia9ao da Educagao Basica, SAEB/97: Primeiros Resultados. Instituto Nacionalde Estudos e Pesquisas Educacionais--INEP, Brasilia, 1999.

Sistematica de Financiamento do E]nsino Fundamental. Fundo Nacional de Desenvolvimento daEducaqio--FNDE, MEC, Brasilia, 1997.

Dinheiro na Escola: procedimientos operacionais. Ministerio da Educagao e do Desporto--MEC, Brasilia,1997.

Educaton for All: Evaluation of the Year 2000. Instituto Nacional de Estudos e PesquisasEducacionais--lNEP, Brasilia, 2000.

Geografia da Educagao Brasileira (CD-ROM). Instituto Nacional de Estudos e PesquisasEducacionais--INEP, Brasilia, 2000.

"The Financing of Education in Brazil," Sergei Soares, World Bank, Washington, D.C., 1999.

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Escola Ativa: Capacitacao de Professores. Fundescola/MEC, Brasilia, 1999.

Guia de Consulta, Programa de Apoio aos Secretarios Municipais de Educacao (PRASEM). ProjetoNordeste, Banco Mundial, UNICEF, Brasilia 1997.

Manual de Operacionalizacao: Proformacao. Fundescola, SEED/MEC, Brasilia, 2000.

Manual de Operacao e Implementacao do Projeto (MOIP): Fundescola I. Volume 1, Orientacoes Gerais.Fundescola, MEC, Brasilia, 1998.

Manual de Operacao e Implementacao do Projeto (MOIP): Fundescola I. Volume II, Orientacoes aosEstados e Municipios. Fundescola, MEC, Brasilia, 1998.

Manual Para Adequacao de Predios Escolares, Tercera Edicao. Fundescola, MEC, Brasilia, 2001.

Normas Para Financiamento de Projetos Educacionais no Ambito do Fundescola. Fundescola,MEC/FNDE, Brasilia, 1998, 1999, 2000.

"O Plano de Desenvolvimento da Escola e a Gestao Escolar no Brasil: Situacao Atual e Perspectivas."Jose Amaral Sobrinho, Fundescola, MEC, Brasilia, 2001.

Plano de Carreira e Remuneracao do Magisterio Publico. Fundescola, MEC, Brasilia, 2000.

Project Appraisal Document: Fundescola I. World Bank, Washington, D.C., 1998.

Project Appraisal Document: Fundescola II. World Bank, Washington, D.C., 1999.

IMPACT EVALUATION STUDIES

Sistema Nacional de Avaliacao da Educagao Basica, SAEB/99: Resultados 99. Instituto Nacional deEstudos e Pesquisas Educacionais--INEP, Brasilia, 2001.

Avaliacao de Desempenho: Fatores Associados, July, 2001 59 pps. National Institute of EducationResearch (lNEP). Impact Analysis of Fundescola's School Development Plan program.

B. Bank Staff Assessments

C. Other

*Including electronic files

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Anniex 9: Statement of Loans and CreditsBRAZIL: FUNDESCOLA IIA (THIRD SCHOOL IMPROVEMENT PROJECT)

02-May-2002Difference between expected

and actualOnginal Amount in Us$ miliions disbursements'

Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'dP05,1698 2002 sAo PAULO METRO LINE 4 PROJECT 209.00 0.00 0.00 0.00 209.00 0 00 0 00

P055954 2002 GOLAs STATE HIGHWAY MANAGEMENT 65 00 0.00 0.00 0 00 64 35 5.28 0 00

P060221 2002 FORTALEZA METROPOLITAN TRkNSPORT 85.00 0.00 0.00 0.00 67.88 0 00 0 00

P073192 2002 PROJECT 14.50 000O 0.00 0.00 14.46 0 00 0 00

P057685 2002 TA Financial Sector 68.00 0.00 0.00 0.00 (oe.00 0 00 0 00P043869 2002 BR-FAMILY HEALTH EXTENSION PROJECT 62.80 0 00 0 00 0.00 62 80 0 00 0 00

P074085 2002 BR SANTA CATARINA NATURAL RESOURC & POV. 20.80 0.00 0.00 0 00 20 80 0.00 0 00

P057649 2001 Sergipe Rural Poverty Reduction 54.35 0.00 0.00 0.00 51 31 7 37 0,00

P050881 2001 Rural Poverty Reduction Project -EIA 22.50 0.00 0.00 0.00 22.50 8.80 0 00

P050880 2001 RURAL POVERTY REDUCTION PROJECT -Pi 30.10 0.00 0.00 0 00 28 90 1.47 0 00

P050875 2001 Rural Poverty Reduction Project -FIE 37.50 0.00 0.00 0.00 32.48 3.40 0.00

P050772 2001 Rural Poverty Reduction Project -C:E 202.10 0.00 0.00 0.00 1110 93 30 87 0 00

P059568 2001 LAND-BASED POVERTY ALLEVIATION I (SIM) 90.00 0.00 0.00 0.00 88.24 -1.76 0 00

P059565 2001 BR- CEARA BASIC EDUCATION 69860 0 00 0.00 0.00 17 03 -10.54 0.00

P073294 2001 BR- BiA BASIC EDU PROJECT (PHASE I) 8.68 0.00 0.00 0.00 7.91 1.67 0.00P047309 2000 BR Fiscal & Fin. Mgmt. TAL 0.00 0.00 15.00 0 00 11.91 2.98 0 00

P039200 2000 BR ENERGY EFFICIENCY (GEFI 43.40 0.00 0 00 0 00 42.68 12 93 0.00

P039199 2000 ENERGY EFFICIENCY (ELETROBRAS) 30.30 0.00 0.00 0.00 29.60 -0.70 0 00

P035741 2000 PROSANEAR 2 15.00 0.00 0.00 0.00 13 37 9.10 6 94P006449 2000 NATL ENV 2 138.00 0.00 0 00 0 00 123 41 45 06 0 00P062619 2000 CEARA WTR MGT (PROGERIRH)(SIM) 5.05 0.00 0 00 0 00 1.07 0 45 -0 73P050776 2000 INSS REF LIL 50.00 0.00 0.00 0 00 40.40 -9.80 0 00

P043874 1999 NE Microflnance Development 100 00 0.00 0.00 0.00 61 87 61 87 0.00

P050783 1999 BR- DISEASE SURVEILLANCE -VIGISUS 202.00 0.00 0 00 0 00 Ii1 54 -18.48 0.00P054120 1999 BR- Fundescola 2 185.00 0.00 0.00 3.50 41.85 40.35 0 00

P048869 1999 BR- AIDS & STD Control 11 150.00 0.00 0.00 0 00 107 67 74 34 0.00P058129 1999 SALVADOR URBAN TRANS 15 00 0.00 0.00 0.00 8.93 8.93 8 93P038947 1998 BR EMER. FIRE PREVENTION tEItL) 155.00 0,00 0.00 0 00 121 29 121 29 0 00

P038895 1998 BR- SC &TECH 3 198.00 0.00 0.00 0.00 124 78 113 .88 59.45P051701 1998 FED.WTR MGT 80.00 0.00 0.00 0.00 10 37 0.17 0.00P057910 1998 MARANHAO R.POVERTY 5.00 0 00 0.00 0.00 3.08 3 06 -0.41P043420 1998 BR PENSION REFORM LIL 150.00 0.00 0.00 0.00 148 99 140 22 121.93

P042565 1998 WATER S.MOD.2 60.00 0 00 0.00 0.00 :28.91 18.41 0.00P035728 1998 PARAIBA R POVERTY 51 00 0 00 0 00 0 00 29 91 27 47 9 36

P008559 1998 BAHIA WTR RESOURCES 45.00 0.00 0 00 0.00 25 02 25.02 0 00P006474 1998 (BF-R)SP.TSP 55.00 0.00 0.00 0.00 51.79 35.13 21 98

P048357 1998 BR LAND MGT 3 (SAO PAULO) 20.00 0 00 0.00 0.00 0.02 0.02 -7.30P043421 1998 BRAZIL CEN.BANK TAL 186.00 0.00 0.00 17.17 138.11 155.28 0 00

P006475 1997 Ri M.TRANSIT PRJ 90.00 0 00 0.00 0.00 23.77 23 77 0 00P048052 1997 LAND RFM PILOT (SIM) 9.60 0.00 0 00 0.00 2.19 ~ .l9 1.68P006562 1997 CEARA WATER PILOT (SIM) 100.00 0.00 0.00 0.00 54.06 54.06 5.87

P038896 1997 BAHIA MUN.DV 24.00 0.00 0.00 0.00 0.57 0.57 0.00

P034578 1997 R.POVERTY(RGN) 70.00 0.00 0.00 0.00 53.55 50.89 38.89

P043873 1997 RGS HWY MGT 60.00 0.00 0.00 0.00 34.15 33.29 21.53P006532 1997 AG TECH DEV. 300.00 0.00 0.00 0.00 156.71 158 71 56 26

P043868 1997 FED HWY DECENTR 100.00 0.00 0.00 0.00 57.13 40.85 18 22

P040028 1998 RGS LAND MGT/POVERTY 350.00 0.00 0.00 75.00 17.92 92.92 17.92

P008210 1998 RAILWAYS RESTRUCTURG 0.00 0.00 10.00 0.00 3.23 4 44 5 06

P037828 1998 GEF BR-NAT`L BIODIVERSITY 175.00 0.00 0.00 0.00 84.50 83.30 67.32

P00O55 1998 BR (PR)R.POVERTY 300.00 0.00 0 00 0.00 104.12 104 12 0 00

P008564 1995 BR- HEALTH SECTOR REFORM -REFORSUS 99.00 0.00 0.00 0.00 18.12 18.12 0.00

P038882 1995 BELO HM.TSP 102.00 0.00 0.00 0.00 16.15 16.15 0.00

P006436 1995 RECIFE M.TSP 140.00 0.00 0.00 0.00 18.58 18 58 11.06

Ceara Urban Development & Water, Resource

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Difference between expectedand actual

Original Amount In US$ Millions disbursements'

Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Org Frm Rev'd

P006543 1994 BR- MINAS GERAIS BASIC EDU. 150.00 0.00 0.00 0 00 3.71 3.71 0.00P006522 1994 ESPSANTOWATER 15400 0.00 0.00 54.00 11.94 65.94 619P006541 1993 BR WrR QIPLN(SP/PRIFED) 245.00 0 00 0.00 5.15 4 16 9.31 3.15P006505 1992 MATO GROSSO NAT RES 205.00 0.00 0.00 15.00 12 12 27.12 0.00P006454 1992 RONDONIA NTRL RES. M 167.00 0.00 0.00 10.00 10 84 20.84 0.00

Total: 5797.48 0.00 25.00 179 83 2878.63 1740 25 471 28

- 90-

BRAZILSTATEMENT OF IFC's

Held and Disbursed PortfolioJan - 2002

In Millions US Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1997 Guilman-Amorim 25.78 0.00 0.00 57.47 25.78 0.00 0.00 57.471998 Icatu Equity 0.00 20.00 0.00 0.00 0.00 12.14 0.00 0.001999 Innova SA 20.00 5.00 0.00 60.00 20.00 5.00 0.00 60.001980/87/97 Ipiranga 29.33 0.00 0.00 57.27 29.33 0.00 0.00 57.271999 Itaberaba 0.00 5.34 0.00 0.00 0.00 5.34 0.00 0.001999 JOSAPAR 8.00 0.00 7.00 0.00 3.00 0.00 7.00 0.001995 LATASA - Brazil 1.33 0.00 5.00 0.00 1.33 0.00 5.00 0.001995 Lojas Americnna 14.00 0.00 5.00 2.00 14.00 0.00 5.00 2.001987/92/96/99 MBR 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.000 Macedo Nordeste 6.33 0.00 5.00 0.00 6.33 0.00 5.00 0.001996 Mallory 4.36 0.00 0.00 0.00 4.36 0.00 0.00 0.001975/96 Oxiteno NE 10.00 5.00 0.00 0.00 10.00 0.00 0.00 0.001994 Para Pigmentos 21.50 0.00 9.00 12.32 21.50 0.00 9.00 12.321987/96 Perdigao 15.31 0.00 0.00 2.00 15.31 0.00 0.00 2.001989/95 Politeno Ind. 5.85 0.00 0.00 0.00 5.85 0.00 0.00 0.001994/00/02 Portobello 0.00 1.15 0.00 0.00 0.00 1.15 0.00 0.002000 Puras 4.67 0.00 0.00 0.00 4.67 0.00 0.00 0.001998 Randon 6.53 0.00 3.00 0.00 6.53 0.00 3.00 0.001991 Rhodia-Ster 0.00 5.95 0.00 0.00 0.00 5.95 0.00 0.001995 Rhodiaco/PTA 7.50 0.00 0.00 3.00 7.50 0.00 0.00 3.001990 Ripasa 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.001997 Rodovia 27.22 0.00 0.00 47.70 27.22 0.00 0.00 47.70

S.A.I.C.C. 0.00 2.85 0.00 0.00 0.00 2.85 0.00 0.001994/96 SP Alpargatas 16.67 0.00 5.00 0.00 16.67 0.00 5.00 0.001987/97 Sadia 20.50 0.00 6.83 109.33 20.50 0.00 6.83 109.331994/95/97 Samarco 11.70 0.00 0.00 6.67 11.70 0.00 0.00 6.671997 Samaritano 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.002000 Saraiva 10.38 3.00 0.00 0.00 10.38 3.00 0.00 0.001998 Seaa Alimenios 0.00 3.88 0.00 0.00 0.00 3.88 0.00 0.000 Sepetiba 32.00 0.00 0.00 8.00 17.00 0.00 0.00 8.002001 Sucorrico 7.50 0.00 0.00 0.00 7.50 0.00 0.00 0.001997 Synteko 18.00 0.00 0.00 0.00 18.00 0.00 0.00 0.002001 TIGRE 13.46 0.00 5.00 6.41 13.46 0.00 5.00 6.411996 TRIKEM 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001992/93 Tecon Rio Gnmde 6.65 0.00 5.50 14.84 6.65 0.00 5.50 14.841998 Tecon Salvador 3.50 1.00 0.00 5.00 3.50 0.77 0.00 5.002001 Votorantim 1.43 0.00 0.00 0.00 1.43 0.00 0.00 0.001993 Vulcabras 16.68 0.00 0.00 0.00 16.68 0.00 0.00 0.001999 Wembley 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.001997 Wiest 0.00 0.00 8.00 0.00 0.00 0.00 8.00 0.001999 AG Concession 0.00 15.00 15.00 0.00 0.00 0.00 0.00 0.002001 AlgarTeleconi 0.00 8.17 0.00 0.00 0.00 8.17 0.00 0.001996/97 Apolo 8.00 0.00 0.00 0.00 3.00 0.00 0.00 0.002001 Arteb 20.00 7.00 0.00 18.33 20.00 7.00 0.00 18.331998

Total E'ortfolio: 731.43 159.78 133.83 649.28 657.65 131.34 115.53 644.16

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Approvals Pending Conmmitment

FY Approval Company Loan Equity Quasi Partic

2002 Banco Itau 0.00 0.00 0.00 100.002000 BBA 10.00 0.00 0.00 50.002001 Brad Templeton 0.00 0.00 20.00 0.002001 Cataguazes 45.00 0.00 0.00 40.001999 Cibrasec 0.00 0.00 7.50 0.002001 Satipel 15.00 15.00 0.00 0.002002 Unibanco-CL 0.00 0.00 0.00 150.002001 Unisul 15.00 0.00 0.00 0.002002 Univali 10.00 0.00 0.00 0.00

Total Pending Commitment: 95.00 15.00 27.50 340.00

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Annex 10: Country at a Glance

BRAZIL: FUNDESCOLA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)Latin Upper-

POVERTY and SOCIAL America middle-Brazil & Carib. Income Development dlamond'

2000Populaton, mid-year (miltlons) 170.1 516 647 Life expectancyGNI per capita (Atlas method, US$) 3.590 3,680 4,620GNI (Atlas method, US$ billions) 610.1 1,895 2,986

Average annual growth, 1994-00

Population (%) 1.3 1.6 1.3Labor force (9) 1.9 2.3 2.0 GNI Gross

per PrimarMost recent estimate (latest year available, 1994-00) capita enrollment

Poverty (X of population below national Doveilv line) 22Urban population (% of total Population) 81 75 76Life expectancv at birth (years) 67 70 69Infant mortality (per 1,000 live births) 32 30 28Child malnutrition (96 of children under 5) 6 9 Access to Improved water sourceAccess to an Improved water source (9 of po,7ulaflon) 87 85 87Illiteracv (X of oopulation ane 15+) 15 12 10Gross primarv enrollment (9 of school-age population) 125 113 107 - azil

Male 106 Upper-middle-income groupFemale ,. -. 105

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1980 1990 1999 2000Economic ratlos'

GDP (US$ billions) 235.0 465.0 529.4 595.5Gross domesUc InvestmentGDP 23.3 20.2 20.4 20.5Exports of poods and services/GDP 9.1 8.2 10.6 10.9 TradeGross domestic savInqs/GDP 21.1 21.4 19.3 19.3Gross national savinas/GDP 17.8 18.9 16.1

Current account balance/GDP -5.5 -0.8 -4.8 41 Domestic 'Interest pavments/GDP 2.7 0.4 2.5 2.5 Ds iInv estml1Total debt/GOP 30.4 25.8 45.6 39.7 savingsTotal debt service/exports 63.4 22.5 112.3 77.9Present value of debtUGDP 45.9Present value of debtexports 403.7

Indebtedness1980-90 1990-00 1999 2000 2000.04

(average annual arowth)GDP 2.7 2.9 0.8 4.5 36 - rezilGDP Der capita 0.8 1.5 -0.5 3.2 2.3 - Upper-middle-income groupExports of goods and services 7.5 5.5 12.0 11.0 13.0

STRUCTURE of the ECONOMY1980 1990 1999 2000 Growth of Investment and GOP (%)

(% of GDP) 1-Agriculture 11.0 8.1 7.2 7.4 10Industry 43.8 38.7 27.5 28.6 0

Manufacturing 33.5 23.1 24.0 oServices 45.2 53.2 65.3 64.0 -7-; 00

Private consumption 69.7 59.3 61.8 62.5 -10General government consumpUon 9.2 19.3 18.9 18.2 _GDI -0 GDPImports of goods and services 11.3 7.0 11.7 12.1

1980-90 1990-00 1999 2000 Growth of exports and Imports (%)(average annual grovwth)Agriculture 2.8 3.2 7.4 3.0 40Industrv 2.0 2.6 -1.6 5.0 20

Manufacturing 1.6 2.1 -0.7 20Services 3.3 3.0 1.3 3.9 o

Private consumption 1.2 5.7 6.1 9.9 so5 9B 97 9 00General povernment consumption 7.3 -1.7 -9.3 -5.4 -20Gross domestic investment 3.3 3.4 -3.0 5.0 :ExpoIs lmportslmoorts of goods and services 0.5 11.9 -14.8 13.8

Note: 2000 data are prellminary estimates.

The diamonds show four kev indicators in the countrV (in bold) compared with Its Income-group average. If data are missing, the diamond willbe lncomolete.

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Brazil

PRICES and GOVERNMENT FINANCE

Domestic prfcos 1980 1990 1999 2000 Inflaon (%)

(% change) 2,5000Consumer prices .. 2,947.7 8.9 6.0 2.000Implcit GDP deflator 87.3 2,509.5 4.3 8.5 1 \

1,000Government finance So-(% of GDP, includes current grants) oCurrent revenue .. .. 19.5 20.0 9s 99 97 98 99 0DCurrent budget balance .. .. 0.4 1.0 GDP deflator * CPIOverall surplus/deficit .. .. -6.8 -3.2

TRADE

(US$ millions) 1980 1990 1999 2000 Export and Import levels (US$ mill.)Total exports (fob) .. 31,414 47,140 53,589 s

Coffee .. 2,656 2,746 3,048Soybeans .. 2,854 1,593 2,188 O .000Manufactures .. 19,624 35,312 41,027

Total Imports (cf) .. 20,661 49,275 55,800 dFood .. 1,379 1,655 1,507 25,00DFuel and enermy .. 4,354 4,258 6,362Capital goods .. 5,932 13,570 13,593 0

Export price index (1995=100) 80 81 91 97 94 95 90 97 98 go ooImportprfceindex(1995&100) 65 74 113 118 HExports *Impots

Terms of trade (1995=100) 123 109 80 82

BALANCE of PAYMENTS

(US$ millions) 1980 1990 1999 2000 Current account balance to GDP (%)

Exports of goods and services 21,857 34,615 55,205 64,470 0 I _Imports of goods and services 27,788 26.708 63,443 72,741Resource balance -5,931 7,907 4,238 9,271 _

Net income -7,044 -12,523 -18,848 -17,886 iNet current transfers 42 834 1,689 1,521 -3

Current account balance -12,933 -3,782 -25,397 -24,636 4.

Financing hems (net) 8,990 -5,043 13,634 33,815 4-

Changes in net reserves 3,943 8,825 11,763 -9,179 .6

Memo:Reserves including gold (US$ millions) 5,853 9,175 35,725 33,011Conversion rate (DEC, locellUS$) 1.92E-11 2.48E-5 1.8 1.8

EXTERNAL DEBT and RESOURCE FLOWS1980 1990 1999 2000

(US$ millions) Compositlon of 2000 debt (USS mill.)Total debt outstanding and disbursed 71,520 119,877 241,468 236,200 A:7,37

IBRD 2,035 8,427 6,822 7,377 C: 1,768IDA 0 0 0 0 G: 29,486

Total debt service 14,757 8,168 67,522 53,200 48,358IBRD 275 1,975 1,381 1,351IDA

Composition of net resource flows E: 9,932Official grants 14 41 62Official creditors 825 -633 660 -2,037Private creditors 3,745 *427 -11,828 -32,675Foreign direct investment 1,911 989 32,659Porttolio equity 0 0 1,961 . F: 139.279

World Bank programCommitments 820 905 1,863 1,593 A -IBRD E -BilateralDisbursements 343 788 1,533 1,692 B -IDA 0 -Other multilateral F -PrivatePrincipal repayments 98 1,251 952 887 c - IMF G -Short-termNet flows 245 -463 580 805Interest payments 177 725 428 464Net transfers 68 -1,187 152 341

Development Economics 9/17/01

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Additional Annex 11Research on Fundescola Interventions

BRAZIL: FUNDESCOILA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)

In order to better understand the School Development Plan (PDE) experience and its relationship to schoolimprovement efforts, the Ministry of Education's Fundescola Program, in conjunction with the NationalEducation Research Institute (INEP), has undertaken an ambitious data collection data in both PDE andnon-PDE schools on programming 1999, 2000 and 2001. In April of 1999 a baseline was established in asample of 158 "complete" (offering grades 1-8) fundamental level schools (offering grades 1-8) distributedacross thirty-four municipalities in the following six states in the Center-West, North and Northeastregions' three geographical areas as follows::

Center-West Region States and Municipalities

Goias: Abadia da Goias, Aparecida de Goiania, Goiania, Goianira, Guapo, Hidrolandia,Santo Ant6nio de Goiis, Senador Canedo and Trindade

Mato Grosso do Sul: Campo Grande, Corguinho, Jaraguari, Rochedo, Sidrolandia and Terenos.

North Region States and Municipalities

Rondonia: Buritis, C'andeias do Jamari, Nova Mamore, and Porto Velho.Para: Ananindeua, Belem, Benevides and Manituba.

Northeast Region States and Municipalities

Pemambuco: Abreu e Lima, Camaragibe, Jaboatao, Moreno, Olinda, Paulista, Recife and SaoLourenco.Sergipe: Aracaju, N. Sra. do Socorro and Sao Crist6vao

Of a total of 400 schools designated as PDE schools in the above states, 120 were chosen to comprise thesample. At the same time, another 120 schools were selected as "matching" controls (non-PDE schools).This sample was then reduced to 158 schools (half PDE, half non-PDE) that comprise the final sample.With the exception of schools located in Pemnambuco and Sergipe (which had not yet implemented the PDEat the time of the baseline test in April 1999), implementation of the PDE occurred in various stagesbeginning in 1997. Four hundred teachers and 12,580 4th grade students participated in the initial April1999 data collection, where achie'vement tests (drawn from a national item bank) were applied to all 4thgrade students and their teachers. Subsequent applications of the test, which added questionnaires forteachers, students and school principals, were conducted in November 1999, 2000 and 2001, with a thirdapplication planned for 2001. Data on student flows were collected in February 2000 and April 2001. Bythe end of the data collection prolpam, in November of 2003, this rich longitudinal data set will provideinformation on a cohort of students from 4th grade to 8th grade, a crucial stage of the primary cycle.

The data that have already been collected in these 158 schools provide information to respond to a numberof important research questions. However the variation in student performance, both among PDE schoolsand between PDE and non-PDE schools, requires an assessment of the level of implementation of the PDEin each school. This research agenda proposes to supplement the existing data set (as of June 2001) withinformation gathered in site visits, interviews, and instruments designed to deepen our understanding of the

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degree of the PDE program and its outcomes. In addition, the researchers will compare costs to benefits inboth PDE and non-PDE schools and assess the degree of implementation within PDE schools, while takinginto account the particular problems of selection that may be associated with PDE schools.

In order to undertake the proposed research agenda, Fundescola has contracted a group of researchersassociated with Stanford University and the Heritage Foundation (including Martin Carnoy, EricHanushek, Susanna Loeb, Jeffery Marshall, Amber Gove and Miguel Socias) that will work with aBrazilian counterpart team. This Brazilian counterpart team, in partnership with the Stanford Researchers,is responsible for the collection of additional data. In addition to the continual dialogue established betweenthe international and national researchers, those areas that are key to the methodology and technical aspectsof the study will be conducted in close cooperation, including construction of instruments and the studyplan, analysis of data and results.

The following research questions were designed with this minimum additional development of the data setin mind

1. Are there significant differences in student achievement, attainment (student flow) andattendance levels between PDE and non-PDE schools?

Using information drawn from the existing student, teacher and principal questionnaires, and supplementedwith school census information, the researchers will first investigate whether there are significantdifferences in student achievement levels between the PDE and control group schools. Holding suchvariables as socio-economic status, teacher education or qualification level, and school system constant, theresearchers will attempt to determine whether or not differences in student performance between PDE andnon-PDE schools are present. That is, given very similar school populations, staff and materials, do PDEschools perform better than non-PDE schools?

Academic achievement is just one outcome variable among many in which policy makers, parents andresearchers are interested. In Honduras, for example, expected increases in test scores were found to exerta strong influence on the student attendance decision (Bedi and Marshall 1999). That is, parents determinedthe attendance of their child based on their expectations for the child's success. Examination of thisresearch question in Brazil would be an important contribution to the ongoing debate of under-investmentin education: do parents take their children out of school because of low school quality, high opportunitycosts, or a combination of the two? Student attainment and student flows are also important outcomes,especially given widespread age-grade distortion levels and high costs to the system (Gomes-Neto andHanushek 1996). Understanding how the implementation of educational policies such as PDE could help tosolve schooling problems related to achievement, attainment and attendance will contribute to policydecision-making.

2. Selection Issues: What schools are participating in the PDE program and what kinds ofstudents are attending PDE schools?

Few issues present a more serious threat to validity in studies of educational interventions than selectionbias, which is difficult to detect but likely to exist in samples of schools and students, especially sincerandomized experimentation is often not permitted for legal and ethical reasons. Even those studies thatpurport to be based on randomly assigned control and treatment groups, usually, upon closer inspection,reveal breakdowns in the assignment process due to parent and teacher desires (e.g. the Tennessee STARProject, voucher studies). The primary objective of this study is to evaluate the impact of the PDEprogram. In order to do that the researchers need to take account of these selection issues that otherwisecould bias the estimates of the impact of PDE programs.

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Researchers are confronted with two key selection issues: selection of PDE schools and selection or choiceof students to attend these schools. First, differences between PDE schools and non-PDE schools may haveexisted prior to PDE implementation. If, for example, PDE programs are more likely to be implemented inschools with the highest standardts of teacher quality, student performance and parental education, a simpledifference between the average test scores of PDE and non-PDE schools would overestimate the effect ofPDE programs.

A second potential selectivity bias stems from the reaction of parents to PDE implementation. If parents arepulling their children out of a nearby school in order to send them to a PDE school, the differences inachievement or attendance that we find between the two groups may have more to do with the families thanthe actual schools. Again, these possible differences between families who are in the PDE schoolscompared to the non-PDE schools must be taken into account in the evaluation process.

Dealing with these selection issues in the assessment of PDE effects requires additional information onstudents' family background and ihe processes of school selection.

3. Within-group variation: What factors, including degree of implementation and flow ofprogram, are associated with d6fferences in outcomes among PDE schools?

It is likely that the above research questions will be difficult to answer without further examination ofvariation in those school characteristics that are impacted by the PDE intervention. School organization,work team, principal leadership, technical support to the schools, parents participation, methodology andtraining for its application, availability of financial resources, accountability to the system and degree ofalignment with student needs are just a few aspects that could vary greatly between both PDE andnon-PDE schools. Understanding the degree of implementation within PDE schools will require thedevelopment of an historical questionnaire in which school, secretariat teams and Fundescola staffreconstruct the activities that were proposed and implemented under the plans. In addition, analysis of theprogression of the plans, including person-hours invested, level of investment per activity and timning of theintervention will allow the researchers to assess the impact of PDE-specific activities on a number ofoutcomes. Variation in implementation will also be reflected in outcomes beyond that of studentachievement. Some schools may be very good at retaining students due to a school climate that reflectswhat parents expect from a school. Those schools that embark on ambitious plans of reform without aconsultative process may find that parents reject experiences that do not reflect their own.

4. Cost Benefit Analysis. Is the PDE providing sufficient benefits for its costs in making schoolsmore attractive to parents and si!udents?

Cost-benefit analysis measures both costs and benefits when each is measured in monetary terms. Costanalysis is labor intensive, as it requires summation of all true costs involved in the intervention, includingteacher and volunteer time. Calculating benefits requires the transformation of educational outcomes suchas years of attainment and additional learning into monetary terms. The researchers will conduct acost-benefit analysis comparing the value added of the PDE program (above and beyond normal schooloperating costs) with the benefits of the program as measured by predicted additional attainment in order todemonstrate the importance of this type of analysis in education evaluation and understand the economiceffects of improved school quality (Carnoy and Thias 1972; Carnoy 1995).

Selected References

Amaral Sobrinho, J., & de Almeida Neto, A. A. (2001). 0 Plano de Desenvolvimento da Escola e aGestdo Escolar no Brasil: Situagdo Actual e Perspectivas. Brasilia, Brasil: MEC/Fundescola(Processed).

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Bedi, A. S., & Marshall, J. H. (1999). School Attendance and Student Achievement: Evidence from RuralHonduras. Economic Development and Cultural Change, 657-682.

Carnoy, M. (1995). Benefits of Improving the Quality of Education. In M. Carnoy (Ed.), The SecondInternational Encyclopedia of the Economics of Education (pp. 154-159): Pergamon.

Carnoy, M., & Thias, H. H. (1972). Cost Benefit Analysis in Education: A Case Study of Kenya. JohnsHopkins Press, Baltimore: The World Bank.

Gomes-Neto, J. B., & Hanushek, E. A. (1996). The Causes and Effects of Grade Repetition. In N. E.Birdsall & R. H. E. Sabot (Eds.), Opportunity Foregone: Education in Brazil (pp. 425-460).Washington DC: LADB.

Gomes-Neto, J. B., & Rosemberg, L. (2001). Avalia,do de Desempenho: Fatores Associados. Brasilia:National Institute of Education Research (INEP) (Processed).

Harbison, R W., & Hanushek, E. A. (1992). Educational Performance of the Poor: Lessons from RuralNortheast Brazil: Oxford University Press.

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Additional Annex 12:Technical Issues Related to Education Reform in the Fundescola Region

BRAZIL: FUNDESCCLA IIIA (THIRD SCHOOL IMPROVEMENT PROJECT)

The Four Key Constrainits to Education Reform in the Fundescola Region

A. Schools Are Not Using Effe,tive Teaching and Learning Models.

One of the most striking characteristics of so many Brazilian schools is the limited use of effectiveteaching and learning strategies. Although the government has successfully promulgated significantimprovements educational standards, for example with respect to the development of national curriculumparameters, the introduction of routine standardized testing, and the promotion of improvements intextbook content and presentation, changes in classroom practice remain the next, big frontier. Researchand classroom observation studies in Brazil demonstrate that schools continue to rely on traditionalinstructional approaches. For inm;tance, with respect to student engagement, many teachers tend to rely onone of two altematives: either ihey interact with the class as a whole-even when desks are groupedtogether-mainly to explain an assignment or to have students copy something from the chalkboard, or theyengage individual or small groups of students to establish or re-establish discipline. Textbooks andcurriculum guides are universally available, but seldom used in any coherent way in the classroom.Supplementary pedagogic material or books are rarely available, and where they are, students have fewopportunities to use them, neither during nor after school hours. Classroom time is treated in a cavaliermanner; in multi-shift schools, t.ime-on-task averages about 3 hours. The principle classroom teachinginstruments are the chalkboard and the lecture. Lessons tend to favor low order skill assignments such ascopying text, which minimizes teacher stress while maintaining discipline in an authoritarian context.Classroom instruction often appears unfocused, perhaps due to a lack of clarity in curriculum objectives orlack of knowledge regarding what constitutes good teaching practice. Despite the availability of nationalcurriculum parameters and in nany cases State curriculum guides, schools operate without explicitgrade-level learning objectives, and a long way from using standards-based student assessmentinstruments.

For decades, and in particular in recent years, Brazilian educators and policy makers haverecognized the problem of poorly functioning schools and have achieved some success in improvingindividual schools. Unfortunately, attempts to raise school quality and student outcomes in large scale havebeen frustrated. Efforts to encourage schools or school-based organizations to develop innovations haveclearly resulted in success stories, but they are few, dispersed, and sometimes short-lived. Such bottom-upreforms have proven to be precarious in part because of their dependence upon an exceptional schoolprincipal or a committed sponsoring organization. When the principal leave, or the supporting organizationchanges, the reform may be reversed without its champion. Moreover, when school-based initiatives evolvefaster than the responsible secretariat can understand or absorb them, their dissemination and even stabilitybecomes constrained. This also contributes to a tendency for reforms to wither rather than take off. Inother words, Brazil has quite a bir. of experience with small-scale efforts that have not been expanded.

The top-down approach has likewise failed to generate widespread and sustainable implementationof effective of teaching strategies and their corresponding learning gains. Mandates for change fromfederal, state, or municipal governments have proven themselves to be largely ineffective. This appears tobe due to the fact that, for schools to take on the challenge of fundamental reform, the staff and communitymust undertake a series of changes themselves. They would have to recognize the need for reform, thenembrace the required changes, then adapt the' reform to their own context; and finally acquire the neededskills, institutional capacities, and organizational structures required to incorporate the new processes intothe functioning of the school. Any widespread and sustained structural reform of schools in Brazil can

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therefore neither bubble up from below nor be irnposed from above. Consequently, Brazil's principalconstraint to improving student outcomes is the education community's inability to translate the objective ofeducating all children into program of coherent, integrated, school-driven reforms in thousands andthousands of schools, in poor as well as less poor communities, throughout the country.

B. Local Governments Have Inadequate Policies to Address Educational Inequality.

Substandard schools. Millions of children attending public schools located throughout the regionsserved by the Fundescola Program lack basic educational opportunities available to children attendingschools in other parts of Brazil, or even in better endowed schools within the same jurisdictions. Federallaw requires children aged 7 to 14 to attend school. Yet many school children in the Northeast, North, andCenter West regions go to school without qualified or the necessary educational books and supplies,adequate classrooms, student desks, functional roofs, windows, walls, and water fountains, usablechalkboards, or trained and appropriately qualified teachers. Students are forced to learn in schools thatlack ventilation, adequate lighting, and functioning toilets. These appalling conditions have persisted foryears in many parts of the Fundescola regions and have worsened over time. Without functionalclassrooms, without books or other educationally essential materials, without minimally qualified teachers,and without facilities that are safe and healthful, children are consigned to a system of inadequate custodialcare that does not, neither in fact nor in law, provide the free, minimum quality education mandated by theconstitution and federal legislation.

Unequal schools. This inequity is perhaps what is most striking about these dramaticdeficiencies. It is not just the fact that schools in these appalling conditions exist, but that they exist in thesame jurisdictions in which adequate or even good schools may be found. Research and survey workcarried out under Fundescola I and II demonstrate that in most municipalities working with Fundescola,and certainly in every State participating in the Fundescola Program, good, even excellent public schoolscan be readily identified in the data. These schools may not be "first world" schools in every sense, butthey are schools to which middle-class parents from any country in the world would be happy to send theirchildren. To put it bluntly, local govermments have persistently invested in the quality of some schoolswhile allowing other schools in their jurisdictions to deteriorate.

Public policy and unequal school quality. Why is it that these inequalities in school quality are soprevalent? There are two main reasons for this. First, until recently public policy has not focused oneducational inequality, but rather on basic access to schooling. One big turning point in public policy wasthe FUNDEF amendment and law (discussed above), which set a minimum, per-student spending level.This redistributive legislation has provided a financial basis for redressing imbalances in educationalquality. Nonetheless, state and municipal governments charged with public education obligations havefailed to develop policies or implement appropriate procedures to identify and correct the substandardconditions at the schools attend.

Lack of supply-side investment policies that are pro-poor. Although the federal government hasundertaken a major initiative to stimulate demand for schooling by children living in poverty through theBolsa-Escola Program, there still remain serious problems on the supply side regarding the quality ofschools frequented by poorer children. Because children tend to frequent schools that reflect residentialpattems of economic differentiation, the schools at which these manifestly substandard conditions exist inany jurisdiction tend to be attended by children from families living at or below the poverty line.Consequently, it is especially the poorest children who are denied basic educational opportunities. Withoutthose adequate quality schools, children have limited options to realize their potential. Research points outthat children do not become "used to" substandard learning conditions. Instead, repeated deprivation ofbasic learning tools compounds the deleterious effect of learning deficits, a situation from which children

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may never successfully recover. Consequently, students in schools lacking in the basic educationalnecessities in lower primary will begin their upper primary under-prepared and under-motivated, and thiscycle will continue into the students' secondary school years if they make it so far. Schools belowacceptable learning standards thereby contribute to grade repetition and to student disaffection, ultimatelyinhibiting the chances of the poor to escape from poverty. Local governments (both State and Municipal)have not managed to establish minimal standards for teachers and staffing requirements, materials, andfacilities encountered by students in the public schools. Even in those few instances in which the educationsecretariats have formally established standards, responsible officials have not been willing or able todetermine whether conditions in their schools meet those standards. Finally, even when system officialsknow that a school's quality falls below minimal standards, they have no strategies or budgets to remedythe inadequacies.

C Parents and the Broader Public are Insufficiently Engaged in School Improvement

Parent involvement is critical to school improvement. Research in Brazil, as well as elsewhere,overwhelmingly concludes that parent involvement in schooling and in children's learning is strongly relatedto their attainment and achievernent. The more intensively parents are involved, the more beneficial theimpact on student outcomes. This holds true for all types of parent involvement in children's learning andfor all types and ages of studentr. The research also shows that the earlier in a child's educational processparent involvement begins, the more powerful are the effects. Moreover, considerably higher outcomes aremeasured when parent involvement is active. In other words, greater benefits accrue not only when parentswork with their children at horae, but also when they attend and actively support school activities, areinvolved in school governance and policy, and even when they help out in classrooms. Studies in Brazilalso reveal many benefits for school systems when parents become more involved in their children'sschools. Teachers, for example, benefit from the improved rapport that generally accompanies increasedparent involvement. This rappcort is often expressed in parents' increased willingness to support schools'efforts during special projects, festivals, or fund-raising activities. The many ways in which parentinvolvement benefits students' achievement, attitudes, and behavior have a positive impact on school staffas well. Finally, research shows that parent involvement in educational governance and policy, such asthrough the school council or the municipal education council, helps correct erroneous assumptions thatparents and educators may hold about one another's motives, attitudes, or intentions. In addition, theirengagement in schools and schlooling has been shown to encourage parents to serve as advocates forschools throughout their community.

But parents are not engaged. Despite the many potential benefits associated with parentinvolvement, beneficiary assessment studies and ethnographic research in Brazil reveal that parents areoften reluctant to participate in their children's schools. Many parents express the belief that schools areonly interested in them insofar as they can provide materials or services, though teachers say they believethat parents in fact do have opportunities to become more involved in their schools. Interviews with poorparents reveal that they may riot be participating in their schools due to a lack of time or energy,embarrassment or shyness aboul. their own educational level or verbal abilities, lack of understanding orinformation about the structure of the school and accepted communication channels, perceived lack ofwelcome by teachers and adrministrators, and teachers and administrators' assumptions of parents'disinterest or inability to help with children's schooling. At the same time, analysis of interview data showthat although many parents appear to value education in the abstract, in reality they have little idea of whathappens inside the school and classroom, and are clear about what ought to be happening there.

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D. ManagementProcesses and Financing are notAligned on School Improvement

At the level of the school, when management processes and resources are not aligned on studentlearning, student results are jeopardized. Most schools participating in the Fundescola Program arevery constrained in terms of financial and human resources. Unfortunately, it is frequently thecase that when schools make efforts to improve quality themselves, many spend their scarceresources in fragmentary and ineffective ways. Often with they believe are in the best interests oftheir students, school staff implement multiple programs that are neither aligned with a plan forschool improvement nor evaluated for their effectiveness. Over time, these piecemeal-type ofprograms represent a major energy drain for schools, both in terms of resources and focus. Tomake matters worse, according to research in the Northeast of Brazil, many schools are excessivelyconcerned with state or municipal norms and regulations, or are constrained by their own limitedexperience. Disorganized schools are more likely to have staff who blame parents and even the studentsthemselves for low levels of learning, rather than accept their responsibility for assuring children'seducational success.

Earlier projects in the Fundescola Program have developed and tested various teaching/learningmodels in recent years. They have found several to be effective and Fundescola has helped Secretariats ofEducation introduce them successfully into hundreds of individual schools. But they have yet to replicatethese successful interventions in tens of thousands of schools. This inability to go to scale has been theresult of weak capacity - in particular, the capacity to get organized for large-scale operations and tomanage them well in a system that is highly fragmented. This constraint will be addressed by theFundescola III project. The project includes what is likely to be the first large-scale introduction ofteaching/learning models comprehensively into entire school systems in the North, Northeast andCenter-West. The logistics of doing this, the organizational arrangements, and the management systemsand practices required, will be worked out and included in the project. In a sense, this project will itselfbecome an experiment in going to scale, paving the way to future large-scale operations of this kind.

At the level of local government, education secretariats are correspondingly not organized toprovide efficient educational services and support to schools. Obviously, student learning takes place atschool, not in the secretariat or at the level of the school system. Nonetheless, the system has an obligationto focus all efforts on facilitating the teaching/learning processes at the school. With increasing demandsfor improving educational outcomes, secretariats of education are inundated with a variety of approachesand "silver bullets" for improving their systems. With so much pressure and need, districts are more thanwilling to try out many different options. The end result is often an abundance of well-intentioned plansthat are not focused on a single, unifying vision. This kind of education improvement overload contributesto a defeatist mentality. Instead, school improvement requires that the secretariats of education be endowedwith the organizational structure and capacity to take optimal advantage of their resources and align themwith the objective of school improvement and equity. But, the lack of capacity in educational secretariatsrepresents one of their chief constraints.

E. Limited Capacity of Secretariats of Education

From an organizational point of view, the capacity of the education system to improve equity andraise school quality is constrained by several factors. These include:

a less-than-optimal division of labor among institutions at the federal, state and local levels, and aninadequate division of labor within many of these institutions;

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* fragile leadership and an unclear sense of direction at sector level, as well as at the level ofindividual institutions, resulting from the lack of a shared and detailed vision;

* an inadequate mix of skills and a low level of competency among administrative, technical andmanagerial staff particularly in small and medium-size, mostly rural, secretariats;

* a lack of administrative, technical and managerial systems, coupled with weak work practices,particularly in the area of management;

* a strong presence of politics in the decision-making process, and

* a proliferation of 'standL alone' programs and governing bodies operating in an un-integrated fashionwith little communication and coordination.

Organizational Setting and Division of Labor. The division of labor and responsibility in theeducation sector, particularly between state systems and municipal systems, has introduced manycomplexities and inefficiencies into the system. The key institutions that run the schools in this system arethe education secretariats. For historical reasons, there are State Secretariats and Municipal Secretariatside by side, each running their own schools. Because most municipalities are by definition smaller thanstates, their education secretariats are smaller too. They have a fewer number of students for which theyare responsible, and an smaller overall revenue base for education. Due to their smaller size, they areunable to enjoy economies of scale in using these resources, particularly in the area of management andadministration. They are less able than the state secretariats to pursue functional differentiation andspecialization or to attract highly-skilled professionals. They also receive no little if any help from theState Secretariats of Education. From a capacity point of view, this dual, highly unbalanced, structuregreatly weakens the capacity of the system as a whole to deliver effective education services and to achievethe goal of equity.

Many secretariats have bureaucratic outlooks, not treating the schools as clients to whom they - theSecretariats - owe a service. They, therefore, have bureaucratic structures that are designed to facilitateadministrative functions rather than to maximize pedagogical support to the schools and work for schoolimprovement.

In the municipal secretnriats there are not enough people to specialize in, and take care of, distinctfunctions. In many cases, financial management and materials acquisition, as well as the management ofhuman resources, for example, are carried out by the municipality's accountant and personnel manager,respectively, and not by Secretariat staff. Small size means that many important decisions are taken by themayor. It means also that the Secretaries, with the help of a few non-specialized staff, are responsiblethemselves for a broad array of issues. The net result is that key functions do not get the attention theyrequire for policy and strategy, for norms and standards, and for the utilization of resou-ces. This greatlyinfluences the capacity of the secretariats both to deliver routine services and to implement specializedprojects. In State Secretariats, the level of functional differentiation is higher, but there, too, one seldomfinds integrated functions such as pedagogically-related school support and supervision aimed at enhancingthe teaching/learning processes in the classrooms. State secretariats, and especially municipal secretariats,have small numbers of permanent positions that are financed from their recurrent budgets, and largernumbers of temporary positions that are financed through political appointments or temporary projects.There is therefore a tendency for staff to be clustered around projects or the Secretary himself or herself,rather than around functions. This creates a de-facto division of labor that, while attending to politicaldemands or specifically defined projects, does not pay sufficient attention to important, on-going functions.

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And since projects and political appointees come and go, there is also limited continuity in the performanceof the tasks that are covered by them.

Leadership and Direction. The fragmentation of the education system into a large number of stateand municipal sub-systems has made it difficult to develop a unifying vision that is shared by all. But avision does not often exist even within individual institutions. Municipal secretariats typically do not havewell-formulated, if any, vision and strategies, because they find it hard to attract leaders. Some of them donot seem to feel the need for such vision and strategies. State secretariats, on the other hand, often doattract people with leadership qualities, but these leaders typically focus on resource mobilization. Theysee their main role as raising funds for the system. They therefore bring in a large number of projects fromwherever they can get them. These projects do not add up into a clear and unified direction, however, nordo they last over long periods of time. In these secretariats, vision is therefore a product of the projects,rather than the thinking that generates these projects. It is not always coherent and if the projects pull indifferent directions, so does the vision. Moreover, it lasts only for as long as the projects are there,

Human Resources. The number of skilled and responsible staff in many education secretariats isinadequate, and so is the mix of capabilities they possess. As indicated earlier, many secretariats have asmall number of establishment-based staff. The transient staff come and go with projects. The activitiesthey conduct are discontinued when they go; the skills that they bring along or acquire are lost. Thisgreatly influences both the mix of skills at the secretariats and the level of competency reached by thepeople working for them. The skills' mix at any given time reflects the mix of projects or initiatives beingimplemented at that time, but it does not necessarily reflect the mix of functions that need to be attended toat all times. The level of competency in whatever skills are available differs between the large mostly statesecretariats and the small municipal ones. It is quite impressive at the larger secretariats, but is much lessimpressive at the smaller ones - which are the bulk of all secretariats. Staff, at least in smaller secretariats,require training and development, but decisions to invest in them are complicated by the fact that so manyof them are transient staff who will leave the secretariats when the initiatives are completed or when theSecretary leaves. These factors constrain not only the capacity to deliver routine services, but also thecapacity to take special action, to implement projects and programs, and thus achieve the objectives ofequity and quality.

Management Practices. The capacity of Secretariats of Education to deliver services andimplement projects effectively is constrained also by weak management, excessive and divided control, andpolitical intervention. Key management functions are carried out in the secretariats ineffectively due to thelack of systems, skills and incentives to manage better. Among these are the functions of leading, planning,communication and coordination. But, the capacity of secretariats to influence the schools is also limitedby the proliferation of controlling bodies to which the schools report. Almost every project and every areathat is 'handed over' to the municipalities, or directly to the schools, leads to the creation of a council. Theschools in a small municipal secretariat have to work with at least five councils: the Municipal EducationCouncil, the School Education Council, the FIJNDEF Council, the School Lunch Council and theBolsa-Escola Council. This complicates the management of education in the schools and may alsointroduce an unnecessary waste of time and resources.

The intervention of politics in the system of education is pervasive. Political leaders and politicalfactors influence the choice of higher level goals for the education system, which is an acceptable role forpolitics; but, they influence also the choice of lower level objectives. strategies and means of action, wheretechnical and professional considerations ought to be the dominant considerations. One of the mostcommon results of political intervention in the education system is a high turnover of personnel, andsometimes also of programs, which takes place when ruling parties and elected officials change. This

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weakens the capacity of educational institutions to carry on with their work efficiently and effectively.

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