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THE NEGATIVE EFFECT OF TOO MANY CENTRALIZED CONTROLS IN
ECUADOR
Study of Ecuador's resource management system highlighted the dysfunctional effects of
a highly centralized system as well as its inability to deliver the one thing claimed for it effective control.
BOX 2.4:
THE NEGATIVE EFFECT OF TOO MANY CENTRALIZED CONTROLS IN ECUADOR
By the early 1990s Ecuador’s resource allocation and personnel administration systems were
highly centralized and rule-oriented. Yet, there was growing realization, that despite the tight
institutional framework, the system was failing to control and limit the use of publicly held financial
and human resources. In fact, the proliferation of controls actually sowed the seeds of its own
malfunctioning. The highly centralized budget system had generated numerous devices for
circumventing the normal budgetary process, including earmarked revenues and off-budget
activities. Similarly, the centralized financial control system, including but not limited to extremely
cumbersome procurement processes and a reliance on pre-controls had led to a proliferation of
autonomous entities exempt from many of those controls. The highly centralized personnel
management system also failed to improve public sector outcomes. Public employment, for
instance, grew inexorably over the previous decade and a half and a plethora of labor regimes,
salary supplements and other devices for circumventing the controls built into that system emerged.
These undermined good management and produced poor public sector outcomes.
The country is now in the process of undoing many of the centralized controls and moving
towards a more delegation oriented institutional framework. However, movement is slow because of
the resistance that is typically encountered in moving from a transaction-specific control regime to a
more decentralized one. As an example, a plan proposed in 1995 to devolve payment controls is
yet to be implemented, largely because of central agencies’ fears of fiscal indiscipline.
Source: Reid, Gary, “Improving Micro Budgetary Performance: The Case of Ecuador”,
Discussion Draft; and, World Development Report 1997.