Download Lower Middle Income Countries

A governance approach in
Latin America
Ana Bellver and Nick Manning
Public Sector and Governance Group
Latin America
February, 2008
1
1. LAC has a distinctive governance
environment
• Low spend, low engagement, low trust
• Citizens and firms avoid contact with the state and
have little trust in its competence
• Governments find it difficult to raise revenues
• Corruption is not a separate public concern:
 Inefficiency in public service delivery and regressive spending
policies are perceived to be equally important outcomes of poor
governance.
2
With rather less trust…
Trust in Government in Latin American and Europe (2003-2005)
60
53
50
39
40
35
41
43
44
44
43
39
36
27
Honduras
Costa Rica
30
28
Panama
31
28
31
Peru
19
19
Guatemala
11
12
Ecuador
20
Bolivia
24
14
10
EU27
EU15
Latin America
Chile
Venezuela
Argentina
Dominican Rep.
Colombia
Brazil
Uruguay
El Salvador
Paraguay
Mexico
Nicaragua
0
3
Source: Latinobarómetro, 2003-2005; Eurobarometer 62, (2005).
From businesses as well
Firms’ assessment of the neutrality/composition of Latin America
government decisions/spending (Average 2004-2006)
7.0
6.0
5.0
4.0
3.0
2.0
1.0
Favoritism in decisions
Wastefulness of spending
OECD
EU15
Latin America
Argentina
Chile
Mexico
Uruguay
Costa Rica
Brazil
Dominican Republic
Panama
Colombia
Venezuela
Peru
El Salvador
Paraguay
Guatemala
Ecuador
Nicaragua
Honduras
Bolivia
0.0
Source: (World Economic Forum:
4
2004-2006)
10
10
5
0
13
40
EU15
36
OECD
19
Latin America
Argentina
17
Chile
13
Mexico
Uruguay
20
Costa Rica
Brazil
15
Dominican Republic
12
Panama
Colombia
Venezuela
16
Peru
13
El Salvador
13
Paraguay
Guatemala
15
Ecuador
18
Nicaragua
20
Honduras
Bolivia
Low Tax Revenues
Revenues as a Percentage of GDP (2004)
45
40
36
35
30
25
26
25
20
15
18
12
5
Source: (OECD: 2008)
And distinctively low expenditures
Average General Government Expenditure as Percent of GDP per
Income Group and Latin America and Caribbean (LAC) region
43.28
37.64
34.78
GGE/GDP (%)
32.47
27.24
Low Middle Income (LAC)
29.17
26.01
Upper Middle Income
(LAC)
Low Income
Low Middle Income
(except LAC)
Upper Middle Income
(except LAC)
High Income - Non OECD
Source: International Monetary Fund, Government Financial Statistics (2008).
High Income - OECD
6
Reasons for public skepticism…
60
50
Inequality in Latin America and Europe before and after taxes and
transfers (Gini Coefficients)
57
52
56
54
5149
4948
47
46
50
48
52
52
50
47
42
43
40
35
31
30
46
45
34
31
29
28
20
10
Inequality before taxes and transfers
Inequality after taxes and transfers
EU15 Ave.
United Kingdom
Sweden
Spain
Germany
France
Latin America
Ave.
Argentina
Chile
Mexico
Brazil
Colombia
Peru
0
7
Source: (OECD: 2008)
And for distrust in government…
Distribution of Social Spending across Income Levels: Average of
Selected Countries in Latin America
35
29.1
Total spending (=100) and percentages
30
25
20.7
17.9
20
16.0
16.8
16.3
7.5
15
10
5
5.0
2.5
3.4
5.2
5.0
5.1
5.2
4.3
8.2
7.9
7.8
8.0
8.0
Poorest quintile (q1)
q2
q3
q4
Richest quintile (q5)
0
Education
Health
Social Security
Note: Data are the simple average of nine countries: Argentina, Bolivia, Brazil, Colombia, Costa Rica,
Ecuador, Guatemala, Mexico and Uruguay. Source: (OECD: 2008) drawing on (ECLAC: 2005)
8
As evidenced by disengagement
from services…
Deficits and surpluses in mean years of schooling compared to
levels predicted by per capita GDP
Source: (Ferranti and Ody: 2005)
9
and disengagement from the formal
economy
Estimates of the Shadow Economy in Latin America
(in % of official GDP)
OECD
average
Source: (Schneider:
September 2006)
10
2. The challenge for the Bank in LAC
•
Bank must prove itself, particularly
challenging since GAC is an area in which
there is little certainty or best practice
•
Some real successes in the region on
macro and fiduciary issues
•
Persistent failures in improving the meritbasis/due process in the public sector
11
This requires a distinctively positive
LAC approach
 Improving public trust in government
 Adopting discrete, pragmatic and innovative
approaches
 Building government confidence that the
Bank understand their countries’ political
constraints
12
3. How?
• By theme:
 Increasing transparency and efficiency in fiscal expenditures and
PFM
 Enhancing focus on strengthening regulatory frameworks, and
capacity and independence of oversight bodies
 Enhancing sector governance by focusing on issues of
performance and reducing inefficiency in the provision of services
• By country type:
 Lower Middle Income Countries:
o Confidence building at the agency level
o Space for confidence building dialogue
 Upper Middle Income Countries:
o Building confidence in sectors and in watchdog bodies
13
Theme 1: Working on Transparency
& Efficiency
• SEPA: system of enhanced transparency in
government contracts (Region-wide, with IDB)
• OECD procurement benchmarking:
Systematic roll-out of programmatic support
(Peru, Mexico)
• Tax reforms: e.g. Guatemala – (collection rate
increased by 3% of GDP over 5 years; taxation
superintendence now viewed as one of most
trusted institutions in Guatemala)
• Local government support: transparency in
municipal finances and participatory planning
& budgeting (Costa Rica)
14
Theme 2: Working on Regulatory
Frameworks & Oversight Institutions
• Supreme Audit Institutions: Systematic support, e.g.
Honduras (strengthening capacity for CSO participation in
SAI audits); Peru (supporting capacity to oversee the
implementation of PPP); regional SAI body OLACEFS
(improving capacity to combat corruption)
• Assessing competition in the roads sector: Framework
approach to help improve sector governance (Bolivia)
• Judicial appointment and performance evaluations
systems in Colombia, Honduras (resulting in increased
judicial independence, higher standards of accountability)
• Electricity sector: Database of regulatory characteristics
(covering 54 agencies)
15
Theme 3: Working on Performance &
Efficiency in Service Delivery
• Monitoring results in education and nutrition:
accompanied by extensive media dissemination campaign
(Peru RECURSO AAA)
• Workshops on investigative journalism
• Addressing citizen-state interface: Strengthening the
capacity of local councils to monitor and evaluate social
policies; setting up user friendly portal to disseminate M&E
results (Uruguay)
• Systematic governance analyses in key sectors:
Developing entry points in education, rural, water
(Paraguay)
• Strengthening access to information offices in line
ministries (Honduras)
16
Country Group:
Lower Middle Income countries
•
Building confidence at the agency level
 Strengthening Accountability in Social Service Delivery in
Central America (Laura Rawlings)
 primary objective is to provide information on improvements in the
efficiency and quality of basic social services
 supporting the development of five Sectoral Governance Analyses
(Honduras- health, Honduras-education, Guatemala- health, Guatemalaeducation, El Salvador-education)
 "deconstructing" alternative service delivery models to find elements from
the alternative models to export to the traditional models to strengthen
performance and results
17
Lower Middle Income countries
•
Space for confidence-building dialogue (1)
 Policy Dialogue and Consensus in El Salvador (Alberto
Leyton)
 helped the Bank to engage in policy discussions in the country by
supporting civic groups and independent analysts - helping them play
the role of informed brokers and help bridging positions among political
parties on fiscal related issues during the political campaign.
 effective - not only in facilitating a broad discussion on sensitive issues
in the context of the international financial crisis, but also in helping the
Bank to reactivate and reengage in lending activities by partially
removing pre-existing political gridlock in Congress.
 activity continues until June 2009 - other sensitive topics will also be
brought to the public debate during the campaign process in order to
build consensus that will help the next administration implement new
policies and programs
18
Lower Middle Income countries
•
Space for confidence-building dialogue (2)
 Honduras: Unblocking governance reforms and stregthening
public acccountability (Ana Bellver)
 Coalition established between access to information commissioners in
Honduras and Mexico and civil society representatives - instrumental in
setting up a coalition between these two groups in support of the
implementation of the access to information law
 Focus on transparency of the budget process in Honduras and regional
comparisons, agree on measures to make it more transparent, and
facilitate social monitoring of pro-poor spending.
 Wworkshops on transparency and accountability at the school level for
communities and parent associations and the development of a social
monitoring methodology for education budgets.
19
Country group: Upper Middle Income
countries
• Building confidence in sectors & in watchdog bodies (1)
 Argentina: Social Service Delivery and Federal Fiscal
Relationship in Argentina: The case of Buenos Aires (Emily
Sinnott)
 analysis of social service delivery in Buenos Aires Province to strengthen
understanding of the impact of changing fiscal federalism arrangements
in Argentina on service delivery in the social sectors and to create a
dialogue between main stakeholders (federal and provincial
governments, unions, academic experts and civil society)

looked at political economy considerations and key institutional
processes that affect public social spending and policy-making in the
province of Buenos Aires

DFID resources allowed the Bank to fund a study and comprehensive
dialogue on the political economy process that is essential to any
understanding of the fiscal accounts of the Province of Buenos Aires.
20
Upper Middle Income countries
• Building confidence in sectors & in watchdog bodies (2)
 Installing Basic Mgt.Capacity in Choco, Colombia (Edgardo
Mosqueira)
 supporting the strengthening of public management systems in Choco
– a chronically weak department.
 will also contribute to the measures being prepared by the Central
Government to improve the delivery of key services in Choco
 objective is to build public confidence in the Departamental
Government of Choco.
21
Upper Middle Income countries
• Building confidence in sectors & in watchdog bodies (3)
 Social Accountability in Public Services in Mexico (Roby
Senderowitsch)
 supported the creation of a Social Accountability Center at the national
level - the main objective of the Center is to build up technical capacities in
the NGOs to make them effective in their social accountability role.
 NGOs that work on social accountability can now work on different sectors
with more rigorous analyses.
 The Center has been launched and it was presented in a public event on
November 19, 2008.
22
4. Working on oversight institutions
• The case of Honduras Supreme Audit Institution Tribunal Superior de Cuentas
23
The puzzle
• Check and balance institutions in fragile institutional
environments are usually born with design flaws which
makes them vulnerable to political pressure.
• As they fulfill their mandate more efficiently, influence
from the three branches of government and/or vested
interest might jeopardize efforts to strengthen their
capacity and independence.
• Need to gather support
OLASEF) and citizens.
from
peers
(INTOSAI,
24
The Honduran case
• Tribunal Superior de Cuentas was created in 2003 by law
as the regulatory body of the National Oversight System.
• Headed by a collegial body of three Magistrates (from the
three main political parties).
• Duration of the term: 5 years, counter cyclical.
• The TSC now reviews Government financial statements
and submits an annual report to Congress. Coverage of
audits is steadily improving but quality remains poor.
• Five-year institutional strengthening plan, supported by
the Bank, USAID and other external partners, focuses on
professionalization of TSC.
25
Bringing together institutional control and
social control: a win- win
• Institutional control bodies have the mandate but very
often lack the capacity to fulfill that mandate, reach
every institution, and follow-up on recommendations.
• Social control bodies are on the ground, have in-depth
knowledge about the daily management of the
institutions but lack capacity and the official mandate to
exert control.
• With a clear understanding of each ones’ roles and
responsibilities they can strengthen each other, and
build trust in the SAI.
26
Audits with social participationResults of the pilot audits
• 8 pilots in different regions: 2 education centers
(university and secondary center), 2 regional hospitals,
2 municipalities, and 2 development centers (forest,
roads).
• Social participation lead to: i) identification of 76% of
the internal control deficiencies detected, ii) 97% of
civil responsibilities incurred up to $ 1,7 million, and iii)
social recognition of the SAI work.
• Audit reports were presented publicly, each institution
committed to a remedial action plan to be followed up
by social monitoring bodies.
27
5. In sum
The LAC approach to governance has:
•
•
Required the Bank to be more adventurous
•
Tested small but posssibly scaleable approaches that
might begin to unravel the dysfunctional low spend,
low engagement, low trust governance equilibrium in
Latin America.
Helped us look for trust-building opportunities in
traditional investment and TA projects
28