Situating Decentralization Policies in the Broader Development Debate

International Conference

Decentralization, Local Power, and Women’s Rights

Mexico City, November 2008

Vicente Fretes Cibils

Division Chief, Fiscal and Municipal Management (ICF/FMM)

Inter-American Development Bank (IDB)

I. Decentralization and development—the state of the debate in ―Glocalization‖

II. The experience in Latin America

III. Key conclusions

Contents

Decentralization and development—The state of the debate in ―Glocalization‖

A. Decentralization enhances…

Economic growth

Sustainability

Equity

Renewed emphasis on public sector and fiscal growth and development

Interest in sub-national government and local economic development

Results: mixed

I.

B. The debate is… How to Decentralize?

The dynamics of Decentralization in the

new environment—globalization plus localization = glocalization

Economic Development, in late 1980’s/early 1990’s…renascent of Public Sector/Institutions with focus on Sub-nationals Centralization—USA, Brazil Decentralization—China, India Optimal Mix of Both

Two questions plus—Why and How (Much and Fast)

Why? – Bring government and services closer to

people, versus Split government sovereignty into various levels

– Camps: Benevolent (Rousseau) versus Malevolent

(Montesquieu) Conservatives (State Sovereignty) versus

Libertarians (Individual Liberty)

– Public Finance (Musgrave) versus Public Choice (Buchannan)

– Endogenous versus Exogenous

How?

Decentralization: Mix of Political, Administrative and Fiscal—Governance and Accountability – Political without fiscal: Local elite capture – What proportion and mix of instruments – Camps: Revenue sharing versus Independent

local taxation – Optimal: Matching revenues raising powers to

spending responsibilities

How Much and How Fast?

How much? – Excessive—Switzerland (Tocqueville), Brazil Central

Policies and Quality of Public Services, Separatists Movement—Italy

– Optimal: Central Government: Leadership/Stewardship: (―Sophisticated Control‖)—Leads, Participatory, Results, Competitiveness (with Regional and Local Development)

How fast? – Gradualism/Incremental—Institutions and

Accountability versus Big Ban—Bureaucratic and Interest Groups Resistance

– Optimal: Cost/Benefit Analysis—Country Conditions

The Experience in Latin America

– Since 1980’s decentralization reforms and good progress

– However, decentralization remains largely incomplete

II.

Decentralization

A. Political

(Political Power)

C. Fiscal

(Revenues, Expenditure and Debt)

B. Administrative

(Functions and Responsibilities)

i. Creation and strengthening of sub-national entities

a. Chile: Country divided into 13 regions, 52 provinces, 325 comunas (1976); creation of ―regional government‖ and ―regional council‖ as new pillars of sub-national government (1993)

b. Brazil: Municipalities made officially autonomous and administrative powers increased (1988 Constitution)

c. Argentina: City of Buenos Aires was given legal autonomy (1994)

ii. Consultation mechanisms

a. Argentina 1994, Brazil 1988, Colombia 1991, Honduras 1990

b. Formal institutions were implemented by law

A. POLITICAL

iii. Introduction of direct election of local and regional leaders

Country Mayors Governors

Argentina 1983 1983

Bahamas 1997 NA

Belize 1981 NA

Bolivia 1985 2005

Brazil 1982/85 1982

Chile 2004 NA

Colombia 1988 1991

Ecuador 1983 1983

El Salvador 1985

Country Mayors Governors

Guatemala 1985

Honduras 1982

Mexico 1917 1917

Nicaragua 1992

Panama 1995

Paraguay 1991 1993

Peru 1980 2002

Uruguay 1984 NA

Venezuela 1989 1989

First year of direct popular elections for municipal and regional/state/provincial leaders

Country Mayors Councilors

Argentina 7 N.A.

Bolivia 11 34

Brazil 5 12

Chile 13 27

Colombia 3 30

Costa Rica 9 47

Dominican Republic

7 28

Ecuador 3 25

El Salvador 8 25

Women in local governments in Latin America (percentage of total, 2005)

Country Mayors Councilors

Guatemala 2 25

Honduras 8 25

Mexico 4 22

Nicaragua 10 16

Panama 16 34

Paraguay 5 19

Peru 3 25

Venezuela 6 30

Latin American average

7 25

iv. More opportunities for women in leadership positions

Source: UCLG Datbase on Women in Local Decision Making

Political decentralization:

• Important for democratic transition. However: lack of political will at center to give up power and capture of power by local elites

• Created windows for public participation. However: more required to create a true culture of participation and to enhance gender equality and social inclusion

B. ADMINISTRATIVE

Decentralization of basic services and infrastructure • Waste management, urban streets, urban

transportation, water and sewerage services Lagging behind:

• Education, health, interurban roads, housing, police services, electricity (Chile: successful in decentralization of health and education sectors)

Problems: • Limited funds • Overlap of responsibilities • Loss of economies of scale • Lack of capacity at local level

19.3%

0% 10% 20% 30% 40% 50% 60%

Argentina

Brazil

Colombia

Mexico

Venezuela

Bolivia

Peru

Ecuador

Uruguay

Chile

Guatemala

El Salvador

Nicaragua

Paraguay

Costa Rica

Panama

Latin America

OECD

C. FISCAL

Source: Daughters and Harper in Lora (2007), The State of State Reform in Latin America, IDB

i. Country experiences vary Sub-national expenditure as percentage of national expenditure, 2005

ii. Sub-national resources increased

Source: Daughters and Harper in Lora (2007), The State of State Reform in Latin America, IDB

8.3%

13.1%

9.3%

14.3%

12.3%

17.3%

13.7%

19.3%

0%

5%

10%

15%

20%

25%

Median Average

Su

bn

ati

on

al

ex

pe

nd

itu

re/

Na

tio

na

l e

xp

en

dit

ure

1985 1990 1996 2004

Sub-national governments’ expenditure/total expenditure

iii. Sub-national share of income remains low

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Argentina IAgentina E

Bolivia IBolivia E

Colombia IColombia E

Chile IChile E

Ecuador IEcuador E

México IMéxico E

Peru IPeru E

Latin America ILatin America E

Industrialized IIndustrialized E

Central Government Regional Government Local Government

Expenditure and Income per level of government

iv. Sub-nationals remain dependent on transfers from central government

Transfers from central government/sub-national income

31%

33%

48%

51%

55%

68%

78%

86%

56%

26%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Chile

Brazil

Argentina

Colombia

Peru

Ecuador

Mexico

Bolivia

LA Average

Industrial average

v. Challenges

1. Expansion of largely unconditioned transfers and no hard budget constraints

Increases in public expenditures

Fiscal and macroeconomic instability

2. Financing before assigning functions and responsibilities

Little accountability

Overlap, duplication, worsening of public service delivery

Poor coordination of national policies

3. Limited local autonomy

– Lack of own-source revenues

– Excessive earmarking

– Lack of resources to meet responsibilities

– Poor inter-governmental transfer systems

– Local governments deficiencies:

Little power to make spending decisions

Unable to respond to needs in their localities

Progress on accountability

Key Conclusions

A. Debate—How to decentralize

B. Design—Some principles: – Finance should follow function

– Informed public opinion

– Local priorities

– Incentives for people to participate

– Adherence to local priorities

– Fiscal responsibilities

– Instruments of decentralization

III.

Thank you!

Vicente Fretes Cibils

Division Chief, Fiscal and Municipal Management (ICF/FMM)

Inter-American Development Bank (IDB)

vicentef@iadb.org

(+1) 202 623-2349

www.iadb.org