Assisting Decentralization Policies in Latin America

Some Lessons from Bilateral and Multilateral Development CooperationHarald FuhrChair of International PoliticsEconomics and Social Sciences Facuzlty University of Potsdam, Germanyhfuhr@rz.uni-potsdam.de

Assisting Decentralization Policiesin Latin America

Overview:Patterns of decentralization policiesDonor interventions Lessons / Shortcomings Policy ManagementNew options for donor agencies ?

Decentralization is gaining prominenceArgentinaBrazilChileColombiaSouth AfricaZimbabwe051015202530354045% local expen-dituresIndonesiaSub-national expenditures / total government expenditures19741994

Government objectives inLatin American decentralization policies198019902000Action and innovations >> Distortions, adjustmentsand consolidation >>>Political Integration and StabilizationImproving services and ...... qualityFiscal stabilization

Assisting Decentralization:Lessons from Development Assistance Source: Frank 2002

Venezuela

Ecuador

Peru

Bolivia

Colombia

ARG

Brazil

Chile

Decentralization Objectives (1970 2002)

Hoja1

1970-19751975-19801980-19851985-19901990-19951995-20002000-2002

Political Dec.

Fiscal Dec.

Administrative Dec.

Social

Context

LEYENDA

Argentina

Bolivia

Brasil

Rio Grande do Sul (Brasil)

Chile

Colombia

Ecuador

Per

Venezuela

Motivaciones

&R&"Impact,Normal"&14Objetivos en las Rutas Crticas de la Descentralizacin&"Arial,Normal"&10

Hoja2

Hoja3

Assisting Decentralization:Lessons from Development Assistance Decentralization is something intrinsically goodIts potential advantages can only be mobilized under certain conditions: Consensus-based strategySound assignment of expenditures and revenues; sound system of transfers Prudent fiscal management (+ hard budgets) at all levelsInstitutional modernization and capacity building at all levelsNew auditing and participatory arrangements Otherwise: quite risky; potentially backfiring and destabilizing Need for a comprehensive view of opportunities and risks

Assisting Decentralization:Lessons from Development Assistance Neglecting overall fiscal problems and subnational indebtednessPush for increase of transfers ran ahead of clarifying tasks (or vice versa)Popular demands for redistributionSoft budget constraints at subnational levelsPropensity to increase spending Problem: access of subnational governments to provincial banks and towards private financeEventual bail-out by central government Need for sound fiscal management at all levels and a deficit neutral decentralization policy

Assisting Decentralization:Lessons from Development Assistance Neglecting the political dimension of decentrali-zation: actors, interests, bargainingUnderstanding the political economy of reform: New arrangements for decision making, access to and command over resources Seeking and strengthening champions and winnersDealing with/ compensating losersUnderstanding zero-sum perceptions: i.e. political delays; bureaucratic resistance; successful failure Need for sound project analysis at entryWorking with actors > consensus and dialogue plus: win-win messages

Political cycles for decentralization policies199519971999Action and innovations >> Distortions, adjustmentsand consolidation >>>New tranfersDelegation of servicesFiscal problemsElectionsElectionsPotential Benefits

Assisting Decentralization:Lessons from Development Assistance Too strong an emphasis on municipal strengthening and development, thus:Underutilization of development options at intermediate levels (regions, provinces, districts) Neglect to assist reform of intergovernmental fiscal relationsNeglect to assist intergovernmental collaboration (division of tasks and resources)Often: too strong a pressure towards redistribution and resources for the municipalitiesNeed for a more comprehensive intergovern-mental view of decentralization

Assisting Decentralization:Lessons from Development Assistance Similarly: too strong an emphasis on regional development agenciesRegional planning approaches and Long history to strengthen Regional Development CorporationsDisadvantages: Classical problem: coordination of policies with both national and local entitiesPlanning instead of enablingInsulated reform proposals for and not with a target groups; weak links to state reform exercises/ inter-governmental incentives/ private sector environmentNeed for a multi-level approach, networking and collaboration

Assisting Decentralization:Lessons from Development Assistance Donor efforts highly fragmented both within agencies and among agencies . and experts.Financial often separated from technical assistanceUrban / regional planning projects Infrastructure projects Democratization, NGO and participatory projectsEducation, health and poverty-oriented projects State reform programs :Fiscal decentralization issues Financial management reformsHR management issuesBetter synergy, collaboration, learning needed

Gradualism in DecentralizationAgenda :State reform and new intergovernmental rulesSubnational PSMLocal economic & PS development Financing local dev.Strengthen citizens participationLocal social policies, poverty reduction

Local govern-ment

'Civil society'

State government

National government

PS

Gradualism in DecentralizationAgenda :State reform and new intergovernmental rulesSubnational PSMLocal economic & PS development Financing local dev.Strengthen citizens participationLocal social policies, poverty reductionHow can donors assist governments managing such complexity effectively ?

Donor Cooperation in Decentralization

State reform and new intergovernmental rulesSubnational PSM Local economic & PS development Financing local dev.Strengthen citizens participationLocal social policies, poverty reductionComparative advantages of donors IFIs/IGOsBilateralsINGOs

Assisting Decentralization:Lessons from Development Assistance Tecnocratic enclaving of projects is delicateAdvantages: inputs can be focused on a specific environment and task groupDisadvantages: often weak links to (national) state reform exercises where norms are setInsulated reform proposals for and not with a target group Public marketing of decentralization very weak and somewhat antique.

Assisting Decentralization:Lessons from Development Assistance Consequently: neglecting the need to work with key actors ( > process approaches) New rules need new rule-makingNetworking and bargaining among key actors requiredNew rules need consensus among key actorsDialogue with citizen groupsQuality of rule making seems important for sustainability of new rules Facilitation of such bargaining and decision making processes (as comparative advantage of donors)New messages for a consensus-based strategy (from zero sum to win-win)

Institution building through political bargainingNew rules/ normsNew institutional arrangementsNew institutionsActors

Actors and institution buildingold institutionsActors

Actors and institution buildingNew institutionsold actorsnew actors

Actors, Interests, ResourcesLocal GovernmentRegional GovernmentNational Government Actors Interests Objectives Resources

Actors, Interests, ResourcesLocal GovernmentRegional GovernmentNational Government

Actors, Interests, ResourcesLocal GovernmentRegional GovernmentNational Government Donor - Interventions?