1 POLITICAL PARTY AND CAMPAIGN FINANCING IN LATIN AMERICA Dr. Daniel Zovatto Regional Director for Latin America-International IDEA November, 2008

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POLITICAL PARTY AND CAMPAIGN FINANCING IN LATIN AMERICA

Dr. Daniel ZovattoRegional Director for Latin America-International IDEA

November, 2008

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I. Concept

¿What do we understand by political party and campaign financing?

The income and expenses of political parties, in both funds and in-kind, directed towards supporting both permanent and ordinary electoral activities.

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II. Key Points

1. Democracy is priceless, but there is a cost for it to function.

2. The connection between money and politics is complex, but at the same time it is also key for the efficiency and quality of democracy.

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II. Key Points

3. “More than any other factor…competition among parties with equitable resources (political, human and economic) is what generates democracy”. (G. Sartori)

4. It is fundamental for the democratic system to control money, and not the opposite.

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II. Key Points

5. Perception (real or not?) that the cost of doing politics has increased significantly while political parties’ income has decreased.

Cash-flow problems Ilegal Funds

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II. Key Points

In the 2008 United States Presidential election, Obama spent $639.2 million, and McCain $335.3 million.

According to the Center for Responsive Politics, the 2008 election has been the most expensive election. It is projected that $2.4 billion will be spent, which would be double that spent in 2004 and almost triple the cost of the 2000 election.

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6. The pathological relationship between money and politics generates corruption, which worsens the crisis of confidence in political parties and puts parties “under suspicion”.

7. This is not a new thing, but presents special characteristics compared to the past (for example, video-politics).

II. Key Points

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IV. Financing and Political Corruption

The topic of party and campaign financing is, unfortunately, generally associated with political corruption scandals and the use of influence.

Illegal financing scandals

“Demonization” of politics

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The financing of parties and campaigns is not a corrupt activity per se, but recent Latin American political history has linked the issue with political corruption.

Some cases:

Collor de Melo, Brasil

Ernesto Samper, Colombia

Abel Pacheco, Costa Rica

Pérez Balladares, Panama

Arnoldo Alemán, Nicaragua

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By being associated with corrupton, the financing of parties and campaigns ends up worsening the credibility crisis of political parties and democracy in general.

Politics “under suspicion”

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In some cases, if corruption scandals are adequately built upon, they can become what K.D. Ewing calls “the midwife of reforms.”

Unfortunately, this is not the usual practice in Latin America. More severe than the scandals is the impunity that usually comes with them.

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Recommendations made by Transparency International:(Global Report on Corruption, 2004):

Governments should improve their legislation on political financing and its dissemination.

Governments should implement adequate legislation on conflicts of interest.

Candidates and parties should have equitable access to mass media.

Parties, candidates and politicians should disseminate information about their funds, income and expenses, to an independent institution.

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Recommendations made by Transparency International:

(Global Report on Corruption, 2004):

International financial institutions and bilateral donors should take into account previous corruption track records before deciding to grant loans/funds to governments.

The UN Convention Against Corruption should be ratified and promoted as well as the OECD Convention against Bribery.

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Finally, it is important to mention that…

The mere existence of legal frameworks does not guarantee that there will be no political-financial scandals.

Therefore….

It is important that, along with adequate regulatory frameworks, there are strong oversight institutions as well as an efficient enforcement regime.

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V. Importance of an efficient juridical framework

This is important for at least five reasons:

i. To prevent the abuse and use of influence in political parties on the part of interest groups in order to reestablish citizen trust in the political process.

ii. To establish equitable rules of the game for competition among parties.

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iii. To favor voters’ empowerment.

iv. To promote the development and strengthening of political parties.

v. To guarantee a “minimum reasonable degree” of the use of public resources to finance politico-electoral activities.

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Regulatory systems according to K. Nassmacher:

There three basic problems that regulations regarding financing should address: 1) the autonomy of political parties; 2) the transparency of political party financial resources, and 3) the enforcement of applicable norms.

On the basis of these three basic issues, Nassmacher identifies four options for regulation of political party financing. Three of these are focused on each of the problems, whereas the fourth option combines and simultaneously addresses the three problems.

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The four options are: The autonomy option: emphasizes the freedom

and private character of parties and minimizes the need for regulation. This option puts great trust in the self-regulatory mechanisms of parties and self-correction in party competition;

The transparency option: emphasizes the importance of public access to information related to party finances so that voters can assume their responsibilities and freedoms and can make an informed choice the day of the election;

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The vigilance option: calls for a series of detailed regulations about party financing to be enforced by a public independent institution; and

The diversified regulation option: corresponds to the model practiced in Canada that combines “a flexible supervision, a precise regulation, public incentives, and occasional sanctions”.

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In Latin America, regulatory systems for financing DO NOT correspond to the four models just presented. Their main characteristics are:

-Gaps between regulation and practice,– Low levels of transparency, – Weak oversight institutions,

– Inefficient sanctions regimes, and – A culture prone to lack of enforcement.

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VI. Formal and Real Characteristics of Political Financing in Latin America

At the formal level, it is a predominantly mixed system, with a tendency towards public financing and prone to accentuate legal limits on private contributions. This is contrasted against the perception that private funds are more than public resources. This perception is exacerbated by the frequent corruption scandals and illegal financing of political parties.

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Public financing, more than a partial substitute to the private has worked as its accessory. Thus, regardless of its positive contribution, until now its impact has been limited.

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There is a tendency towards controlling the triggers of electoral expenses, establishing thresholds for expenses and shortening campaigns, with different results in different countries. This tendency is accompanied by a reorientation of the use of public resources, under the concept of electoral investments, destined to strengthen political parties.

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Some things have been adequately regulated, but others, such as the equitable access to the mass media, have very little or inexistent regulations.

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Transparency levels are low, although it is possible to see a greater number of reforms oriented towards strengthening accountability and to improve dissemination. There is also the growing and positive role of the mass media and civil society.

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The majority of recent reforms have not been accompanied by the necessary strengthening of oversight organisms and a proper sanctions regime. This continues to be the “Achilles Heel” of many of the region’s financing systems.

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The topic of political financing and gender is relatively unexplored in the region. Although it is starting to have more attention, this has not translated into specific regulations that facilitate the incorporation of women into political and electoral life.

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VII. COMPARATIVE LATIN AMERICAN MAPPINGTen formal characteristics

I. Marked predominance of mixed financing (public and private), with important differences among countries in the region.

16 of 18 countries (89%) have mixed financing.

Exceptions: Venezuela and Bolivia

Public F. eliminated

in 1999

Public F. eliminated in

2008

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II. Broad generalization of public financing (FP) in two modalities: Direct Public Financing (DPF) and Indirect Public Financing (IPF).

89% (16 of 18 countries) have public financing (except for Venezuela and Bolivia) in both modalities; direct and indirect public financing.

VII. VII. COMPARATIVE LATIN AMERICAN MAPPINGTen formal characteristics

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III. Broad predominance of direct public financing for both party and electoral activities

63% of the countries (10 of 16): both activities.

31% of the countries (5 of 16): only for electoral activities.

One country has DPF only for party activities (Peru).

On the other hand, 38% of the countries (6 of 16) have DPF for research and strengthening of parties.


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IV. Diverse mechanisms for the distribution of DPF.

50% of the countries (8 out of 16) have a hybrid formula that distributes a percentage of public financing based on their electoral strength, and another percentage in equal parts.

In 44% of the countries (7 out of 16), it is proportional to the parties’ electoral strength.

In 6% ( the Paraguayan case) the mixed criteria combines a proportion of electoral strength and parliamentary representation.


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V. Existence of legal barriers to access public financing.

75% of countries (12 of 16) have different types of legal barriers


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VI. In the majority of the countries there are various prohibitions regarding private financing (on the origin and amount).

A. Origin:

89 % of countries (16 of 18) have prohibitions regarding the origin of private financing.


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The main prohibitions regarding origin are:

In 72% of countries (13 of 18), foreign contributions are prohibited.

In 50% of countries (9 of 18), contributions by state corporations are prohibited.

In 50% of countries (9 of 18), anonymous contributions are prohibited.


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B. AMOUNT:

61% of countries (11 of 18) establish limits or conditions regarding the amounts of private contributions.

Argentina, Bolivia,

Brasil, Chile, Colombia,

Costa Rica, Ecuador,

Guatemala, México,

Paraguay and Perú.


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VII. The majority of countries grant parties free access to state, private, or both types of mass media. Free access predominates in terms of state mass media and only during the electoral campaign.

76% of countries have free access to mass media.


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VIII. Broad and diverse regulation regarding transparency and disclosure of information.

Transparency regarding political financing is a key issue for improving the quality of democracy and effective and informed citizen participation.


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Transparency in political financing produces benefits regarding the quality of the democratic process, since:

a) It improves the quality of information given to the voter/citizen.

b) It facilitates the identification of links between politicians and interest groups.


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c) It generates incentives to prevent corrupt behavior, or, at least, it raises the cost or risk.

d) It allows for verification of the enforcement of financing norms.


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e) It creates obstacles for the deviation of public funds in favor of the governing party.

f) It generates incentives for mutual control among political parties.

g) It provides input and guidelines for the evaluation of decisions made by public officials.


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The situation in Latin America is not uniform:

There are countries that still have not taken the first step towards transparency, that is, the requirement of accountability.

In other countries, although they are required to present accounting reports, that information is kept secret and away from the citizenry.

Finally, there are countries in which there has been progress regarding access to information, but there are still problems and barriers to be overcome.


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39% of countries (7 of 18) have norms or practices regarding disclosure, with variations among them.

61% of countries (8 of 18) do not regulate mechanisms for public disclosure: Bolivia, Chile, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, Peru, República Dominicana, Uruguay and Venezuela.


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We can conclude that in terms of transparency, a majority of countries in the region have made significant efforts to improve the rules regarding money and politics.

In many cases, the legal frameworks are exhaustive and reasonable. Regardless of this, there is still mystery and suspicion regarding political financing because there is a limited relationship between norms and practice.


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IX. In almost all of the countries, there are organisms in charge of the control and auditing of political financing.

In 94% of countries (17 of 18) the electoral management body, on its own or along with other organs, has oversight responsibility. The exception is Uruguay.


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X. The majority of countries have sanctions of different natures in their legislation.

Fees (the most common). Reduction or suspension of public financing. Suspension or elimination of the party’s legal

registration status. Others.


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83% of countries establish monetary sanctions.

50% have administrative sanctions, of one or another type.

50% have established penal sanctions. Of these, 39% are directed towards candidates, and 33% towards donors.


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VIII. General Objectives for a Reform

Reform processes regarding political financing must be guided by the basic objective of promoting open and free political competition, based on conditions of equity and transparency. The fundamental purpose, as stated before, is to work towards a system that controls money and not the other way around. Therefore, any reform must not lose its goal, it must be precise regarding its objectives and it must avoid searching for perfect solutions that do not work in practice.

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Thus, both general and specific objectives, and the ways to achieve them must be adequately identified.

The comparative experience shows that reforms frequently privilege the objectives, but give little regard to the design of the process, mechanisms and organisms that must ensure its application.

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The premise that in electoral affairs there are no absolute truths or ideal solutions takes on even more importance with regards to political financing for two main reasons:

1. The close connection of the issue with the characteristics of the political system in general, and the party system in particular, and,

2. The relationship the issue has with political cultural values, which may mean that the same solution is weighted in contradictory measures in different national contexts.

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Four pertinent considerations:

1. Importance of examining the financing system not only in terms of the objectives sought and in relation to the desired effects on the political and party system, but also with respect to the degree of efficacy of the norms, as well as perverse effects.

2. The need for any reform to the financing system to be an integral part of overall political-electoral reforms.

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VIII. GENERAL OBJECTIVES FOR A REFORM

Four pertinent considerations:

3. To understand that this issue is to be the subject of many different legal reforms. To take into account the fluid nature of the issue.

4. To prevent over-regulation, legislating only that which can be enforced and controlled.

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In this line of thought, we want to indicate that any reform process regarding political

financing must pay attention to the following general objectives:

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1. To guarantee effective electoral competition and promote political equity It is essential to balance conditions for electoral

competition, reducing differences among large and small parties.

2. To increase transparency by strengthening accountability and disclosure mechanisms.

It is fundamental to establish rigorous mechanisms of accountability and disclosure for party income and expenses, both in electoral and non-electoral periods.

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3. To reduce the need for money to control the triggers of electoral expenses

To adopt measures such as reducing political campaign

periods, establishing party expense ceilings, prohibiting or restricting paid political propaganda and granting public financing.

4. To reduce influences, political corruption, and the use of illegal funds in financing parties.

Fundamental measure to re-establish citizen trust in the political system.

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5. To improve the use of public funds, investing in the streghtening of democratic parties

To invest in research, training and capacity building

activities, and in the strengthening and institutionalization of parties and democratic party systems.

6. To consolidate the rule of law and strengthen the capacity to enforce regulations

It is fundamental to have oversight organisms that are strong and autonomous, as well as an efficient sanctions regime that can adequately combine incentives with sanctions.

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In sum:

The establishment of an equitable financing system that is transparent and subject to oversight must always respond to the particular characteristics of the country, and be based on a holistic and well articulated strategy.

The financing system must be the product of a combination of effective legal frameworks and efficient control organisms.

Political culture plays a fundamental role. Legal reforms are not effective if they are not accompanied by necessary changes in the way of doing politics.

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IX. Conclusions

The issue of financing is not only technical but fundamentally political, complex, controversial, unresolved and there are no panaceas or magic formulas.

A good financing system has to guarantee free and equitable competition, and contribute to strengthening of public trust in parties, politics and democracy through the improvement of transparency.

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IX. Conclusions

HOW?

A mixed system, with full disclosure and a strong oversight organ, supported by an efficient

sanctions regime, is essential for the success of a reform.

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IX. Conclusions

Public financing that is granted to parties must be linked to efforts that they make to secure their own resources. On their own part, private financing must adequately be regulated to avoid the use of influences.

Disclosure is fundamental for transparency. It requires the presentation of periodic reports, auditing, public access to accountability and publicity.

Oversight demands a politically and financially independent authority with sufficient legal powers to supervise, verify and investigate, and if needed, carry out processes.

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IX. Conclusions

It is also fundamental to generate genuine and firm political will that favors real reform.

It is crucial to have permanent public pressure by the citizenry that demands clean and transparent politics. The mass media, the private sector and NGOs also play a crucial role.

Party leadership should show a commitment to respect and enforce financing norms. Without this, it will not be possible to move from rhetoric to good practices.

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IX. Conclusions

Democratic consolidation in Latin America faces the challenge of improving the quality of politics, reconnecting it to ethics and putting it to the service of people’s real problems.

But reaching these objectives can only happen with stronger, more democratic, more institutionalized and committed political parties. In this sense, the issue of political financing plays a key role.

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Strategic approximation to a reform in terms of political party and electoral

campaign financing

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1. Modality of the financing system

Public?

Private?

Mixed?: relation of public / private

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2. Public financing: key questions

1. Direct, indirect, or mixed PF? 2. What type of activities are financed (regular, permanent, electoral,

others, all)? 3. Who is financed – candidates or parties?4. Is there a legal requirement to obtain access to PF?5. With what criteria is it distributed within political parties?6. How is it distributed: equally, proportionally to votes received, mixed

criteria of the previous two, other distribution criteria? 7. The moment to turn it in: before or after the elections? Combined

criteria? 8. Is there public financing for new parties? What is the criteria for

distribution?

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3. Private financing: key questions

1. Individual contributions: with or without limits?

2. Type of limits: low, medium, high?

3. Prohibitions: who can not make private contributions (limits on origins)?

4. Exsistence or absence of fiscal incentives.

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4. Electoral Campaigns

1. Existence or absence of campagn expenditure limits.

2. Duration of electoral campaigns. 3. Regulation of only inter-party campaigns, or

also internal party campaigns? 4. Prohibition or limitation of campaign officials

during electoral campaigns.

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5. Access to the media

1. Absolute prohibition or no buying of political advertising by political parties or third parties.

2. Existence of norms that oblige the publication of media rates and that oblige the media to guarantee equal rates to all contracting parties.

3. How to regulate and control satellite TV, the internet, cell phones, etc?

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6. In-kind financing

1. Existence or absence of regulations on in-kind financing.

2. Control mechanisms for in-kind donations.

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7. State resources

1. How to regulate the use of State resources?

2. Participation of public employees in campaigns.

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8. Accounting, transparency, and publicity

1. Accounting and disclosure norms.

2. Level of detail on accounting.

3. When and how is it disclosed?

4. Where are reports published?

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9. Control organs and sanctions regimes

1. Control organs: how to ensure their independence, their attributions, facilities and resources (professional and economic)

2. Sanctions typology3. Graduality and efficiency (how to ensure that

there is no impunity without criminalizing politics)

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10. Gender equity and financing

1. Existence or absence of special regulations in financing material, directed at facilitating the participation of women.

Documents

1 POLITICAL PARTY AND CAMPAIGN FINANCING IN LATIN AMERICA Dr. Daniel Zovatto Regional Director for Latin America-International IDEA November, 2008