Bibliography
III. Diagnostic: Four Areas of State Reform Budgetary Institutions and the Role of Congress
In recent years Peru has advanced in creating a rules framework for increased fiscal responsibility and in generating improved fiscal performance. Fiscal rules are tightly monitored, although their consistent application will ensure their future credibility.4 The main focus in Peru over the last years has been on the size and amount of pub-lic expenditure. While this is laudable and a valid entry point for fiscal responsibil-ity, it is, over the long term, not sufficient to address one of the core issues regarding governance: raising the quality and efficiency of public expenditures. The diagnoses of the health and education sectors (presented in separate chapters) all highlight the
: A STRATEGYFORSTATEREFORM71 New budgetary Discussion is only about size Performance-based management Reforms create demand for state reform from
institutions and of public expenditures, creates a basis for increased outside the executive branch; create role of Congress not quality. quality of public expenditures demand for reform of core agencies;
No action undermines credibility and higher efficiency. increase credibility of institutions at
of fiscal responsibility rules. national level.
Human resources Without action, efficiency and Human resource reforms offer State reforms come from within the executive;
improvement in services more efficiency in current contribute to accountability and improved (education, health) cannot expenditures, less threat to fiscal service delivery at all levels of government.
be increased. sustainability, greater fiscal space No action causes further decline for necessary public investment.
of investment in lieu of current expenditures; puts fiscal responsibility at risk.
Decentralization cannot be fully implemented.
Decentralization No action causes a decline in National fiscal responsibility rules Reform increases credibility of institutions at accountability at local levels due depend increasingly on fiscal subnational level; strengthens demand for to poorly defined responsibilities; performance of subnational state reform by subnational governments regional conflict due to inequitable governments. directly accountable to electorate.
resource distribution across Reforms encourage transparent use departments (transfer system, of scarce public resources.
canon resources (mining revenues), others).
Judicial corruptionNo action undermines investment Reforms provide control of Parallel reform of executive, legislative, and that would support sustainable contingent judicial liabilities. judicial branches ensures synergies.
growth. Judicial reform allows better enforcement of
Unequal access to judicial services rules. Reforms by executive are more
hurts the poor. credible.
need to improve the quality of spending. However, this task is not only for the exec-utive branch.
Reforms include expanding Congress’s role in monitoring both the size and the quality of public expenditures. Although budgets are typically the product of a com-plex bargaining relationship with the executive branch, the role of Congress in budg-etary decisions has been rather limited. Creating a stronger budgbudg-etary role for Congress, particularly one based on a rigorous evaluation of spending impact that feeds directly into future allocations, is one of the key challenges for better gover-nance. Using performance-based criteria is crucial to improving the quality of expen-ditures. Chile has followed this approach, combining both its monitoring and evaluation systems5and fiscal responsibility rules framework in a mutually support-ive manner (Box 2).
It is unlikely that Peru can improve its public services only by isolated initiatives of the executive branch. Expanding the support of Congress and civil society will play a large role in demanding accountability from both branches of government in improving public spending and service quality.
Civil Service
The past 15 years have witnessed a troubling increase in the fiscal burden of Peru’s civil service, both the costs of providing for active personnel and the costs of the pen-sion regime for retired workers. The public wage bill in the social sectors increased from 2.7 percent of GDP in 2001 to 3.2 percent in 2004. Consequently, investment expenditures and outlays for goods and services were curtailed, falling by 0.4 and 0.2
Box 2. State Reform in Chile: Combining Fiscal Responsibility with Monitoring and Evaluation
A key to Chile’s effective state reform was to evaluate the progress of reform in implementing agencies. The Ministry of Finance created an “evaluation fac-tory,” which includes a well-developed process for planning, commissioning, managing, reporting, and using a range of types of evaluation. The monitoring and evaluation system based at the Ministry of Finance is one of the most effective worldwide. Evaluations have a high level of credibility among key stakeholders in the executive and legislative branches and in academia. More-over, evaluation results are strongly integrated into decision making and affect the budget through major program redesign, program abolition, confirmation of program effectiveness, and changes in program management. Together with stringent and credible fiscal responsibility rules, Chile is well positioned to raise the quality of public expenditures.
percent of GDP, respectively, from 2001 to 2004. Redressing the balance of current investment expenditures, and achieving higher efficiency in current spending, are among the main fiscal challenges.
Basic steps have been taken to control hiring and the wage bill, but these have proved ineffective. For more than a decade, hiring for permanent positions in the civil service has been banned by decree. Similarly, base pay for public employees has been frozen over this period. However, institutions have resorted to hiring on a con-tractual basis, a process that is not subject to formal recruitment and selection pro-cedures. Meanwhile, the effective salary that employees receive has been increased through a variety of pay supplements and benefits, both in cash and in kind. Civil servants are employed under a variety of legal regimes, with a wide disparities in salaries for similar tasks. These factors all have contributed to a workforce that is poorly prepared, poorly supervised, and consequently of low productivity.
Reforming civil service management is directly relevant to the decentralization agenda. For a decentralized service delivery system to function properly—one that is compatible with fiscal responsibility as well as accountability—personnel costs must be transparent so that each level of government is aware of the fiscal burden. Under current management practices, however, central, regional, and municipal govern-ments all lack accurate information on personnel costs associated with delivering key public services such as primary health care or secondary education.
Decentralization
With the establishment of autonomous regional governments in 2002, Peru has taken bold steps toward deeper decentralization. Political decentralization—in the form of election of regional authorities—was the entry point. As in all other coun-tries, political reforms provide quick gains, but it will take time to complete fiscal decentralization (generating own subnational revenues, adjusting transfer mecha-nisms) as well as expenditure decentralization (transferring responsibilities for public service delivery to the subnational level).
Peru is in a transitional stage of decentralization that carries the risk of low accountability. Important management functions are in the hands of regional gov-ernment, such as providing pay for teachers and doctors or allocating parts of the investment budget. Yet in many other ways, Peru is significantly centralized. The national level still participates in important decisions, for instance through the estab-lishment of pay scales and the hiring and firing of personnel. The social sectors are now leading a process of transferring expenditure responsibilities to local levels, a process that will take time to be fully consolidated. Such overlapping and fragmen-tation of responsibilities has led to a situation in which neither the central nor the local level has a clear mandate for delivering health, education, or social protection services. It is difficult to know which level of government is really in charge, an arrangement that undermines accountability and also negatively affects the quality of services.
Another problem with decentralization is the increasing horizontal disparities among the different departments. Transfers have been added without a common pol-icy on compensation.n).problvenuey (cno6rtiare tacularlhe transfers from ng reemats Pamiic ni
In addition to completing the process of transferring responsibilities gradually (discussed in Chapter 32, on decentralization), reforms can enhance accountability through results-based delivery of services at the local level. A significant strategic shift will be Peru’s move from emphasizing ex ante controls to strengthening ex post accountability.
Judicial Corruption
The judicial branch in Peru is institutionally weak and operates with low levels of transparency. An efficient and transparent judicial branch is essential to enhance the competitiveness in the country, attract foreign investment, and therefore contribute to growth. The judicial sector also exhibits troubling limits on access, particularly for the poor. By reforming the judicial branch, Peru can address these shortcomings.
Key to addressing institutional weaknesses in the judicial sector are transparent and accountable processes for compensation, selection, and nomination of judges.
The administration of justice in Peru is particularly afflicted by corruption (World Bank Institute 2001). Peru has one of the highest corruption indexes in the region and, among public sector institutions, the judiciary is perceived as the most corrupt public entity by Peruvian citizens (Figure 2).7This perception is caused largely by the interference of political elites within the judicial branch and the lack of a strong capacity to internally investigate and sanction judicial corruption. Although Peru’s Constitution recognizes the judiciary’s independence, it remains the state’s weakest branch.
010 20 30 40 50 60 70 80
Judiciary Police Congress Central Government Municipalities Regional Governments Armed Forces Political Parties
010 20 30 40 50 60 70 80
Source: Survey data from Proetica, http://www.proetica.org.pe.
Figure 2. Perception of Corruption in Public Institutions
Some of the main factors characterizing judicial corruption in Peru include the following.
Political interference.The judicial branch suffers from interference, particularly from the executive branch. Eliminating the influence of political and economic elites in judicial sentencing is necessary to making Peru’s judicial services more independent.
Lack of adequate human resources management capacity. Most judicial sector institutions—including the courts and the Ministry of Justice—lack adequate human resources management capacity. For example, since the appointment of pro-visional judges during former President Fujimori’s regime in the 1990s, the National Judicial Council (Consejo Nacional de la Magistratura) has sought to establish a judi-cial appointment system based on merit and has tried to enforce the use of entry exams for qualifying judges. However, the provisional status of many Peruvian judges remains a major problem for the judicial sector, which leads to high turnover and unrealistic planning.
Inefficient use of financial resources and weak management. As most judiciaries, the Peruvian judiciary has limited influence in determining its annual budget because the Ministry of Finance and the Congress make all major decisions over their alloca-tion. The majority of the judiciary’s budget, and that of other sector institutions, goes to pay the salaries of its employees. Poor administrative capacity and manage-ment have kept courts from better utilizing their allocated budget to their own ben-efit and to that of the citizens they serve. More efficient management of their resources would provide a stronger case for increasing their overall budget.
Congestion and delays.Because of the backlog in many courts, particularly in the judi-cial districts of Lima and Cono Norte, judges, practicing attorneys, and administra-tive court personnel may also engage in corrupt behavior to accelerate or delay cases.
Monitoring and quality control are essential to tackling this problem, which would also require a more transparent distribution of the workload.
Weak internal oversight.Clearly, insufficient training, poor management, and selec-tion processes of judicial staff exacerbate the general belief that the judiciary is cor-rupt. Existing mechanisms within the judiciary, through the Office of Internal Control (OCMA—Oficina de Control de la Magistratura)and the district offices of the OCMA (called ODICMAS), are fundamental to investigating and sanctioning judicial corruption. The OCMA was conceived as an investigatory institution with minor disciplinary authority. Strengthening of the judiciary’s oversight mechanisms will enable the office to properly investigate public complaints of judicial corruption and adequately and fairly sanction improper behavior. Successful investigations will require greater public information and monitoring.