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Governance of the budget in Peru
Legislative budget oversight and public
finance accountability in presidential systems
Carlos Santiso
with Arturo Garcia Belgrano
ECLAC XVI Regional Seminar on Fiscal Policy
Santiago de Chile, 27 January 2004
Overview
• Context and introduction
– Budgetary process and fiscal reform
– Delicate balance: legislative budgeting, political
accountability, and fiscal prudence
• Economic governance and legislative budgeting
– Budgetary institutions and government accountability
• Legislative budget authority: Legal framework
– Constitutional provisions and regulatory framework
– Time, timing and sequencing
• Legislative budget oversight: Actual practice
– Internal constrains – legislative organization
– External constrains – governance context
Objectives
• Role of parliament in the budget process
– Understanding the budget process and incentives and
behaviour of multiple agents (parliament)
– Governance of the budget beyond the executive
• Risks to budget governance of unrestrained
executive discretion
– Hierarchical budgetary institutions
– Horizontal and vertical accountability
• Constraints to and conditions for effective
budget oversight (internal and external)
• Politics of public budgeting
– Executive-legislative relations
– Formal and informal dynamics
Introduction and context (1)
• Newfound interest in role of parliament in public
budgeting, especially in presidential systems
• Two waves of budgetary reform
– Transparency and efficiency – focus on executive
– Accountability and integrity – beyond the executive
• Four phases of the budget process
– Differentiated roles for executive and legislature along
the budget cycle (formulation, adoption, execution, and
control)
– Institutional analysis and political economy approach
Introduction and context (2)
• Disjuncture between formal powers and actual
role
• Four sets of explanatory variables
–
–
–
–
Legal framework
Technical capacities
Political incentives
Governance environment
• Key challenge: ability of institutional
arrangements to adequately balance political
accountability and fiscal prudence
Budgetary institutions and
government accountability
• Budget reform, hierarchical budgetary institutions
and fiscal discipline
• Accountability deficit in public budgeting
– Ex ante accountability (policy priorities and budget
allocations)
– Coincident accountability (execution oversight and
integrity)
– Ex post accountability (accounting for results)
• New patterns of governance
– Divided government and the rediscovery of
legislative budgeting
Economic governance and
legislative budgeting in Peru
• Economic reform and institutions of economic
governance
– Modernization of governmental financial administration
(1993: tax reform, organic budget law)
– Building hierarchical budget institutions (finance
ministry, central bank, tax agency)
– Insulation and vulnerability to capture
• Patterns of executive-legislative budget relations
–
–
–
–
Confrontation (1990-1992) and rupture (1992)
Executive dominance (1993)
Neutralization (1993-2000) and capture (1997-2000)
Restoration of democratic institutions (2001 -)
Legislative budget authority (1)
• Legislature and public finance
– Different powers in taxation and budgeting (art. 74)
– Taxation and budgeting as separate policy processes
• Legislative budget powers
– Constitution of 2003, organic budget law of 1999
revised 2003, and Congress internal rules
– Key features:
•
•
•
•
Uncommon executive prerogatives
Neutralization of key legislative powers
Delegation of legislative authority
Extensive use of executive decrees
TABLE 1: CONSTITUTIONAL RESTRICTIONS ON LEGISLATIVE BUDGET AUTHORITY IN LATIN AMERICA
Country
Year of
constitution
(amendment)
PERU
1979
PERU
1993
ARG
1994
BOL
1967
(1994
)
BRA
1988
(1999)
CHI
1980
(1989)
COL
1991
(1997)
CR
1949
(1997)
ECU
1998
URU
1997
VEN
1999
Only the
President can
propose the
budget
Yes
(Article1
97)
Yes
(Article
78)
Article
100.6
Art
147
Article
61(1)II
(b)
Article
64
Article
346
Article
178
Article
258
Article
215
Article
313
Yes
(Art
199)
Yes
(Art
79)
No
No
Yes
with
loopho
le
(Art
166)
Yes
with
loopho
le
(Art
64)
Yes
(Art
351)
No
No
Yes
(Art
215)
No
No
No
Yes
Implicit
No
No
No
No
Yes
Implicit
No
Yes
Implici
t
Yes
Article
313
Yes (Art
198)
Yes
(Art
80)
No
Yes
(Art
147)
No
Yes
(Art
64)
Yes
(Art
348)
No
Yes
(Art
258
No
No
Congress
cannot increase
the budget for
any items or
create new
budgetary
categories
If no new
budget is
passed, current
budget remains
in effect
OR
President’s
proposal takes
effect
Legislative budget authority (2)
• Legislative powers along the budget cycle
– Budget formulation and drafting
• Executive has the exclusive right of initiative (art. 78)
– Amendment powers and adoption
• Legislature can neither increase the budget nor create new
budget categories (art. 79)
• If legislature fails to act within the imparted time, the executive
proposal takes effect by legislative decree (art. 80)
– Oversight of budget execution
– Certification of public accounts
• Time, timing and sequencing
T A B L E 2: T IM E FO R B U D G E T R E V IE W IN L A T IN A M E R IC A
C o u ntry
P arlia me ntary
struct u re
A rge ntina
B olivia
B razil
C olombia
C hile
P araguay
D o mi nican
R epublic
Ur ugua y
Ve ne zuela
M e xico
C osta R ica
E cuador
E l S alvador
G ua te mala
B icameral
B icameral
B icame ral
U nica meral
U nica meral
U nica meral
U nica meral
H ond uras
N icaragua
P ana ma
P e ru
U nica meral
U nica meral
U nica meral
U nica me ra l
B icameral
B icameral
B icameral
B icameral
B icameral
B icameral
B icameral
S ource: G utiérrez 2001:C hap ter III.
B u d ge t app rova l
aut ho rity
B oth
B oth
B oth
B oth
B oth
B oth
B oth
c ha mbers
c ha mbers
c ha mbe rs
c ha mbers
c ha mbers
c ha mbers
c ha mbers
B oth c ha mbers
B oth c ha mbers
C ha m ber of D ep uties
Le gislative A ssembl y
N ational C o ngress
Le gislative A ssembl y
C ongress of the
R epublic
N ational C o ngress
N ational A sse mbl y
Le gislative A ssembl y
C o ngre ss of the
R e p u blic
D ays allo w e d
for re vie w ing
b u dge t p ro posal
n.a.
60
100
90
60
90
M a x 90
90
n.a.
30
90
90
90
120
105 -120
n.a.
90
90
T AB L E 3 : TIM I N G AN D SE Q U E N C IN G O F B U DG E TAR Y P R O C E SS I N P E R U
P has e o f the budg et
C Y1
B udge t fo rm ulatio n
B udge t pro po s al
B udge t re vie w
B udge t ado ptio n
C Y2
B udge t e xe c utio n
C Y3
Ac c o unting
Au diting
P re paratio n o f public acco unts
C Y4
O pinio n o n public ac co unts
C e rtific atio n of public acc o unts
R e s po nsi ble state i ns titutio n
Ti mi ng
Exe c utive (M EF/D N PP)
Exe c utive (P C M/M EF)
Le gis lature (budge t co m mi ttee )
Le gis lature (ple nary)
3 0 Augus t
1 5 No ve m be r
3 0 No ve m be r
Spe nding a ge nc ies
1 J anuary – 3 1 De ce m ber
Exe c utive (M EF/C P N)
Exte rnal audit o ffice (C G R)
Exe c utive
3 0 J une
3 0 J une
1 5 No ve m be r
Le gis lature (budge t co m mittee )
Le gis lature (ple nary)
1 5 Fe bruary
1 5 M arc h
F IG U R E 1 : TIM IN G AN D S E Q U E N C IN G O F B U DG E TAR Y P R O C E SS IN P E R U
E xe c uti ve br anc h
Fo rm ulatio n
Subm is s io n
C Y1
3 0 Aug
Exe c utio n
1 5 No v 3 0 No v C Y2
R e vie w Ado ptio n
Ac c o unting
C Y3
L e gisl ati ve br anc h
3 0 J un
Au diting
1 5 No v C Y4
P ublic acco unts
1 5 Fe b 1 5 M ar
O pinio n C e rtific atio n
Constraints to effective
legislative budget oversight (1)
• Credibility of the budget
– Budget transparency (legal framework, perceptions,
enforcement mechanisms)
– Budget rigidity (size, inertia and capital expenditures)
• Executive discretion in budget execution
– Budget integrity: gap approved-executed (underspending), off-budget expenditures
– Extensive and early uses of executive decrees
(reallocations)
T AB L E 4 : B U DG E T TR AN SP AR E N C Y IN L A T IN AM E R IC A (AG G R EG ATE IN D E X )
C o untr y
Arge ntina
B razil
C hile
M e xico
P er u
As s e ss m e nt o f L eg al Fr am ew o r k
O ut o f 100 0 po ints
7 00
6 36
7 33
5 07
5 98
P erc e ptio ns Inde x
Ave r ag e Inde x
(un-w eig hte d)
1 to 10
5 .1
5 .1
5 .9
5 .0
3 .7
1 to 10
6 .1
5 .8
6 .6
5 .1
4 .9
1 to 10
7 .0
6 .4
7 .3
5 .1
6 .0
So urce : IB P 2 003 :5 . N o te s: The le gal fram e wo rk sco re is o n a s c ale o f 0 to 100 0 .
The inde x o f pe rce ptio ns is an a ve rage o n a s c ale of 1 to 1 0 , o f not trans pare nt to trans pare nt.
T AB L E 5 : B U DG E T TR AN SP AR E N C Y IN L A T IN AM E R IC A (D IS AG G R EG ATE IN D E X )
P has es o f the budge t
Av er ag e s cor e o f 1 to 5
M o st trans pare nt
Le as t trans pare nt
Fo rm ulatio n
A ve rage
C hile
3 .36
M e xico
2 .67
Arge ntina
2 .57
P er u
2 .47
B razil
2 .47
Ap pro val
A ve rage
C hile
2 .80
Arge ntina
2 .79
B razil
2 .63
M e xico
2 .44
P er u
2 .39
Exe c utio n
A ve rage
O ve rs ight
and auditing
A ve rage
Ec o no mic
Info rm atio n
A ve rage
C hile
3 .16
Arge ntina
2 .71
B razil
2 .40
P eru
2 .38
M e xico
2 .36
C hile
3 .07
B razil
2 .31
M e xico
2 .27
Arge ntina
2 .19
P er u
1 .89
C hile
3 .53
Arge ntina
3 .15
B razil
3 .15
M e xico
2 .75
P er u
2 .66
So urce : B ase d o n IB P 2 003 :3 .
Constraints (2)
T A B L E 6 : A P P R O V E D A N D E X E C U T E D B U D G E T (1 9 9 9 -2 0 03 )
Y ea r
A p p ro v ed
(b n N u ev o s S o les)
E xec u ted
(b n N u ev o s S o les)
D ifferen ce E xec u ted –
A p p ro v ed (b n N u ev o s S o les)
D ev ia tio n fro m a p p ro v ed
b u d g et (in p ercen ta g e)
1999
3 1 ,9 47 ,30 6 ,72 0 .0 0
2 7 ,2 53 ,74 4 ,60 5 .1 2
-4 ,6 9 3 ,56 2 ,11 4 .8 8
1 4 .7 %
2000
3 4 ,0 45 ,80 3 ,04 5 .0 0
2 8 ,6 36 ,66 2 ,80 5 .8 3
-5 ,4 0 9 ,14 0 ,23 9 .1 7
1 5 .9 %
2001
3 5 ,9 85 ,27 4 ,00 3 .0 0
3 4 ,5 42 ,38 3 ,23 4 .5 4
-1 ,4 4 2 ,89 0 ,76 8 .4 6
4 .0 %
2002
3 5 ,7 71 ,98 7 ,91 1 .0 0
3 5 ,3 29 ,84 9 ,15 2 .5 5
-4 4 2 ,1 3 8,7 58 .4 5
1 .2 %
2003
4 4 ,5 16 ,00 6 ,30 5 .0 0
4 1 ,5 65 ,07 2 ,36 1 .1 9
-2 ,9 5 0 ,93 3 ,94 3 .8 1
6 .6 %
S o urce: M E F S IA F -S P (vario us years).
T A B L E 7 : C H A N G E S IN T H E B U D G E T (1 9 9 8 -2 00 1 )
F isca l y ea r
1998
1999
2000
2 0 0 1 (first se m ester)
C h a n g es in
b u d g et *
D a te o f first
ch a n g e
N u m b er o f secret
e m erg en cy d ecree s **
29
34
38
19
1 9 F eb ruary
2 5 January
1 6 F eb ruary
1 3 January
2
2
1
0
S o urce: M o stajo (2 00 2 :19 .) *: E ssentially sup p le m en tary cre d its and transfers.
**: B etw ee n 1 9 9 5 and 2 00 0 , there ha ve b een 2 0 such secret e m erge nc y d ecrees.
Constraints (3)
• Weak institutionalisation of legislative budgetary
institutions
–
–
–
–
–
Parliamentary structures and procedures
Parliamentary budget and finance committees
Legislative technical budget capacity
Legislative budget research capacity
Legislative oversight and external auditing
• Relations public accounts committee and general audit office
• General audit office (internal and external auditing)
– Consequences:
• Limited access to independent budget analysis and advise
• Limited availability of timely information on budget
performance
Constraints (4)
• Unrestrained executive discretion
– Presidential nature of political regime and executivelegislative relations
– Executive decree authority and legislative delegation
(how much is too much?)
– Insulation of economic policymaking and institutions of
economic governance (‘veto knots’ or ‘accountability
points’) (ex.: general audit office)
– External oversight and social control
Constraints (5)
• Political system and legislative budgeting
– Vertical determinants of horizontal
accountability
– Political parties and electoral rules
– Political party system fragmented and volatile
– Party cohesion, coherence and discipline
– Party structures, parliamentary groups and
legislative committees
Concluding remarks
• Key challenges:
– Adequate balance between executive power and
legislative oversight: How to retain the advantages of
strong executive authority required to ensure fiscal
discipline while providing the institutional checks and
balances that guarantee effective accountability
• The politics of legislative budgeting
– Different roles for different phases of budget cycle
(oversight and accountability roles of parliament)
– Technical capacity, institutional arrangements and
political incentives
– Chicken and egg dilemma : technical capacities and
political incentives
Thank you
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