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
TABLE 2: TIME FOR BUDGET REVIEW IN LATIN AMERICA
Country
Parliame ntary
structure
Budget approval
authority
Argentina
Bolivia
Brazil
Colombia
Chile
Paraguay
Dominican
Republic
Uruguay
Venezuela
Mexico
Costa Rica
Ecuador
El Salvador
Guatemala
Bicameral
Bicameral
Bicameral
Bicameral
Bicameral
Bicameral
Bicameral
Both chambers
Both chambers
Both chambers
Both chambers
Both chambers
Both chambers
Both chambers
Bicameral
Bicameral
Bicameral
Unicameral
Unicameral
Unicameral
Unicameral
Honduras
Nicaragua
Panama
Peru
Unicameral
Unicameral
Unicameral
Unicameral
Both chambers
Both chambers
Chamber of Deputies
Legislative Assembly
National Congress
Legislative Assembly
Congress of the
Republic
National Congress
National Assembly
Legislative Assembly
Congress of the
Republic
Source: Gutiérrez 2001:Chapter III.
Days allowed
for reviewing
budget proposal
n.a.
60
100
90
60
90
Max 90
90
n.a.
30
90
90
90
120
105-120
n.a.
90
90
TABLE 3: TIMING AND SEQUENCING OF BUDGETARY PROCESS IN PERU
Phase of the budget
CY1
Budget formulation
Budget proposal
Budget review
Budget adoption
CY2
Budget execution
CY3
Accounting
Auditing
Preparation of public accounts
CY4
Opinion on public accounts
Certification of public accounts
Responsible state institution
Timing
Executive (MEF/DNPP)
Executive (PCM/MEF)
Legislature (budget committee)
Legislature (plenary)
30 August
15 November
30 November
Spending agencies
1 January – 31 December
Executive (MEF/CPN)
External audit office (CGR)
Executive
30 June
30 June
15 November
Legislature (budget committee)
Legislature (plenary)
15 February
15 March
FIGURE 1: TIMING AND SEQUENCING OF BUDGETARY PROCESS IN PERU
Executive branch
Formulation
Submission
CY1
30 Aug
Execution
15 Nov 30 Nov CY2
Review Adoption
Accounting
CY3
Legislative branch
30 Jun
Auditing
15 Nov CY4 15 Feb 15 Mar
Public accounts Opinion Certification
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)
TABLE 4: BUDGET TRANSPARENCY IN LATIN AMERICA (AGGREGATE INDEX)
Country
Assessment of Legal Framework
Perceptions Index
Average Index
(un-weighted)
1 to 10
6.1
5.8
6.6
5.1
4.9
Out of 1000 points
1 to 10
1 to 10
Argentina
700
7.0
5.1
Brazil
636
6.4
5.1
Chile
733
7.3
5.9
Mexico
507
5.1
5.0
Peru
598
6.0
3.7
Source: IBP 2003:5. Notes: The legal framework score is on a scale of 0 to 1000.
The index of perceptions is an average on a scale of 1 to 10, of not transparent to transparent.
TABLE 5: BUDGET TRANSPARENCY IN LATIN AMERICA (DISAGGREGATE INDEX)
Phases of the budget
Average score of 1 to 5
Most transparent
Least transparent
Formulation
Average
Chile
3.36
Mexico
2.67
Argentina
2.57
Peru
2.47
Brazil
2.47
Approval
Average
Chile
2.80
Argentina
2.79
Brazil
2.63
Mexico
2.44
Peru
2.39
Execution
Chile
Average
3.16
Oversight
and auditing
Chile
Average
3.07
Economic
Information
Chile
Average
3.53
Source: Based on IBP 2003:3.
Argentina
2.71
Brazil
2.40
Peru
2.38
Mexico
2.36
Brazil
2.31
Mexico
2.27
Argentina
2.19
Peru
1.89
Argentina
3.15
Brazil
3.15
Mexico
2.75
Peru
2.66
Constraints (2)
TABLE 6: APPROVED AND EXECUTED BUDGET (1999-2003)
Year
Approved
Executed
Difference Executed –
(bn Nuevos Soles)
(bn Nuevos Soles)
Approved (bn Nuevos Soles)
1999
2000
2001
2002
31,947,306,720.00
34,045,803,045.00
35,985,274,003.00
35,771,987,911.00
2003
44,516,006,305.00
Source: MEF SIAF-SP (various years).
Deviation from approved
budget (in percentage)
27,253,744,605.12
28,636,662,805.83
34,542,383,234.54
35,329,849,152.55
-4,693,562,114.88
-5,409,140,239.17
-1,442,890,768.46
-442,138,758.45
14.7%
15.9%
4.0%
1.2%
41,565,072,361.19
-2,950,933,943.81
6.6%
TABLE 7: CHANGES IN THE BUDGET (1998-2001)
Fiscal year
Changes in
Date of first
Number of secret
budget *
emergency decrees **
change
1998
29
19 February
2
1999
34
25 January
2
2000
38
16 February
1
2001 (first semester)
19
13 January
0
Source: Mostajo (2002:19.) *: Essentially supplementary credits and transfers.
**: Between 1995 and 2000, there have been 20 such secret emergency decrees.
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