Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Who decides on Public Expenditures? A Political Economy Analysis of the Budget Process: the case of Argentina Emmanuel Abuelafia, Sergio Berensztein, Miguel Braun and Luciano di Gresia Av. Callao 25, 1° C1022AAA Buenos Aires, Argentina - Tel: (54 11) Fax: (54 11)

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Outline of the presentation 1.The PMP in Argentina and literature review 2.A (very brief) overview of the formal budget process 3.The actual workings of the budget process 4.Conclusions and recommendations

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento The PMP in Argentina Institutional Legacies Constitution and electoral rules Short horizons for policymakers and interest groups Weak arenas for intertemporal deals Congress Policy instability Lack of coordination Lack of cooperation Deep determinants Nature of the PMP Outer features of policies

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Implications for the budget process 1.The President is strong vis a vis Congress 2.Provincial governors are powerful informal actors 3.Weak and unstable bureaucracy, which limits budget efficiency 4.Instability in budget outcomes

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Other papers -Jones (2001): Congress has an important role in the budget process. -Rodriguez and Bonvecchi (2005): the role of Congress is weak. - The evaluation of the role of Congress depends on the universe of public expenditure that one analyzes.

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento The National Budget 2004

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Degree of Exogeneity We constructed an index that reflects how much the public expenditure deviates from its trend. d S it = β 0 + β 1 d S i ( t -1) + β 2 d GDP t + β 3 d POP t + + β 4 d PRI t + β 5 d EMP t + β 6 d DEB t + + w t (1 + β 7 d GDP t + β 8 d PRI t ) + u it Z it = Abs(u it ) / S it

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Discretionality of Public Expenditure

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento A brief history of fiscal outcomes

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento The formal budget process

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento The actual workings of the budget process 1.The President is the key actor, and he maximizes his goals subject to the constraints set by the rigidity of the budget, fiscal rules and agreements with IFIs. 2.He also has to deal with macroeconomic shocks and other powerful actors. (governors, lobbies, IFIs)

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento The actual workings of the budget process What are the President´s goals? - Obtaining reelection (political coalition) - Favorable public opinion (macro stability, national public goods) - Helping his home province (pork)

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento FormulationApprovalImplementation President is key actor - Strategic use of forecasts - President defines allocation of marginal resources - Allocation of funds to home province - Limited changes (pork) - Congress lacks technical capability - Changes in both size and allocation - Changes not approved by Congress - Delegation. New superpowers!!! Constraints - Rigidity - Macro conditions - Fiscal rules - IMF agreements - Lobbies (eg: Carpa blanca) - Need to underexecute if low growth - Rigidity limits adjustment - Bureaucratic learning

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Strategic use of revenue forecasts

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Changes made by Congress and Executive

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Δ C omposition by Congress and Executive

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Implementation High volatility of ministers and secretaries. (Average duration: 2.36 years). The institutional capacities are undermined by – Lack of incentives faced by permanent bureaucrats – Lack of experience of parallel bureaucrats The purchasing mechanism requires a high institutional capacity. Then, the degree of execution will be lower the less experienced the minister is. The bureaucratic work may involve a learning process.

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Bureaucratic learning

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento An exception: The Ministry of Economy. – The average seniority of the Ministry of Economy employees is around 23 years, 15% higher than the average seniority of all the SINAPA´s employees (20 years). Compared with the other agencies, the Ministry is in the top of the employees´ seniority distribution. – The educational level of the Ministry of Economys bureaucracy is above the average. 38% of the total Ministry s employees have tertiary education, two times more than the Ministry of Internal Affairs and 20% more than the SINAPA´s average. – The Ministry of Economy has a higher proportion of upper echelons. 44% of its employees are in the top 3 categories, compared with the system average of 38%.

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Extra Budgetary Funds Agencies that consolidates in the Public Sector Budget: AFIP, INCAA, INNSJyP Entities and Funds that do not consolidate: Fondo Especial del Tabaco, National Universities, Yacyreta, Fondo solidario de Redistribucion.

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Evaluation and Control SIGEN: depends on the President. AGN: depends on Congress. Evaluation is weak. Audits are scarce, not timely, only legal compilance and not an effective tool.

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Conclusions 1.Actual workings of the BP are consistent with Spiller-Tommasi description of Argentine PMP - Executive as key actor 2.Some surprises: The bureaucracy that deals with the BP is stable and competent.

Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento Recommendations 1.Strengthen coordination mechanisms between the federal and provincial governments 2.Capacity building in Congress 3.Strengthen expenditure evaluation 4.Use of private forecasts for budgeting