1 Assisting Decentralization Policies in Latin America Some Lessons from Bilateral and Multilateral Development Cooperation Harald Fuhr Chair of International Politics Economics and Social Sciences Facuzlty University of Potsdam, Germany

2 Assisting Decentralization Policies in Latin America Overview: Patterns of decentralization policies Donor interventions Lessons / Shortcomings Policy Management New options for donor agencies ?

3 Decentralization is gaining prominence Argentina Brazil Chile Colombia South Africa Zimbabwe % local expen- ditures Indonesia Sub-national expenditures / total government expenditures

4 Government objectives in Latin American decentralization policies Action and innovations >> Distortions, adjustments and consolidation >>> Political Integration and Stabilization Improving services and quality Fiscal stabilization

5 Assisting Decentralization: Lessons from Development Assistance Source: Frank 2002

6  “Decentralization is something intrinsically good” Its potential advantages can only be mobilized under certain conditions: Consensus-based strategy Sound assignment of expenditures and revenues; sound system of transfers Prudent fiscal management (+ hard budgets) at all levels Institutional modernization and capacity building at all levels New auditing and participatory arrangements Otherwise: quite risky; potentially backfiring and destabilizing …  Need for a comprehensive view of opportunities and risks Assisting Decentralization: Lessons from Development Assistance

7  Neglecting overall fiscal problems and subnational indebtedness Push for increase of transfers ran ahead of clarifying tasks (or vice versa) Popular demands for “redistribution” Soft budget constraints at subnational levels Propensity to increase spending Problem: access of subnational governments to provincial banks and towards private finance Eventual bail-out by central government  Need for sound fiscal management at all levels and a deficit neutral decentralization policy Assisting Decentralization: Lessons from Development Assistance

8  Neglecting the political dimension of decentrali- zation: actors, interests, bargaining Understanding the political economy of reform: New arrangements for decision making, access to and command over resources Seeking and strengthening champions and winners Dealing with/ compensating losers Understanding “zero-sum” perceptions: i.e. political delays; bureaucratic resistance; “successful failure”  Need for sound project analysis at entry  Working with actors > consensus and dialogue plus: “win-win messages” Assisting Decentralization: Lessons from Development Assistance

9 Political cycles for decentralization policies Action and innovations >> Distortions, adjustments and consolidation >>> New tranfers Delegation of services Fiscal problems Elections Potential Benefits

10  Too strong an emphasis on municipal strengthening and development, thus: Underutilization of development options at intermediate levels (regions, provinces, districts) Neglect to assist reform of intergovernmental fiscal relations Neglect to assist intergovernmental collaboration (division of tasks and resources) Often: too strong a pressure towards “redistribution” and resources „for“ the municipalities  Need for a more comprehensive intergovern- mental view of decentralization Assisting Decentralization: Lessons from Development Assistance

11  Similarly: too strong an emphasis on „regional development agencies“ Regional planning approaches and … Long history to strengthen „Regional Development Corporations” Disadvantages: Classical problem: coordination of policies with both national and local entities Planning instead of enabling Insulated reform proposals „for“ – and not „with“ a target groups; weak links to state reform exercises/ inter- governmental incentives/ private sector environment  Need for a multi-level approach, networking and collaboration Assisting Decentralization: Lessons from Development Assistance

12  Donor efforts highly fragmented both within agencies and among agencies …. and experts. Financial often separated from technical assistance Urban / regional planning projects Infrastructure projects Democratization, NGO and participatory projects Education, health and poverty-oriented projects State reform programs : Fiscal decentralization issues Financial management reforms HR management issues  Better synergy, collaboration, learning needed Assisting Decentralization: Lessons from Development Assistance

13 Gradualism in Decentralization Agenda : State reform and new intergovernmental rules Subnational PSM Local economic & PS development Financing local dev. Strengthen citizen’s participation Local social policies, poverty reduction

14 Gradualism in Decentralization Agenda : State reform and new intergovernmental rules Subnational PSM Local economic & PS development Financing local dev. Strengthen citizen’s participation Local social policies, poverty reduction How can donors assist governments managing such complexity effectively ?

15 Donor Cooperation in Decentralization State reform and new intergovernmental rules Subnational PSM Local economic & PS development Financing local dev. Strengthen citizen’s participation Local social policies, poverty reduction Comparative advantages of donors IFIs/IGOsBilateralsINGOs

16  „Tecnocratic enclaving“ of projects is delicate Advantages: inputs can be focused on a specific environment and task group Disadvantages: often weak links to (national) state reform exercises where norms are set Insulated reform proposals „for“ – and not „with“ a target group Public marketing of „decentralization” very weak and somewhat antique. Assisting Decentralization: Lessons from Development Assistance

17  Consequently: neglecting the need to work with key actors ( > process approaches) New rules need new “rule-making” Networking and bargaining among key actors required New rules need consensus among key actors Dialogue with citizen groups Quality of rule making seems important for sustainability of new rules  Facilitation of such bargaining and decision making processes (as comparative advantage of donors)  New messages for a consensus-based strategy (from “zero sum” to “win-win”) Assisting Decentralization: Lessons from Development Assistance

18 Institution building through political bargaining New rules/ norms New institutional arrangements New institutions Actors

19 Actors and institution building „old“ institutions Actors

20 New institutions Actors and institution building „old“ actors „new“ actors

21 Local Government Regional Government National Government Actors, Interests, Resources Actors Interests Objectives Resources

22 Local Government Regional Government National Government Actors, Interests, Resources

23 Local Government Regional Government National Government Donor - Interventions ? Actors, Interests, Resources