2. Motivation Economists, IFIs emphasize policy recipes to achieve development goals. This led to adoption of Washington Consensus reforms. Outcome somewhat disappointing. IPES: Potential of policy recipes depends on the quality of the policymaking process through which policies are discussed, approved, and implemented. Improvement and better understanding of policymaking processes key in order to improve the quality of public policies.

3. Beyond technocratic approach to policymaking In technocratic approach, public policies are objects of choice. Policymakers just need to adopt those that lead to best outcomes. Actual policymaking involves a multiplicity of political actors interacting in a variety of arenas. Policies are outcome of inter-temporal transactions among them. IPES: less emphasis on content of policies, more on process of policymaking (PMP), and some resulting policy features. These processes differ across countries, can be traced back to each countrys political institutions. While institutions are also endogenous, depend on culture and historical legacies, in IPES we treat them mostly as exogenous. –Focus on impact of existing institutions on policy outcomes, not on the dynamics of institutional change.

4. Political institutions and policy outcomes So how do political institutions affect policy outcomes? Literature tends to focus on single institutional dimensions as determinants of some policy outcome. PMPs do not depend on single-factor explanations but rather on a multiplicity of factors, and their interaction. We adopt systemic approach, more appropriate to: –understand why policy reforms that work under certain institutional environments may not work under others –think about the reform of political institutions. Approach requires deep knowledge of institutional details of the countries under study.

5. Country focus Phase I of research agenda focused on detailed country studies, produced by local teams of economists and political scientists. Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela. We have added Costa Rica, Guatemala and Jamaica. Country studies are key input for the report.

6. Key features of public policies The focus of the approach is in explaining certain common features of public policies: –Stability. –Adaptability. –Coordination and coherence. –Quality of implementation and enforcement. –Public regardedness. –Efficiency.

7. Measuring key features of policies Two main sources of data International comparative indicators from the Global Competitiveness Report (GCR). Our own State Capabilities Survey, responded by more than 150 experts in 18 countries in Latin America. Time frame: last two decades (or since return of democracy). Thus, our indices do not reflect quality of policymaking under current administrations, but during this longer period.

8. Example: Measuring policy stability Volatility of Fraser index of Economic Freedom. GCR question regarding cost of legal and political changes for firms planning capacity. GCR question on the extent to which new governments honor contractual commitments and obligations of previous regimes. SC Survey question on capacity of the State to set and maintain policy priorities among conflicting objectives. SC Survey question on extent to which governments ensure policy stability so that policies have time to work. SC Survey question on extent to which the State makes and maintains international commitments.

9. Example: Measuring policy stability Volatility of Fraser index of Economic Freedom. GCR question regarding cost of legal and political changes for firms planning capacity. GCR question on the extent to which new governments honor contractual commitments and obligations of previous regimes. SC Survey question on capacity of the State to set and maintain policy priorities among conflicting objectives. SC Survey question on extent to which governments ensure policy stability so that policies have time to work. SC Survey question on extent to which the State makes and maintains international commitments.

10. 1234 Venezuela Argentina Ecuador Guatemala Nicaragua Bolivia Paraguay Dominican Rep. Peru Panama Honduras El Salvador Mexico Colombia Brazil Costa Rica Uruguay Chile Stability Index (1-4 scale) Source: Authors compilations. Policy Stability index

11. 1234 Venezuela Argentina Ecuador Guatemala Nicaragua Bolivia Paraguay Dominican Rep. Peru Panama Honduras El Salvador Mexico Colombia Brazil Costa Rica Uruguay Chile Stability Index (1-4 scale) Source: Authors compilations. Policy Stability index High Low Medium

12. Key features of public policy since 1980s

13. LLMLMLLVenezuela HMMMHHHUruguay MMMMMMMPeru LLLLLLMParaguay LLLLMLMPanama LMLLMMMNicaragua HHMMHMHMexico MMLMMMHHonduras LMLMLMMGuatemala HHMMHHHEl Salvador LLLLLMLEcuador MMLMMMMDominican Rep HHHMHMHCosta Rica HMMMHHHColombia VHHHHHHHChile HMMHHHHBrazil MMMMMHMBolivia LLMLLMLArgentina Policy Index EfficPublic RegCoord / Coherence Impl/EnfAdaptStabCountry

14. Key features of public policy since 1980s LLMLMLLVenezuela HMMMHHHUruguay MMMMMMMPeru LLLLLLMParaguay LLLLMLMPanama LMLLMMMNicaragua HHMMHMHMexico MMLMMMHHonduras LMLMLMMGuatemala HHMMHHHEl Salvador LLLLLMLEcuador MMLMMMMDominican Rep HHHMHMHCosta Rica HMMMHHHColombia VHHHHHHHChile HMMHHHHBrazil MMMMMHMBolivia LLMLLMLArgentina Policy Index EfficPublic RegCoord / Coherence Impl/EnfAdaptStabCountry

15. Why focus on key features of policies? More naturally linked to the institutional environment than the content of policies themselves. More closely related to political institutions than outcome variables such as economic growth. Reassuringly, features of public policy and the overall policy index correlate well with growth and other welfare indicators.

16. Policy Index and welfare measures Simple and partial correlations Latin AmericaDeveloping Countries GDP per capita growth 1980-02 0.700 *** 0.509 *** 0.420 *** 0.445 *** HDI (change from 1980 to 2002) 0.376 0.614 *** 0.400 *** 0.393 *** Poverty reduction (from 80-90 to 95-00) 0.439 * 0.300 0.461 *** 0.450 *** Partial correlations (in yellow) control for GDP per capita in 1980. Developing country sample uses restricted version of policy index (excluding state capability survey questions).

17. The Policymaking Process (PMP) Within our approach, the PMP takes center stage. Characterizing PMP in each country: –Which are the key actors that participate in it? –What powers and roles do these actors have? –What preferences, incentives and capabilities do they bring to the table? –What are the characteristics of the arenas in which they interact? –How frequent are these interactions? –What is the nature of the transactions they engage in?

18. Actors and arenas in policymaking Background papers study role of various actors and institutions in Latin Americas PMPs. –Political parties and party systems. –The legislature (and the legislators). –The president and his cabinet. –The bureaucracy and the judiciary. –Sub-national actors. –Business organizations, unions, social movements. –Articulation of technical expertise into the PMP. Studies discuss formal and actual roles, interaction with other actors, incentives, policymaking capabilities. Democracies in Development project also key input for this part of the IPES.

19. Political Institutions PMP Policy Outcomes

20. PMP Policy outcomes Key insight: features of public policies (such as stability, adaptability, etc) depend crucially on the ability of political actors to strike and enforce inter-temporal deals, and thus achieve cooperative outcomes. Cooperation, in turn, depends on factors such as: –Number of actors with substantial impact on policy. –Temporal horizon (or discount rate) of actors. –Existence of well functioning arenas for political exchange (eg: institutionalized parties, a well-functioning legislature). –Credible enforcement technologies (eg, independent judiciary).

21. Political Institutions PMP In turn, key aspects of the PMP are determined by the nature of the political institutions such as constitutional rules, electoral rules, etc, which determine (among others). –The number of actors and their roles –Their incentives –The rules of engagement among them –The nature of the arenas in which they interact

22. Different looks at policymaking IPES looks at links between political institutions, policymaking processes and policy outcomes from different angles. Cross-sectional analysis (chapter 6) Policymaking in action in specific countries (chapter 7) –Chile: Policymaking in an institutionalized setting –Colombia: the 1991 Constitution and the policymaking process –Brazil and Ecuador: Policymaking in fragmented party systems Policymaking in specific sectors (chapters 8 – 11) –Tax policy –Public services –Education –Decentralization, budget processes, and feedback effects

23. Different looks at policymaking IPES looks at links between political institutions, policymaking processes and policy outcomes from different angles. Cross-sectional analysis (chapter 6) Policymaking in action in specific countries (chapter 7) –Chile: Policymaking in an institutionalized setting –Colombia: the 1991 Constitution and the policymaking process –Brazil and Ecuador: Policymaking in fragmented party systems Policymaking in specific sectors (chapters 8 – 11) –Tax policy –Public services –Education –Decentralization, budget processes, and feedback effects

24. Cross-Sectional Analysis Some results

25. Some results from cross-section analysis High-quality policies are associated with: –Congress with good policy capabilities –Political parties that are institutionalized and programmatic –Strong bureaucracies –Independent judiciaries Impact of other institutional variables, such as presidential powers, or degree of proportionality of electoral systems, depends on interactions with other institutional dimensions.

26. Congressional capabilities National legislature is natural arena for discussion, negotiation and enforcement of political agreements. Legislators with strong capabilities and legislatures with adequate organizational structures may promote better quality policies (more stable, adaptable, etc). We build an index of congressional capabilities, which includes: –Different measures of public perception of Congress –Education of legislators –Years of legislative experience –Specialization in Committees –A few more subjective variables

27. 1.0 1.5 2.0 2.5 3.0 3.5 4.0 1.01.21.41.61.82.02.22.42.62.83.0 Congressional Capability Index (1-3 scale) Policy Index (1-4 scale) Source: Authors' compilation. Congressional Capabilities and the Quality of Policies

28. Characteristics of political party systems In some countries, political parties participate directly in public policy debate In others, party systems affect the PMP indirectly, affecting: –executive-legislative relations –possibilities for coordination in Congress –incentives of elected officials. Institutionalized parties, when they are programmatic (competing on basis of public policies and policy outcomes) are more likely to encourage long horizons, and prevent opportunistic behavior. They can facilitate inter-temporal bargains within and between parties, since commitments made by current party leaders are more likely to be respected in the future.

29. Party System Institutionalization, Programmatic Orientation and the Quality of Policies Venezuela Uruguay Peru Paraguay Panama Mexico Honduras Guatemala El Salvador Ecuador Dominican Rep. Costa Rica Colombia Chile Brazil Bolivia Argentina 0 1 2 3 4 5 6 7 8 4050607080 Institutionalization Index (0-100 scale) Programmatic Index (0-8 scale) Policy Index = 2.06 Policy Index = 2.57 Policy Index = 2.04 Note: Boxes show the average value of the Policy Index for the countries in each quadrant. Source: Authors' compilation and Jones (2005). Policy Index = "High"Policy Index = "Low"Policy Index = "Medium"Policy Index = "Very high"

30. Judiciaries and Bureaucracies Good enforcement and implementation facilitate cooperation, strengthen quality of policies. Judiciary most obvious enforcer. Independent courts ensure that the president does not overstep his boundaries, and that neither branch violates the constitution. Inter-temporal cooperation hindered if courts are not independent, actors are not held to their commitments. Bureaucracy plays a predominant role in policy implementation. But a strong bureaucracy can also facilitate inter-temporal bargains through delegation (eg, central banks, autonomous agencies).

31. Judicial Independence and the Quality of Policies 1.0 1.5 2.0 2.5 3.0 3.5 4.0 1.01.52.02.53.03.54.04.55.0 Judicial Independence Index (1-7 Scale) Policy Index (1- 4 Scale) Source: Authors' compilation and World Economic Forum (2004).

32. Development of Civil Service and the Quality of Policies 1.0 1.5 2.0 2.5 3.0 3.5 4.0 0.00.10.20.30.40.50.60.70.8 Development of Civil Service System Index (0-1 scale) Policy Index (1- 4 scale) Source: Authors' compilation and Iacoviello and Zuvanic (2005).

33. Institutional blessings are not independent Good institutions tend to come together. Countries with stronger congresses tend to have more independent judiciaries. Virtuous dynamics: If executives do not tinker with the Courts, this increases their independence and reputation. Independent judiciaries enforce the domain and prerogatives of Congress, increases incentives of legislators to invest in capabilities. Vicious dynamics can also occur, unfortunately. Problem: strong institutions take time to build, but can be destroyed overnight.

34. Policymaking in fragmented party systems

35. Government type and constitutional interruptions 34 15 19 # gov. Minority 10 5 5 # CI Majority (or close) 64 28 36 # gov. 4 2 2 # CI 29.46.3 Total 33.37.1 Coalition 26.35.6 Single party % Based on 98 democratic governments in Latin America since 1978. CI defined as periods in which either the President or the legislature did not complete their terms. Source: Chasquetti (2004), Payne et al (2002) y and authors compilation.

36. Government type and constitutional interruptions 34 15 19 # gov. Minority 10 5 5 # CI Majority (or close) 64 28 36 # gov. 4 2 2 # CI 29.46.3 Total 33.37.1 Coalition 26.35.6 Single party % Based on 98 democratic governments in Latin America since 1978. CI defined as periods in which either the President or the legislature did not complete their terms. Source: Chasquetti (2004), Payne et al (2002) y and authors compilation.

37. Policymaking in fragmented party systems: Brazil and Ecuador Political institutions have important common elements Most fragmented party systems in Latin America

38. Source: Jones (2005). Political Party Fragmentation 12345678 Chile Honduras Nicaragua Dominican Republic Paraguay Uruguay Mexico Panama Costa Rica Argentina Guatemala El Salvador Peru Venezuela Colombia Bolivia Ecuador Brazil Effective Number of Legislative Parties

39. Brazil and Ecuador: party system fragmentation Argentina Honduras Chile Costa Rica El Salvador Colombia Bolivia Brazil Ecuador Uruguay Venezuela Paraguay Panama Nicaragua Guatemala Dominican Republic Mexico Peru 10 20 30 40 50 60 0246810 Effective Number of Parties President's Chamber Contingent Source:Jones (2005), Saiegh (2005).

40. Policymaking in fragmented party systems: Brazil and Ecuador Political institutions have important common elements Most fragmented party systems in Latin America Strong presidential constitutional powers (to compensate for weak partisan powers)

41. Source: Payne and others (2002). Presidential Legislative Powers 0.00.20.40.60.81.0 Nicaragua Paraguay Costa Rica Bolivia Mexico Honduras Dominican Republic Guatemala Venezuela El Salvador Uruguay Panama Argentina Peru Colombia Ecuador Brazil Chile Presidential Legislative Powers index (0-1 scale)

42. Policymaking in fragmented party systems: Brazil and Ecuador Political institutions have important common elements Most fragmented party systems in Latin America Strong presidential constitutional powers (to compensate for weak partisan powers) Legislators elected under similar electoral rules: open list, PR, incentives to deliver benefits to their jurisdictions.

43. Policymaking in fragmented party systems: Brazil and Ecuador Political institutions have important common elements Most fragmented party systems in Latin America Strong presidential constitutional powers (to compensate for weak partisan powers) Legislators elected under similar electoral rules: open list, PR, incentives to deliver benefits to their jurisdictions. Yet completely different political and policy outcomes

44. Key features of public policy and overall index LLMLMLLVenezuela HMMMHHHUruguay MMMMMMMPeru LLLLLLMParaguay LLLLMLMPanama LMLLMMMNicaragua HHMMHMHMexico MMLMMMHHonduras LMLMLMMGuatemala HHMMHHHEl Salvador LLLLLMLEcuador MMLMMMMDominican Rep HHHMHMHCosta Rica HMMMHHHColombia VHHHHHHHChile HMMHHHHBrazil MMMMMHMBolivia LLMLLMLArgentina Policy Index EfficPublic RegCoord / Coherence Impl/EnfAdaptStabCountry

45. How can these differences be explained? Substantial differences in capabilities of key institutions.

46. Source: Saiegh (2005) Lower House Reelection Rates 010203040506070 Rates of Immediate Reelection to the Lower House (percentage) Peru (2001) Argentina (1989-2003) Guatemala (1994-2004) Venezuela (1989-2004) Bolivia (2002) Ecuador (1996-2002) El Salvador (2003) Colombia (1990-98) Paraguay (1998-2003) Brazil (1995-2002) Panama (1999) Uruguay (1989-99) Chile (1993-2001)

47. Judicial Independence Index 12345 Venezuela Paraguay Nicaragua Bolivia Argentina Ecuador Honduras Peru Guatemala Panama El Salvador Colombia Mexico Dominican Rep. Costa Rica Brazil Chile Uruguay Source: World Economic Forum (2004).

48. Index of Development of the Civil Service 0.00.20.40.60.81.0 Panama El Salvador Honduras Paraguay Peru Ecuador Nicaragua Guatemala Bolivia Dominican Rep. Venezuela Mexico Colombia Uruguay Costa Rica Argentina Chile Brazil Source: Iacoviello and Zuvanic (2005).

49. How can these differences be explained? Substantial differences in capabilities of key institutions. Presidents in Brazil have necessary tools to engage in political exchanges with other parties, and sustain coalitions in Congress.

50. How can these differences be explained? Substantial differences in capabilities of key institutions. Presidents in Brazil have necessary tools to engage in political exchanges with other parties, and sustain coalitions in Congress In Ecuador, coalitions are unstable, and tend to collapse as presidential terms progress and elections approach.

51. Brazil: building coalitions President needs to rely on coalition to pass his agenda. Legislators need to deliver benefits to their communities, add budget amendments involving programs with local benefits. Strong presidential powers, include discretional capacity to impound budgetary amendments. Key exchange is small investment projects in exchange for political support to pass the presidents agenda. One of several inducements president uses to pass agenda in a fragmented system (others include sharing ministries with coalition partners)

52. Ecuador: ghost coalitions Legislators have incentives to deliver pork to their communities, but geographically based items not allowed in the budget. Being perceived as gobiernista is politically costly, so ministries are not always attractive to potential coalition partners, particularly towards end of presidential term. Politicians avoid visible and politically costly commitments, engage in ghost coalitions, providing legislative support in narrow set of issues in exchange for immediate benefits. Result: unstable coalitions, adversarial relations between the executive and the legislature, and a great deal of political instability. This in turn affects time horizons of politicians, and quality of public policies.

53. Ecuador: Size of Governments Coalition in Congress over the presidential term (1984-2002) 10 20 30 40 50 60 159131721252933374145 Administration's months in office Size of the President's coalition (percent) Source: Mejía-Acosta (2004).

54. Main messages

55. 1.Processes matter! 2.Beware of universal policy recipes that are supposed to work independently of the time and place in which they are adopted. 3.Certain key features of public policies may be as important in achieving development goals as their content and orientation. 4.The effect of political institutions on policymaking processes can be understood only in a systemic manner. 5.Political and institutional reform proposals based on broad generalizations are not a sound reform strategy. 6.Policy or institutional reforms that have important feedback effects on the policymaking process should be treated with special care, and with an understanding of the potential ramifications.

56. Main messages 7.The ability of political actors to cooperate over time is a key determinant of the quality of public policies. 8.Effective political processes and better public policies are facilitated by political parties that are institutionalized and programmatic, legislatures that have sound policymaking capabilities, judiciaries that are independent, and bureaucracies that are strong. 9.Most of these institutional blessings are not granted overnight. Building them, and keeping them in place, depends on the political incentives of key political actors 10.Leadership, if functional, can be a vital force for institution- building