FISCAL DECENTRALIZATION AND STRENGTHENING THE LATINO-AMERICAN CITY: A urgent challenge. Since the eighties, Latin American and Caribbean initiated a comprehensive program structural reforms, highlighting the progress of decentralization and democratic deepening, that put the municipal center of debate regarding the organization of government and, in particular, in search of a better allocation of responsibilities and resources to promote effective delivery of services, especially social skills.
This process involves the proper distribution of public sector responsibilities among different levels of government, each with its own advantages in the provision of services and activities aimed at improving the quality of life, the allocation stable sources of income allowing localities to assume the roles entrusted, and, ultimately, increase the effectiveness of the entire public sector.
While decentralization raises high expectations and potential for strengthening municipal development, it also poses serious challenges and challenges common to most countries of the region, which we state below.
1. Promoting greater efficiency and transparency of local governments
is undisputed that the arguments of economic efficiency and social, and political development opportunity provided by decentralization: it provides a way to improve the delivery of government services and improve information systems, given the proximity between service providers and beneficiaries.
is important to recognize that this is a healthy process that has gained ground in the practices of many governments, while recent and so many difficulties, began to gain ground in governmental and legislative discussions of the Central American countries and the Caribbean.
The decentralization argument leads to the level of the lender, given that it validates the argument of efficiency due to the proximity between the provider and recipient of the service, either the school or health center, beyond the same municipality.
For Therefore, in this field is important to have good mechanisms to assess whether they are meeting the purposes of economic, social and political issues that are pursued with the decentralization process. Through adequate monitoring and evaluating the process and the promotion of transparent accountability and effective (accountability). It is urgent to develop operational mechanisms to measure the efficiency in the delivery of government services, the way the instruments are being promoted citizen participation and how it is helping to improve equity in the countries.
2. Advancing equity decentralized public spending
Despite the heterogeneity of the processes, the recent experience of Latin America can say that the results in terms of equity so far are disturbing compared to initial expectations. In fact, the areas with greater fiscal capacity development are greater than the towns lower fiscal capacity.
It is therefore clear that a major function in a proper transfer system must not only be the redistribution of income but also management skills.
The main support of national institutions through its programs and local building projects should be directed to the municipalities as organizers services, and particularly to geographical areas behind, through continuous monitoring of the decentralization process. Hopefully this will generate greater regional equity in the country.
From the territorial perspective, the town has more real information for the prioritization of investments, and great responsibilities ahead: the administration of social services to achieve greater efficiency and more direct targeting of public spending towards sectors of the population more depressed: that is, greater social equity.
Finally, since the community is expected to open real opportunities for the participation of civil society the design, implementation and monitoring of agreed decisions on strategies for development, contribute to equity in spending and ultimately to the democratization of society.
3. Ensure greater local autonomy and fiscal responsibility
American practice shows that municipalities are raising a small proportion of revenue from own resources, reflecting the fragility of local finances and the high dependence on transfers. For example, in the experience of Brazil, Bolivia, Colombia and Chile, among others, on average own revenues constitute about half of revenue transfers represent total and the remaining percentage.
This situation warrants the need for what we might call a new fiscal pact at the territorial level, to promote a stronger financial position and sustainable meet the increased responsibilities that have been taking these levels. In other words, a sustainable decentralization process requires both appropriate allocation of responsibilities and financing schemes based on greater fiscal responsibility on the part of localities.
The direction of reforms should aim at greater autonomy for municipalities to generate their own income based on the political game between local government and citizens who demand their political support. In the process of decentralization, the system generates a political economy and economic efficiency much more satisfactory than a system based on the excessive dependence on intergovernmental transfers.
Central American countries established constitutional autonomy of municipalities, although in practice this contrasts with the restrictive framework (some of them to non-existent) on the subject does not allow a minimum tax to local tax.
order not to confuse us, there is little they can do in a town tax, by loa lack of authority and so failure to apply various taxes primarily local in nature. For example, El Salvador does not have a property tax, a major local tax funding in Latin America. And while in the Dominican Republic is expected nationally, and their recovery is almost minimal.
Additionally, there is a noticeable stiffness in the local tax system based on uniform tax rates set centrally, often with outdated
fixed values, which together contribute to the low local tax burden that exists in most countries Isthmus and the Caribbean. Remember, as an example, local governments in countries like El Salvador and the Republic Dominican has a tax burden to near zero.
Reinforcing this, the local tax structure of various countries in the region remains precarious, with excessive taxes lacking a significant revenue-raising capacity, obsolete and difficult to administer. Paraguay is the case with 40 charges and the Dominican Republic has about 70 local taxes,
the vast majority of them (90%) of very low deadweight.
Despite the weakness of the tax codes in recent years have promoted proposals to simplify and modernize the local tax administration, which begin to be more important in the governmental discussions.
mainly in Nicaragua have dominated the principles of autonomy and self-financing of municipalities. In this country, local taxes have the greatest weight in the income structure of the entire Latin American region. While in Brazil and Colombia, taxes weigh 23% and 35% respectively in Nicaragua this figure averaged 67%. This does not mean that resources are adequate and are better able to meet the growing needs of local spending.
In summary, fiscal decentralization is not very effective if municipalities do not have adequate resources to enable them to responsibly advance the provision of services assumed.
The strengthening of local own revenues not only requires modernizing the current tax administration, especially the main tax. Since property tax, industrial patents, trade and services and the tax
motor vehicles, representing approximately 70% of total municipal revenue in the countries of the region.
also demand more creative financial incentives to promote the flow of new resources, including the same mobilization of private capital to finance municipal infrastructure. This is the case of contributions of improvements and concession contracts, instruments underutilized and untapped in the cities of the region. In the experience of Central American countries is quite limited its use and participation in local funding structure.
4. Ensure greater fiscal prudence and discipline locally
The main reason that a large group of economists are wary of decentralization refers to the dangers and risks that it offers. Here the question is not whether to give priority to macro-economic control, but how to design institutions that make consistent profits from economic efficiency, social and political decentralization with adequate macroeconomic control.
In this context, we must recognize that for countries like Brazil and Argentina, the issue of territorial debt became the core of the problem of macroeconomic balance, a situation quite different from the countries of Central America and the Caribbean.
regard to this matter and given the experience of the region, there is no doubt that it is necessary to develop tools to control the level of indebtedness of local authorities. In other words, rules are needed before more ex-set clear limits on local borrowing.
In this sense, Latin America and have been developing some experiences interesting. In Colombia there is recently an evaluation system for defining the debt capacity of territorial entities, known as "traffic light system." This system is fed with information on the relationship between debt level and current revenues of the respective entity, or debt service and operational savings.
In Central American countries is interesting to discuss this type of legal development since the issue of credit and its use is very early stage. Do not try to force access to these resources, rather limited by the same weakness in the ability to save many of the municipalities of the Isthmus, but contemplate with its proper regulation and responsible use as an integral part of local funding.
5. Redesigning intergovernmental transfers, a pending task
intergovernmental transfer systems in Latin America have generally been assessed as sub-optimal from the point of economically and politically due to the rigidity in their design and lack of adequate incentives.
Although it is a priority in the region, its recent development is weak and the Central American countries (El Salvador and the Dominican Republic relies heavily on this source of income among countries in the study.) The redesign of transfers must incorporate new criteria that take into account factors of income distribution and poverty, as cost of services, local tax effort and administrative efficiency.
The situation of Central American countries are characterized by the presence of what we call strong horizontal fiscal imbalances (including municipalities) that fully justify an effort to design a transfer system to reduce political interference (the case of Costa Rica) and discretion central level (the case of El Salvador).
These issues undermine local autonomy and promoting greater transparency and stability in their determination and distribution criteria, whose purpose fundamental socioeconomic inequalities are correct at the territorial level and the disparities between the municipal tax base within the country.
6. Take greater political will and commitment to decentralization
Decentralization as essentially political process must have a clear constitutional and legal framework, and requires the deepening of a culture decentralist. That is, it requires the construction of a new cultural heritage mainly based on "trust" between the different levels and actors in the process.
In practice the central level distrust of the ability of localities to solve their problems and act exclusively in different sectors. Also, in some cases municipalities do not articulate and act suspiciously in front of the central level.
How to overcome this crisis of confidence that exists in our countries? Surely it can not be resolved simply by issuing laws and regulations, requiring substantial changes to ensure a modern and participatory. It is essential that programs to strengthen local management and human resources to ensure a greater commitment to the process.
In the recent Summit of Presidents in Latin America and the Caribbean and in their own meetings, the Central American leaders have expressed support for decentralization as one of the strategies to strengthen local governments.
However, it is essential to ensure that it not only reflected in governmental and legislative discussions but actually translates into a serious political commitment to the adjustments and recommendations to be promoted in government agendas.
In short, in these countries there is some political will and a more sensitive but equally cautious (if not fearful) to deepen the debate on
decentralist process. Obviously each country has institutions and sectors strongly committed to the executive and legislative discussions, and technical support to municipalities.
7. Promote cooperation and sharing of best practices
countries in the region have tried to take a more pragmatic attitude against the advances of the process, adopting different practices to address many of the difficulties mentioned.
But perhaps they have not been as widespread as the same problems, why it is important to give a special prominence. It is clear that these best practices have addressed the various fields of the problem, understanding on the financial options that have promoted the modernization and strengthening of local taxation, and the application of new revenue sources that mobilize private capital for local development. Overall, a greater effort of local self-financing.
Furthermore, the incorporation of rationality of the mechanisms of intergovernmental transfers.
schemes also have been looking for community participation and promote greater accountability effective interference in the control communities or social control spending, and finally, the local borrowing regulations designed to minimize potential macroeconomic effects.
Undoubtedly, this knowledge is a basic element that should make countries that are just beginning their discussions (Paraguay, Venezuela and most Central American countries), through the exchange and dissemination of successful experiences among municipalities of the countries of the region.
In this regard, technical cooperation among countries is a recent update field and in great demand in countries of the region, which warrants an openness to discussion.
also essential assistance could be provided by international agencies and organizations actively involved in the issue.
To summarize, the progress of decentralization in the region and the experience gained so far (I mean the successes and failures) is a great asset we have and can further potentiate through technical cooperation.
also the experience of several countries to suggest that there are risks that must be present, including the deterioration in the quality of services, political patronage, poor managerial and technical capacity of local governments, the potential macroeconomic impacts. On them must be worked on several fronts to strengthen the institutional locations.
A FINAL REFLECTION MODE
Municipalities of Latin American and Caribbean region have to face in the coming years the challenge of achieving greater coverage and quality of basic services.
The road is not easy. A fundamental premise for this is the most fiscal and political responsibility of the locations seen in a tax modernization and greater local tax effort, an improved transfer systems, responsible use of credit resources and effective control of expenses.
The aspects mentioned are, among others, the basis for greater efficiency and effectiveness of governance and means moving fronts particularly in institutional and process management, accompanied by a greater degree of consensus on its implementation and political will. That is, a new fiscal pact locally.
Finally, the strengthening of the municipality Central America and the Caribbean is an ongoing process to refine and deepen their achievements are modest in some areas and insufficient in others. Therefore, these reflections should enrich the debate, clearly identify important topics and to generate policy recommendations on the approach of a working agenda for the coming years.
