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Fiscal Crisis and State Reform

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Fiscal Crisis and State Reform

  1. 1. Fiscal Crisis and State Reform Peru (1987 - 2008)Abel CanchariSession 6 Governance for Development Class Exercise12 November 2008
  2. 2. How important is the fiscal deficit in explaining the pressure for reform?  Fiscal deficit (11 % of the GDP in 1987). The governments total expenditures exceeded the revenue that it generated.  1989-1990:The fiscal deficit plus hyperinflation have been seen as a collapse of the state. So the reform was a response to the problem.  During 90’s: The premise was... If the Government sells assets, downsizes the public sector (and neglects the welfare system) it is likely to reduce the fiscal deficit.  (Good –clear link shown with fiscal deficit)
  3. 3. What are the main domestic forces promoting state reform and how strong are they? Economic forces: – Fiscal deficit – Hyperinflation (3,399 % for 1989) – The GDP fell 11% in 1989. Political forces: – Fujimori’s regime (with majority in the Congress and support from multilateral agencies) – The presence of think-thanks and the private sector with strong influence on public policies (and right wing parties) Institutional reasons:State weakness: Inefficiency, ineffectiveness. (Good – emphasises role of private sector. Media?)
  4. 4. Is the main reform thrust towards horizontal or vertical transfer of service delivery responsibilities?Both:Horizontal transfer (during 90’s) Market-oriented structural reforms: – 1992: Creation of COPRI (Commission for Privatisation) – Privatization of public companies: telecommunications, electricity, mines, airlines, etc. (75 companies for nearly $4 billion) – Creation of “AFP’s” – Partially privatised: education & health. Vertical transfer (mostly after 2001) – 90’s creation of FONCODES (and other anti-poverty programmes) – After 2001, enhancement of sub-national governments (Good – but did vertical transfer involve greeater fiscal responsibility for local government?)
  5. 5. How effective has the state reform process been so far? Macroeconomic stabilization – Fiscal deficit: 1% (2006), Inflation 2.4% (2004) – GDP expanding at 8.9% (2007) & 10% (2008) Privatization: good service delivery but not enough regulation (high prices) There are modern public institutions like the SUNAT (Tax Agency) and others with highly skilled bureaucrats, but the state ineffectiveness remains (overstaffing with unqualified civil servants in some traditional institutions) However: Not a greater impact on poverty reduction.- Small part of the population has been able to enjoy the benefits of economic stability and growth (not enough trickle-down)- There is a need of second-generation reforms (Human development)- (effective in solving fiscal deficit, right? SUNAT reform has not spread to rest of public admin. Note that major public admin reform was in FISCAL COLLECTION (i.e. SUNAT)!

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