Fiscal Crisis and State Reform Peru (1987 - 2008)Abel CanchariSession 6 Governance for Development Class Exercise12 November 2008
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)
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?)
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?)
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)!