DECENTRALIZATION AND POPULAR PARTICIPATION IN MEXICAN PUBLIC ADMINISTRATION: SOME STYLIZED FACTS*

1. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT DECENTRALIZATION AND POPULAR PARTICIPATION IN MEXICAN PUBLIC ADMINISTRATION:SOME STYLIZED FACTS* ROBERTO VILLARREAL CHIEF, DEVELOPMENT MANAGEMENT BRANCH AD HOC PRESENTATION FOR THE EXPERT GROUP MEETING ‘STRENGHTENING POPULAR PARTICIPATION AND GOOD GOVERNANCE IN AFRICA’ CO-ORGANIZED BY THE GOVERNANCE AND PUBLIC ADMINISTRATION DIVISION (UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION FOR AFRICA) AND THE UNITED NATIONS MILLENNIUM CAMPAIGN ADDIS ABABA, ETHIOPIA, 28-29 SEPTEMBER 2010 * CONTENTS AND VIEWS REFLECTED IN THIS PRESENTATION ARE SOLELY THE AUTHOR’S RESPONSIBILTY BASED ON EXISTING ANALYTICAL LITERATURE AND DO NOT REPRESENT THE OFFICIAL POSITION OF THE UNITED NATIONS.

2. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT CONTENTS • INTRODUCTION • CHRONOLOGY • HISTORICAL ANTECEDENTS • POST-REVOLUTIONARY PERIOD • TRENDS IN DECENTRALIZATION, POPULAR PARTICIPATION AND ACCOUNTABILITY • CONCLUSSIONS

3. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT INTRODUCTION • The purpose of this presentation is to provide a succinct overview of the evolution of decentralization, popular participation and accountability in Mexico in the last 25 years, as these relate to public management of development policies and programs • The presentation highlights only some stylized facts • Rather than presenting a comprehensive description of a rather complex system of political, administrative and budgetary arrangements, this presentation offers some insights into some key elements of the system, from which relevant policy considerations and conclusions can be reached • References on-line are included at the end, for those interested to go into further details

4. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT CHRONOLOGY (1): HISTORICAL ANTECEDENTS * At present there are 32 States. Territories have been converted into States. The capital city is located in a Federal District with special status and legislation.

5. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT CHRONOLOGY (2): POST-REVOLUTIONARY PERIOD

6. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT CHRONOLOGY (3): NEW DEMOCRACY

7. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT TRENDS IN DECENTRALIZATION, POPULAR PARTICIPATION AND ACCOUNTABILITY (1) • Decentralization, popular participation and accountability are all means, not end in themselves. The end is to attain better development, that is, to improve the living conditions and the enjoyment of rights and liberties for all. Thus, these three means are framed in a general context of designing adequate development strategies. • In the case of Mexico, the entry point for national development strategies is the National Development Plan, which must be designed, followed and evaluated in every Presidential Administration, as established in the Constitution and in the national Planning Law. • Since 1983, the legal framework applicable in this matter establishes the fundamental guiding principles • All federal expenditures must follow well determined programs, to secure rationality and orderly continuity of expenditures, and to provide adequate bases for auditing • The National Development Plan must be elaborated by the Ministry of Finance, based on an ample consultation to the population to establish development priorities and general strategies. Thus, popular participation underlies the basic foundations of planning and programming.

8. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT TRENDS… (2) • As part of the system of public administration in the country, delegation of federal programs has been applied for decades (roads and highways, support to agriculture and industry, energy, education and health services, environment, etc.) • A delegate appointed by each ministry to each state managed the corresponding federal programsin the respective state, often in informal consultation or negotiation with state governor • Said consultations often influenced the inter-state allocation of national program budgets, and the selection within each state of the localities or social-political groups to be benefited most from each program • Delegates from different federal ministries in each state rarely coordinated decisions regarding the different programs, this function being in practice exerted by the governor and his state cabinet, and implying multiple, complex and time-consuming negotiations

9. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT TRENDS… (3) • Overall, the system of delegation doesn’t show maximum efficiency in terms of public resources allocation throughout the country • For administrative reasons • The number of delegation offices in the country exceeded 300 and the bureaucracy involved was considerable, implying: • High administrative costs • Slow decision making and implementation • Noticeable constraints on overall coordination and, therefore, limited efficiency in the allocation of public resources throughout the country • For political reasons • Federal ministers would sometimes personally abuse this system to strengthen their networks of political supporters in states with different sizes and characteristics of the electorate, aiming to influence their future political careers • As political party affiliations of federal and state public officials has become more diverse after 2000, political negotiations between ministers, delegates and governors have become more sensitive to political considerations

10. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT TRENDS… (4) • Fiscal decentralization started in the late eighties and followed several stages and paths • Initially, tax reforms eliminated Sales Taxes previously applied and collected by the states, substituting these by a Value Added Tax applied and collected by the federal government • Thus, a mechanism was created to redistribute federal tax income to the states, based on determined formulae to take explicitly into consideration inter-state disparities (population, per capita income, economic structure, etc.) • Occasionally, but not often, discussions arise as to whether applicable formulae are optimal or need to be revisited; these discussions tend to be avoided because of the extreme difficulties of reaching alternative equilibrium distributions and consensus among all states and the federal government • States receive their corresponding participation in the aggregate tax income through an ad hoc fund, subject to auditing and transparency rules • Each state can contract debt, according to certain laws and regulations, warranting its service with future tax participations, which are predictable to a limited extent as these are determined by fixed formulae, although there remain macroeconomic uncertainties about aggregate tax revenues

11. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT TRENDS… (5) • Later on, federal expenditures on determined education levels were decentralized in the early nineties to state governments • The motives were mostly political, although indirectly connected with efficiency factors: the national teachers union had acquired excessive power, creating difficulties for the federal government to influence the quality and costs of federal public education programs. Thus, decentralizing the corresponding federal education budget to the states, created more favorable conditions for the overall public administration (federal cum states) to enhance management of these programs • A special mechanism to account for this decentralized public expenditure in education was created, consisting in a determined section of the federal budget which is determined according to specific rules, again based on appropriate formulae • Auditing of this section of the federal budget is performed in the same way as for the general budget, first by the Federal Executive (through the Office of Public Accounting, in the Ministry of Finance), and successively by the Supreme Auditing Institution reporting directly to the Chamber of Representatives in the Federal Congress. • Mechanisms for social participation in the management of basic educationwere initiated after year 2000, involving parents and teachers in every school, although their scope is not predominantly on budgetary matters but in overall performance at the school level

12. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT TRENDS… (6) • In parallel, federal expenditures on different types of public infrastructure were also decentralized during the nineties, to state and municipal governments • The motives were different than in the case of decentralization of education expenditures. Regarding decentralization of infrastructure expenditures: • Decentralization to the states was mostly guided to increase efficiency in public investments (for example, state roads and highways better reflect local conditions than federally decided local roads; this is true both about new roads, as about maintenance of existing ones) • Decentralization to municipal governments was circumscribed to social infrastructure, guided both by similar efficiency reasons, as well as to strengthen local governments with the aim to consolidate an authentic federalism • These decentralized public expenditures are reflected in separate sections of the federal and local public budgets, and audited in the same manner described before for education expenditures: • An ah hoc fund was created to secure accountability of public expenditures decentralized to municipal governments for investment in social infrastructure • Initially, the guiding principles for municipal governments to decide on social infrastructure investments were not well defined, and resulted in inadequate local investment decisions (typically, investments with marginal impact on overall social development, or investments in geographical zones determined more by political considerations than targeted to the poor) • Corrective adjustments were introduced later on, as explained in the following slide

13. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT TRENDS… (7) • To reduce the undesired initially poor results in the allocation of public resources to municipal social infrastructure, it proved more convenient to add later on incentives to enhance said investments, rather than altering the established rules for decentralizing these federal expenditures to municipalities • A new federal program for poverty alleviation was created in 2003, which is included in the social development section of the federal budget and audited in the manners explained before • This new program offersadditional federal resources to municipal governments, under more elaborated conditionality: • the types of acceptable social investments are more precisely defined • the specific geographical zones where these investments are to take place must be zones of high incidence of poverty, as determined by the Federal Ministry for Social Development • to receive these additional federal funds for municipal social infrastructure, municipalities which voluntarily apply are required to complement these additional federal funds with an equal amount of municipal resources, in a paripassufashion. Thus, federal resources that were originally granted without adequate conditionality, are attracted back by this rule, enhancing their social impact. • community participation was introduced after 2005 in the operation of the program, to enhance determination and prioritization of local social investments with the views and proposals of the population in the targeted poor zones

14. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT TRENDS… (7) • Furthermore, as a significant proportion of total federal income comes from taxes and special duties applicable to the oil industry*, one more ad hoc fund** was created in the late nineties, as a means to account in the federal budget for the decentralization of government revenues from the oil industry, from the federal governments to the states • The total amount of resources decentralized to the states through this other channel varies from year to year, as a result of changes in international oil prices • The amounts decentralized to each and every state are also determined according to special formulae, to eliminate discretionality * As mentioned before, the Constitution of 1917 defined all natural resources in the underground as national property. ** Two other different funds are also connected to federal oil revenues, although with purposes different from decentralization. One is devoted to provide certain stability for public finances in the context of uncertain oil prices. The other serves as a reserve fund to finance extraordinary expenditures required in case of natural disasters.

15. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT TRENDS… (8) • As the overall system of decentralizing income and expenditures is complex to certain extent, and unforeseen special circumstances need to be looked at, complementary institutions have been created within the Federal Government over the last 15 years, to enhance the performance of the system • Within the Ministry of Finance, a special Unit is in charge of coordinating the aggregate fiscal relationship between the Federal Government and each and every state, and thus must solve particular problems as they arise • Within the Ministry of the Interior, a special Institute is entrusted with responsibilities for capacity building in municipal governments • Within the Ministry of Social Development, a special Institute looks after building capacities in civil society, to improve its participation in public development affairs, specially in matters connected with social development (poverty, vulnerable groups, gender issues, etc.) * As mentioned before, the Constitution of 1917 defined all natural resources in the underground as national property.

16. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT TRENDS… (9) • Finally, besides the professional auditing and social auditing mechanisms mentioned in the preceding slides, a Federal Law for Transparency and Access to Public Information was adopted in 2004, thus permitting any interested person to request information on decisions made by government officials, budgetary and financial matters, performance of public programs, etc. • This law reinforces the possibilities for individuals and civil society organizations to oversee the functioning of the Federal Government in the widest possible sense • Accountability is therefore strongly underlined, beyond the specific avenues highlighted before * As mentioned before, the Constitution of 1917 defined all natural resources in the underground as national property.

17. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT CONCLUSSIONS (1) • Democracy is not a fundamental necessity for early stages of development, but eventually it becomes indispensable as the Nation-State evolves • Education, urbanization and internationalization are key processes in fostering demands for political openness and democratization • Equally important democratic foundations are found in the effective enforcement of basic constitutional rights and freedoms: expression, media, association, strike, etc. • Democracy can not be sustained only on popular political demands, but requires adequate institutions (well functioning political parties, trustworthy electoral system, non-political allocation of public budgets, etc.) • Beyond its intrinsic merits in terms of political philosophy, democracy and popular participation in development management help improve coherence of economic, social and political reforms and policies

18. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT CONCLUSSIONS (2) • Decentralization serves different important purposes • Political: • To attain certain reasonable balance of powers in the political system • To induce negotiations for harmonizing diverse regional demands • And, through these, to enhance political stability in the country • Economic: • To better identify investment needs and priorities in the diverse parts of the country (investment in infrastructure and public goods, investment in education and health, investment in the natural environment, etc.) • To improve the regional distribution and allocation of public funds • Social: • To empower regional populations and increase their awareness and responsibility about the efficient utilization of public resources

19. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT CONCLUSSIONS (3) • Fiscal decentralization of public resources • Occurs through different channels • Not all of these need to be developed simultaneously • Thus, decentralization can proceed gradually • A grand design seems impractical, as considerations that need to be made are numerous and complex • Errors can occur along the process and flexibility to correct them must be assumed in planning

20. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT CONCLUSSIONS (4) • Accountability over public resources • Is always a fundamental issue, whatever the extent of decentralization • Must be established by Law to be orderly enforceable, but must also be rooted in general political and social values to be effectively pursued • No single means suffices to warranty accountability, and several ones need to be used complementing and reinforcing each other : • Professional auditing • Social or civic auditing • In general, transparency • May be best accomplished through diverse combinations of means, best suited to each channel by which resources are decentralized • In the Mexican experience, initial steps have relied in auditing by official professional bodies, and only later on has social auditing been introduced gradually

21. UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS DIVISION FOR PUBLIC ADMINISTRATION AND DEVELOPMENT MANAGEMENT • For more information and additional details, see: www.shcp.gob.mx (Ministry of Finance, Federal Government of Mexico) THANKSEND OF PRESENTATION