Carlos Santiso with Arturo Garcia Belgrano

1. Governance of the budget in Peru Legislative budget oversight and public finance accountability in presidential systems Carlos Santiso with Arturo Garcia Belgrano ECLAC XVI Regional Seminar on Fiscal Policy Santiago de Chile, 27 January 2004

2. Overview • Context and introduction • Budgetary process and fiscal reform • Delicate balance: legislative budgeting, political accountability, and fiscal prudence • Economic governance and legislative budgeting • Budgetary institutions and government accountability • Legislative budget authority: Legal framework • Constitutional provisions and regulatory framework • Time, timing and sequencing • Legislative budget oversight: Actual practice • Internal constrains – legislative organization • External constrains – governance context

3. Objectives • Role of parliament in the budget process • Understanding the budget process and incentives and behaviour of multiple agents (parliament) • Governance of the budget beyond the executive • Risks to budget governance of unrestrained executive discretion • Hierarchical budgetary institutions • Horizontal and vertical accountability • Constraints to and conditions foreffective budget oversight (internal and external) • Politics of public budgeting • Executive-legislative relations • Formal and informal dynamics

4. Introduction and context (1) • Newfound interest in role of parliament in public budgeting, especially in presidential systems • Two waves of budgetary reform • Transparency and efficiency – focus on executive • Accountability and integrity – beyond the executive • Four phases of the budget process • Differentiated roles for executive and legislature along the budget cycle (formulation, adoption, execution, and control) • Institutional analysis and political economy approach

5. Introduction and context (2) • Disjuncture between formal powers and actual role • Four sets of explanatory variables • Legal framework • Technical capacities • Political incentives • Governance environment • Key challenge: ability of institutional arrangements to adequately balance political accountability and fiscal prudence

6. Budgetary institutions and government accountability • Budget reform, hierarchical budgetary institutions and fiscal discipline • Accountability deficit in public budgeting • Ex ante accountability (policy priorities and budget allocations) • Coincident accountability (execution oversight and integrity) • Ex post accountability (accounting for results) • New patterns of governance • Divided government and the rediscovery of legislative budgeting

7. Economic governance and legislative budgeting in Peru • Economic reform and institutions of economic governance • Modernization of governmental financial administration (1993: tax reform, organic budget law) • Building hierarchical budget institutions (finance ministry, central bank, tax agency) • Insulation and vulnerability to capture • Patterns of executive-legislative budget relations • Confrontation (1990-1992) and rupture (1992) • Executive dominance (1993) • Neutralization (1993-2000) and capture (1997-2000) • Restoration of democratic institutions (2001 -)

8. Legislative budget authority (1) • Legislature and public finance • Different powers in taxation and budgeting (art. 74) • Taxation and budgeting as separate policy processes • Legislative budget powers • Constitution of 2003, organic budget law of 1999 revised 2003, and Congress internal rules • Key features: • Uncommon executive prerogatives • Neutralization of key legislative powers • Delegation of legislative authority • Extensive use of executive decrees

9. Country Year of constitution (amendment) PERU 1979 PERU 1993 ARG 1994 BOL 1967 (1994) BRA 1988 (1999) CHI 1980 (1989) COL 1991 (1997) CR 1949 (1997) ECU 1998 URU 1997 VEN 1999 Only the President can propose the budget Yes (Article197) Yes (Article78) Article 100.6 Art 147 Article 61(1)II(b) Article 64 Article 346 Article 178 Article 258 Article 215 Article 313 Congress cannot increase the budget for any items or create new budgetary categories Yes (Art 199) Yes (Art 79) No No Yes with loophole (Art 166) Yes with loophole (Art 64) Yes (Art 351) No No Yes (Art 215) No If no new budget is passed, current budget remains in effect OR President’s proposal takes effect No No Yes Implicit No No No No Yes Implicit No Yes Implicit Yes Article 313 Yes (Art 198) Yes (Art 80) No Yes (Art 147) No Yes (Art 64) Yes (Art 348) No Yes (Art 258 No No TABLE 1: CONSTITUTIONAL RESTRICTIONS ON LEGISLATIVE BUDGET AUTHORITY IN LATIN AMERICA

10. Legislative budget authority (2) • Legislative powers along the budget cycle • Budget formulation and drafting • Executive has the exclusive right of initiative (art. 78) • Amendment powers and adoption • Legislature can neither increase the budget nor create new budget categories (art. 79) • If legislature fails to act within the imparted time, the executive proposal takes effect by legislative decree (art. 80) • Oversight of budget execution • Certification of public accounts • Time, timing and sequencing

13. Constraints to effective legislative budget oversight (1) • Credibility of the budget • Budget transparency (legal framework, perceptions, enforcement mechanisms) • Budget rigidity (size, inertia and capital expenditures) • Executive discretion in budget execution • Budget integrity: gap approved-executed (under-spending), off-budget expenditures • Extensive and early uses of executive decrees (reallocations)

15. Constraints (2)

16. Constraints (3) • Weak institutionalisation of legislative budgetary institutions • Parliamentary structures and procedures • Parliamentary budget and finance committees • Legislative technical budget capacity • Legislative budget research capacity • Legislative oversight and external auditing • Relations public accounts committee and general audit office • General audit office (internal and external auditing) • Consequences: • Limited access to independent budget analysis and advise • Limited availability of timely information on budget performance

17. Constraints (4) • Unrestrained executive discretion • Presidential nature of political regime and executive-legislative relations • Executive decree authority and legislative delegation (how much is too much?) • Insulation of economic policymaking and institutions of economic governance (‘veto knots’ or ‘accountability points’) (ex.: general audit office) • External oversight and social control

18. Constraints (5) • Political system and legislative budgeting • Vertical determinants of horizontal accountability • Political parties and electoral rules • Political party system fragmented and volatile • Party cohesion, coherence and discipline • Party structures, parliamentary groups and legislative committees

19. Concluding remarks • Key challenges: • Adequate balance between executive power and legislative oversight: How to retain the advantages of strong executive authority required to ensure fiscal discipline while providing the institutional checks and balances that guarantee effective accountability • The politics of legislative budgeting • Different roles for different phases of budget cycle (oversight and accountability roles of parliament) • Technical capacity, institutional arrangements and political incentives • Chicken and egg dilemma : technical capacities and political incentives

20. Thank you