Document Library

Politics of Budgeting in Peru: Legislative Budget Oversight and Public Finance Accountability in Presidential Systems

Author: C Santiso and A García Belgrano
Date: 2004
Size: 32 pages (560.41 KB)

Access full text: available online

Summary

What can be done to improve accountability and curb corruption in emerging economies? What should be the role of parliaments in the budgetary process? This study, written for a seminar arranged by the Economic Commission on Latin America and the Caribbean, reviews the dynamics of executive-legislative relations in budget policymaking and oversight in Peru. The experiences after implementing first-generation economic reforms illustrate the limits of expeditious decision-making and the consequent need to strengthen the mechanisms of accountability.

The Asian financial crisis in the late 1990s revealed the structural weaknesses of financial information systems in the emerging economies. First-generation reforms in public budgeting focused on creating efficient systems of public finance management. Reformists promoted hierarchical, independent institutions of economic governance. Legislative activism in public budgeting was believed to result in greater budget deficits and public debt. Presently, second-generation reforms underway in many Latin American countries underscore the need to complement the earlier efficiency reforms with efforts to enhance accountability in public finance management.

The budget process is a critical arena for political bargaining between the executive and the legislature. Four sets of variables explain the behaviour of parliaments in public budgeting: whether parliaments are legally empowered to intervene in budgeting, whether they are endowed with the required technical capacities, whether they possess the necessary political will, and whether the governance environment is conducive. The findings from Peru are:

• The parliament has a very limited role in the budgetary process, mostly restricted to taxation policy. The executive controls the expenditure policies through the budgetary process.
• There is no tenure-track civil service career for parliamentary staff or a professional civil service career, so technical input in the budget review process tends to be politicised. Lack of resources and technical capacity leaves the parliament largely unable to monitor compliance with the approved budget.
• The political incentives to hold the government accountable are limited when the ruling party dominates the legislature, and political parties lack internal coherence, cohesion and discipline.
• Limited dissemination of the audit report on public accounts and other reports of the auditor general restricts publicity and inhibits social control. Audit findings have largely been ignored, both by parliament and the judiciary.
• External factors that inhibit legislative oversight are the presidential nature of the political system, the over-reliance of executive decree authority, a fragmented political party system and skewed electoral rules.

Should legislative capacity be build first, or should it emerge as a result of increased legislative activism? Fiscal responsibility and democratic accountability are forged simultaneously. The challenge is to adequately combine increased legislative budget activism with the maintenance of fiscal discipline. Recommendations for second-generation reform include:

• The analysis of legislative budgeting should consider the contribution of parliaments to the different phases of the budget cycle; formulation, adoption, execution, and oversight and control.
• While the formulation and management of the budget should stay with the executive, the legislature's capacity to oversee budget execution and control budget performance should be strengthened.
• The functional linkages between the budget and public accounts committee and the general audit office ought to be significantly enhanced in the broader national system of anticorruption.
• The strengthening of the role of parliament in budget oversight requires a stronger institutionalisation of parliament in the overall architecture of governance in presidential systems.
• Although predictability and reliability of the budget have been improved across Latin America, there is an important gap between legal provisions and their effective implementation. Critical areas of underperformance include the quality and timeliness of budget information, and dysfunctions in the approval, oversight and audit stages of the budget cycle.

Access full text: available online

Source: Santiso, C., and Belgrano, A.G., 2004, 'Politics of Budgeting in Peru: Legislative Budget Oversight and Public Finance Accountability in Presidential Systems,' Paul H. Nitze School of Advanced International Studies, Washington D.C.
Author: Carlos Santiso , c-santiso@dfid.gov.uk