MANAGING THE INSTITUTIONAL AND POLITICAL DYNAMICS OF DECENTRALIZATION IMPLEMENTATION

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MANAGING THE INSTITUTIONAL AND POLITICAL
DYNAMICS OF DECENTRALIZATION IMPLEMENTATION
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OUTLINE

• A. Introduction
• B. Challenges of Fiscal Decentralization
• C. Managing Fiscal Decentralization
• D. Selected Cases

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INTRODUCTIONINTERGOVERNMENTAL FISCAL SYSTEM
TYPICAL ELEMENTS

• Enabling framework
• Functional Assignments
• Revenue Assignments
• Intergovernmental Transfers
• Subnational Government Borrowing
• Alternative Mechanisms

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A Normative Approach to Implementing Fiscal
Decentralization (Bahl/Martinez-Vazquez)
Step 6 Monitor, Evaluate, and Retrofit
Step 5 Implement the Decentralization Program
Step 4 Develop the Implementing Regulations
Step 3 Pass the Decentralization Law
Step 2 Do the Policy Design and Develop a White
Paper
Step 1 Carry out a National Debate on the Issues
Related to Decentralization Policy
The Platform Deconcentration, Rule of Law, etc.
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Elements (Prerequisites) of Fiscal
Decentralization

• Broad Enabling Framework
• Political Will
• Adequate Local Political System
• Adequate Fiscal System
• Institutional/Managerial System
• Implementation Capacity

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B. CHALLENGESOrigins of Decentralization

• Originated in response to crisis rapid decision
  with inadequate political consensus
• Imposed/influenced by international donors
• Often too derivative of textbook solutions based
  on social science approaches, particularly the
  local finance/fiscal federalism literature
• Some elements borrowed from other countries
  without adaptation

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Different Meaning in Different Contexts

• Reinventing/strengthening elected sub-national
  governments where they exist but have not been
  functioning well
• Transforming local administrative units into
  elected levels of sub-national government
• Creating sub-national units of administration and
  governance where they have not previously existed

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Integration Necessary but Complex

• Fiscal decentralization without administrative
  and political resources without institutional
  and governance capacity
• Administrative decentralization without fiscal
  and political local responsibilities/autonomy
  without resources and governance structures
• Political decentralization without administrative
  and fiscal decision making structures without
  institutional and fiscal structures

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Institutional Challenges

• Decentralization involves many central actors
• Agencies with broad functions Ministry of
  Finance (MOF)/Planning (MOP), Civil Service
  Commission
• Agencies the oversee local government Ministry
  of Local Government (MLG), Home Affairs or
  Interior
• Agencies with sectoral functions agriculture,
  education, health, water, etc.
• These various central actors may resist
  decentralizing because they lose power.
• They may pursue inconsistent decentralization
  policies simultaneously, potentially undermining
  the development of a coherent, well functioning
  LG system

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Institutional Challenges II

• Sectoral ministries may have decentralization
  programs that use procedures not consistent with
  MOF regulations
• MOF and MLG may issue inconsistent LG guidelines
• MOF may use one mechanism for recurrent transfers
  while the MOP/ sectoral ministries use
  incompatible mechanisms for development transfers
• In short complex, fragmented, hierarchical
  central bureaucracies with little incentive to
  decentralize or coordinate in addition
• Undeveloped/inappropriate procedures/incentives
• Lack of technical and managerial capacity at all
  levels
• Weak transparency/accountability to local
  constituencies

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Scope and Structure of Decentralization Reforms

• Two broadly problematic reform types unworkably
  comprehensive or limited (often
  technical)/uncoordinated with broader agenda
• Often coordinated by single lead ministries
  perceived as rivals by other key players
• Typically unbalanced focus on either supply or
  demand side
• Typically treat all sub-national governments or
  classes (cities, municipalities, towns, etc.) as
  if they have similar capacity

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Scope and Structure II Relationships Beyond the
Center

• Relationships among different levels and forms of
  subnational government
• Relationships among sub-national units at the
  same level
• Horizontal local relationships between elected
  officials and staff
• Sub-national government-community group relations
• Private partner relationships for service
  delivery and management functions

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Role of International Donors

• Not always strong incentives to support genuine
  decentralization, which is complex and delays
  projects and moving funds
• Self-coordination of donors and sectors also
  slows progress and diffuses the credit for
  achievements
• Often fundamental donor mistrust of even central
  capacity

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Role of International Donors II

• Decentralization/coordination complexities and
  client capacity concerns influence
  decentralization design and outcomes
• In some cases, different international donors
  support individual ministries for inconsistent
  reforms, reinforcing competitive behavior of
  central agencies
• In some cases, special units or funds,
  institutionalize systems and procedures that are
  inconsistent with the emerging formal local
  government system

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C. MANAGING DECENTRALIZATION Basics

• Clear division of supervisory, regulatory, and
  technical assistance functions among the central
  government agencies involved
• Process for building national consensus on
  decentralization goals and systems
• Coordination mechanism so that agencies develop
  consistent systems/procedures
• Implementation strategy to ensure that the
  capacities of local governments are not too
  quickly overwhelmed and the existing powers of
  central agencies are not dramatically challenged

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Design/Coordination

• An effective coordination body should involve all
  key stakeholders to an appropriate extent
• May be separate coordination bodies for policy
  and implementation (often under officials at
  different levels) but there must then be
  coordination between them
• The coordination body needs to be credible, which
  means seen by relevant stakeholders as
• Neutral (not competing for decentralization
  resources)
• High level (in a coordinating ministry, special
  commission, or president/prime ministers office
  rather than peer line ministry)

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Design/Coordination II

• International experience suggests that the
  coordination body also needs to have
• Capacity to monitor and adjust as appropriate the
  implementation of decentralization activities
• Sufficient authority and capacity to enforce
  decentralization activities that various
  reluctant central actors are supposed to undertake

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Implementation Strategy

• Clearly defined starting point consistent with
  capacity/performance of local government (may be
  asymmetric if appropriate)
• Starting point may be at least partially
  negotiated, placing some responsibility for
  reform steps on local governments
• Reform aspects should be integrated
  (administrative, fiscal, political) at each step
  to the extent feasible--even if initially at a
  very basic level

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Implementation Strategy II

• Further steps towards full set of desired
  responsibilities should build progressively on
  earlier steps
• Strong positive and negative incentives for local
  governments (and staff) to achieve desired goals
  are an important part of overall strategy
• Coordinating body should oversee and manage
  implementation strategy to ensure that all
  parties at all levels of government are meeting
  their assigned responsibilities

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Capacity Building Mechanisms

• Two main types
• Technical training local governments to meet
  their functional responsibilities
• Governance training citizens, elected officials
  and LG staff to work with each other
• Two main approaches
• Supply driven designed and provided by central
  agencies
• Demand driven LGs request what they need

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Capacity Building II

• Some lessons on LG capacity building
• Central government will remain an important
  supplier, but an element of demand should emerge
  if incentive structure is right
• Should focus on specific priority functions and
  procedures rather than comprehensive/broad
• Capacity building should be directly related to
  the steps in implementation strategy
• Follow-up is important capacity building is not
  just classroom training mobile TA teams

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D. EXAMPLES OF KEY INSTITUTIONS AND PROCESSES

• There is no single best practice country in
  terms of successful decentralization
  coordination, strong implementation strategy and
  effective capacity building
• Several countries, however, have elements of good
  practice in the various institutional mechanisms
  and strategies they have adopted for
  decentralization

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Coordination Bodies

• Regional Autonomy Review Board (former Indonesia)
• The Decentralization Secretariat (Uganda)
• National Decentralization Committee (Thailand)
• Decentralization Implementation Authority
  (proposed Cambodia)

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Implementation Strategy

• Some countries have elements of a strategy
• South Africa and Vietnam to some extent use
  asymmetry in service assignment
• Cambodia started decentralization very modestly,
  giving small resources and few responsibilities
  with a focus on building political credibility
• Thailand has a highly developed and extremely
  detailed decentralization implementation
  strategy, but limited progress has been made to
  date
• Indonesia is working out decentralization of
  services on a sectoral and local government basis

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Capacity Building Mechanisms

• Some recent innovations
• Uganda and Bangladesh require LGs to meet
  prerequisites to receive development transfers,
  with capacity building grants available to LGs
  below the threshhold
• Kenya piloted a program for developing capacity
  in which a package of reforms were negotiated
  with the MLG, which provided mobile technical
  assistance to train and follow up on LG skill
  implementation

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E. SELECTED CASESCambodia a very poor
post-conflict country in early decentralization

• Positive Features elements of a reform strategy
  pro-poor transfers local elections substantial
  efforts to develop pro-poor governance mechanisms
  (participatory planning, etc.) strong donor
  support for consolidated local funding
• Negative Features weak local revenue system
  generally low capacity some evidence of local
  elite capture in certain areas poor donor
  coordination of governance technical assistance

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Indonesia a large country with areas of
wealth/capacity that rapidly decentralized

• Positive Features redistributive transfers
  strong alternative pro-poor finance mechanisms
  (CDD) and emerging nongovernmental partnerships
  competitive local elections capacity significant
  and debt potential in wealthier areas
• Negative Features decentralization
  rapid/non-strategic weak local revenues low
  local government/CDD coordination modest efforts
  to develop transparency and citizen engagement
  donor coordination remains inadequate

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Kenya long history of local government that
declined and is being reformed

• Positive Features intergovernmental fiscal
  system reform relatively coordinated strong
  local revenues transfers linked to adoption of
  reforms, including participatory planning
  competitive local elections solid capacity in
  some areas
• Negative Features local government reform
  efforts slow and fragmented poor coordination
  between districts and local governments
  subnational lending mechanism dysfunctional

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Uganda strong post-conflict consensus for local
governance/poverty reduction

• Positive Features strong pro-poor focus and
  support for local government development
  transfers create strong incentives local
  elections participatory planning and review
  mechanisms improving donor support increasingly
  coordinated
• Negative Features weak and poorly structured
  local revenues recurrent transfers may have
  become too conditional lack of clarity regarding
  roles of central actors in decentralization
  remains