Exploring%20the%20Impact%20of%20Social%20Funds%20on%20Decentralization%20and%20Local%20Governance

1
Exploring the Impact of Social Funds on
Decentralization and Local Governance
2
What is the Study About?

• Starting point concern that SF and
  decentralization reforms may work at
  cross-purposes.
• Despite tensions b/w policy frameworks, Social
  Funds and Decentralization are compatible and can
  reinforce each other.
• Main area of conflict LG role in planning,
  financing and management of investments.

3
Study (cont.)

• Objective explore the extent to which SFs have
  helped or hindered efforts to improve
  decentralization and local governance processes.
• Methodology
• exploratory, initial assessment of issues
• based on short field trips and deskwork
• 7 country cases, at different stages of
  decentralization

4
Study (cont.)

• Focus on 5 areas central for improved local
  governance

5
Participatory Planning

• Goal of demand-driven project selection achieve
  allocative efficiency
• 2 approaches Individual communities vs. Local
  Planning Process (LPP).
• Allocative efficiency is greater in LPP
• all communities express preferences instead of
  only a few,
• assessments and funding decisions made locally
  instead of centrally.

6
Planning (cont.)

• For LPP to work well
• Open menu, part of which funded through SF.
• Safeguards to prevent preference distortions
• sponsor of LPP should not have a sectoral focus
• mechanisms to reduce local elite capture.
• SFs challenge balance respect for local
  autonomy in driving the LPP with provisions of a
  fair process.

7
Planning (cont.)

• Good LP should be not only responsive but also
  strategic (technically sound)
• risk of distributing resources in politically
  neutral way, spreading resources thin.
• Possible solution multi-year planning
• hard-budget constraint to introduce rationality
  in decision-making.

8
Financing

• Situate SF financing in the context of system of
  intergovernmental and local development
  financing
• a system of grants, taxes and borrowing that
  allows funding for local and national preferences
• incentives for local resource mobilization

9
Financing (cont.)

• SFs have been operating in the context of an
  unbalanced financing system
• too much earmarked funding, too little untied.
• Important community needs go unmet
• more problematic in LG with scarce own-revenues
• Not SF fault. Lack of decentralization framework.

10
Financing (cont.)

• SF have encouraged local resource mobilization
• mainly through community contributions
• 25 in Zambia and Malawi to 10 in Peru
• only in Bolivia from LG
• contributed 35 of investment costs
• rate varies by sector and type of municipality,
• counterpart rates should reflect CG preferences.

11
Implementation

• 3 basic approaches
• centralized (Honduras)
• local government (El Salvador)
• community contracting (Malawi, Zambia, Peru)
• Decentralized contracting
• higher production efficiency (or higher local
  counterparts?). Need for systematic study.
• better supervision and accountability.

12
Implementation (cont.)

• How to manage projects?
• Bigger LG have management capacities.
• Smaller LG need to contract-out.
• For certain investments community contracting.
• SF role in decentralized contracting
• license authorized project managers, and
  prescribe use by weaker LG
• TA on demand.

13
Sustainability

• SF have progressed significantly in their
  treatment of sustainability
• Similar trajectory LM---gt communities---gt LG
• Line Ministries more positive in Operations than
  in Maintenance.
• Community Contributions helped but did not
  address the problem.
• Local Governments involvement partly motivated by
  limitations of LM, Comm.

14
Sustainability (cont.)

• SF require LG to include OM in their budgets
• Financing depends partly on the countrys IGF

15
Sustainability (cont.)

• Conditions for effective LG role
• LG involved in planning and provision
• strengthening LG financial viability
• monitoring mechanisms.
• SF Challenge relying on other actors.

16
Capacity Building

• Creating local capacities becoming a central goal
  in many SF. In others, marginal.
• SF have helped build capacities in
• communities (financial management)
• LG (participatory planning, project supervision)
• As SF decentralize responsibilities to LG, need
  for a strategy to build capacities.

17
Capacity Building (cont.)

• Elements of the strategy
• gradual in scale and scope
• Need for objective indicators of capabilities.
• SF instrumental approach to capacity building
  (adoption of SF project cycle)
• Should be complemented with more systemic effort
  to build broader LG capacities
• Challenge for SF reengineer their organizations
  to adopt new roles.

18
Accountability

• SFs that fostered local accountability have
• established transparent rules of the game
  (objective formula for resource allocation)
• given voice to local population
• transfer project management to LG
• SF that bypassed LG eroded LG credibility and
  thus undermined prospects for building
  accountable LG.

19
Conclusions

• SF will maximize impact on local governance when
• key decentralization policy reforms in place
• SF is aligned with them
• investments come from a LPP
• SF financing part of a Local Development Finance
  Framework
• A strategy to transfer responsibilities to LG

20
Conclusions (cont.)

• In the absence of decentralization framework, SF
  contribute to jump-start process
• demonstrating potential for local institutions in
  local development (Bolivias FIS before 1994)
• Need for a medium-term vision that articulates
  decentralization and social funds agendas in
  different decentralization contexts.