93357 THE POWER OF PUBLIC INVESTMENT MANAGEMENT' Transforming Resources into Assets for Growth C O U N T RY C A S E S T U D Y Public Investment Management in Latin America and the Caribbean: Institutions under Evolution Jonas Frank 2013 0 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution THE AUTHOR Jonas Frank Governance Global Practice, The World Bank Group This work has benefited greatly from the exchange with Directors of Public Investment of Latin American countries, in the scope of the Network for Public Investment co-managed among the UN-Economic Commission for Latin America (CEPAL), the Inter-American Development Bank (IADB) and the World Bank. I also appreciate the cooperation and comments received from Ricardo Martner and Eduardo Aldunate at CEPAL. Several colleagues at the World Bank have provided useful comments and suggestions, including Diego Dorado, Kai Kaiser, Jay-Hyung Kim, Murray Petrie, and Ha Vu. This case study is one of a number of country cases in the Public Investment Management Series. The country case studies accompany the volume, “The Power of Public Investment Management: Transforming Resources into Assets for Growth”, World Bank (2014), and apply a common methodology to assess PIM systems globally. T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 1 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution LATIN AMERICA & THE CARIBBEAN ! Over recent decades many countries of the Latin America region have set up specialized processes and mechanisms for public investment management. Initially created as isolated systems, they are now being further integrated with enhanced budgeting processes and financial management systems. In this process, Ministries of Finance and planning entities have emerged as the two key agencies taking on critical functions in the investment cycle. The on-going consolidation of institutional arrangements is being challenged through the increasing involvement of subnational governments, not least since they also are increasingly promoting PPP arrangements that require considerable regulatory capacities. More recently, countries are promoting results-oriented management and multi-year planning which can provide new impetus to strengthen public investment management. This is required as infrastructure gaps remain significant across urban and rural areas, and further efforts are required to enhance expenditure efficiency at both national and subnational levels of government. In the future, increased attention and asymmetric treatment of subnational governments is required to address the existing and possibly widening infrastructure gaps in light of uneven capacities. T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 2 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution + Selected+Acronyms+ ' BPIN'' Banco' de' Programas' y' Proyectos' de' Inversión' Nacional' (in' Spanish)' (Colombia)' CEPAL''' United'Nations'Economic'Commission'for'Latin'America' GDP'' ' Gross'Domestic'Product' IADB'' ' InterPAmerican'Development'Bank' IFMIS'' ' Integrated'Financial'Management'and'Information'System' LAC'' ' Latin'America'and'the'Caribbean'Region' MIDEPLAN'' Ministry'of'Planning'(Chile)' PAC'' ' Growth'and'Stability'Pact'(Brazil)' PIP'' ' Public'Investment'Plans' PPP'' ' PublicPPrivate'Partnerships' SIAF'' ' Sistema'Integrado'de'Administración'Financiera'(Peru)' SIGOB'' ' Sistema'Nacional'de'Evaluación'de'Gestión'(Colombia)' SIGMA''' Sistema'Integrado'de'Gestión'y'Modernización'Administrativa'(Bolivia)' SIIF'' ' Sistema'Integrado'de'Información'Financiera'(Colombia)' SISIN'' ' Sistema'Nacional'de'Inversión'Pública'(Bolivia)' SNIP'' ' Sistemas'de'Inversión'Pública'(in'Spanish)' WEO'' ' World'Economic'Outlook'' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 3 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution Contents+ 1. Introduction 2. Infrastructure Gaps and Investment Trends: the Quest for Expenditure Efficiency 3. The Evolution of Institutional Arrangements for Public Investment Management 3.1. The Emergence of National Public Investment Systems 3.2. Roles and Responsibilities in the Investment Cycle 3.3. Financial management and PIM Information Systems 3.4. Decentralization and the Role of Subnational Governments 3.5. Emerging trends: result-oriented management and multi-year planning 4.'Summary'and'Outlook' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 4 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution Over' recent' decades' many' countries' of' the' Latin' American' and' Caribbean' (LAC)' region' have' set' up' specialized' processes' and' mechanisms' for' public' investment' management' (PIM).' Several'institutional'models'of'PIM'systems'have'been'developed,'tested,'and'refined,'but'progress' in' achieving' infrastructure' improvements' and' expenditure' efficiency' has' been' uneven.' Thus,' the' quest' for' strengthening' public' investment' management' is' ongoing;' in' fact,' it' is' increasingly' recognized' not' only' as' a' key' factor' for' service' improvements,' but' also' as' a' driver' for' economic' growth'and'ultimately'poverty'reduction.' The' prominent' and' significant' role' of' public' investment' became' evident' during' the' economic' crisis' of' 2007–08.' Not' only' did' the' crisis' reveal' how' public' investment' can' jumpPstart' and'maintain'economic'growth,'but'also'that'it'can'act'as'a'drag'on'the'economy,'particularly'when' it' is' poorly' managed' and' executed.' This' most' recent' episode' also' underscored' the' role' of' public' investment' as' a' fiscal' policy' variable:' some' governments' responded' to' the' crisis' with' fiscal' adjustment' plans' that' entailed' a' cut' down' of' investment' spending;' other' countries' implemented' fiscal'stimuli'and'recovery'plans'that'rested'on'increased'and'more'rapid'execution'of'investment' spending.' The' latter' approach' in' particular' required' an' improved' appraisal' process,' as' well' as' strengthened' execution' and' implementation' of' projects.' But' because' of' increased' pressure' to' rapidly' execute' programs,' in' many' cases,' several' steps' of' the' investment' cycle' turned' out' to' be' cumbersome' and' added' to' delays,' highlighting' the' need' for' further' efforts' to' ensure' the' proper' functioning' of' PIM' systems.' Challenges' beyond' the' recent' crisis' will' require' such' efforts' because' the' region' will' face' continued' pressures' to' address' existing—possibly' widening—infrastructure' gaps,'given'the'anticipated'population'growth'in'the'next'decades.' Therefore,' the' Latin' America' region' can' provide' valuable' lessons' for' countries' faced' by' similar' challenges,' even' with' its' extremely' diverse' landscapes,' not' only' of' country' settings— ranging' from' aidPdependent' to' advanced' economies—but' also' of' institutional' arrangements' for' PIM.' Against' this' backdrop,' this' chapter' can' provide' only' a' snapshot' summary' of' the' main' institutional' aspects' of' PIM' in' Latin' America' as' well' as' the' core' aspects' of' some' of' the' ongoing' institutional'reforms.'As'will'become'clear,'there'are'no'set'models'for'institutional'arrangements' for'public'investment,'but'each'economy'must'undertake'a'gradual'process'of'continuous'efforts'to' align' roles' and' responsibilities' across' different' levels' of' government,' set' up' systems' and' procedures,' and' ensure' different' public' and' private' investment' modalities' are' well' aligned.' The' emerging' lesson' is' that' this' will' require' constant' adjustment' and' finePtuning' as' new' challenges' arise.' To' this' end,' this' chapter' first' recaps' the' main' facts' regarding' infrastructure' gaps' and' spending' trends.' It' then' covers' the' main' institutional' arrangements' of' PIM' systems' and' their' evolution,' organized' under' four' core' aspects:' the' different' roles' played' by' finance' ministries' in' planning'entities,'the'relationship'between'financial'management'and'PIM'information'systems,'the' role' of' subnational' governments' under' increased' decentralization,' and' multiPyear' planning' and' resultsPoriented'management.'The'chapter'closes'with'a'summary'emphasizing'critical'factors'that' might'trigger'and'facilitate'the'continued'strengthening'of'PIM.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 5 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution Infrastructure+Gaps+and+Investment+Trends:+The+Quest+for+ Expenditure+Efficiency+ Although'each'LAC'country'is'different,'access'to'infrastructure'services'across'the'region'is' above' the' world' average' in' many' key' sectors' (table' X.1);' it' is' comparable' to' the' average' of' countries' in' Eastern' Europe' and' Central' Asia' in' some' sectors,' and,' particularly' in' telecommunications,' electricity,' water' and' sanitation,' the' region' is' in' a' more' favorable' position' than'many'countries'in'Asia'or'the'Middle'East.'However,'the'disparities'within'individual'countries' are' an' unresolved' challenge,' often' particularly' accentuated' and' unequal' across' urban' and' rural' areas'(World'Bank'2013).' Table+X.1+++Access+to+Infrastructure+Services+by+World+Region+ a b c ! (2000-2011) (2011) (2009) (% of pop.) (2010) (% of pop.) (2010) ! ! ! ! ! ! ! Source:!Andres,!Biller,!and!Herrera!Dappe!(2013);!telecom!access,!IEA!2010.! Notes:!a.!Telecom!access!=!the!number!of!fixed!and!mobile!lines.!!b.!Improved!sanitation!=!household!connection! to! a! public! sewer,! a! septic! system,! pourIflush! latrine,! simple! pit! latrine,! or! ventilated! improved! pit! latrine.! c.! Improved! water! =! household! connection,! public! standpipe,! borehole,! protected! dug! well,! protected! spring,! or! rainwater!collection.!EAP!=!East!Asia!and!the!Pacific;!ECA!=!Eastern!Europe!and!Central!Asia;!LAC!=!Latin!America! and!the!Caribbean;!MNA!=!Middle!East!and!Northern!Africa;!SAR!=!South!Asia!Region;!SSA!=!SouthISouth!Asia.! As' well,' during' years' 2000' and' 2010,' the' average' public' investment' spending' of' Latin' American'countries'was'5.8'percent'of'GDP,'slightly'less'than'the'world'average'of'6.5'percent'GDP' (figure' X.1).1' Particularly' noteworthy' are' the' significant' differences' across' countries:' Brazil' and' Chile'spend'about'half'of'what'is'invested'by'Mexico'or'Colombia.'However,'resourcePrich'countries' like' Bolivia' and' Venezuela' can' afford' to' spend' four' to' five' times' as' much' as' Brazil.2' Importantly,' however,'such'comparisons'need'to'recognize'the'different'starting'points'for'infrastructure'quality' and' given' levels' of' expenditure' efficiency.' At' the' same' time,' these' averages' conceal' the' fact' that' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 6 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution public' investment' can' be' subject' to' important' upPandPdown' swings' across' years.' As' mentioned,' PIM'is'a'key'fiscal'policy'variable;'this'in'turn'implies'frequent'upward'or'downward'adjustments.' Figure+X.1++++Public+Investment+in+LAC+and+ROW,+%+of+GDP,+200–10+ 12! 10! 8! 6! 4! 2! 0! Source:!IMF!2011.! Note:! Public! investment! is! defined! as! gross! public! fixed! capital! formation! in! the! general! government! sector,! excluding!public!corporations.!ROW!=!rest!of!the!world.! ' In' the' meantime,' not' all' these' efforts' have' translated' into' better' infrastructure' spending' and' quality' of' public' services.' At' least,' using' surveys' as' a' reference,' the' LAC' region' has' a' mixed' track'record'with'improving'quality'of'infrastructure.'Results'of'the'World'Economic'Forum'(WEF)' survey' of' business' leaders' (WEF' 2012)' highlights' that' the' region,' although' it' has' improved' the' quality'of'infrastructure,'has'not'yet'reached'the'quality'levels'of'OECD'countries'as'a'whole'(figure' X.2).'' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 7 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution Figure+X.2+++Quality+of+Infrastructure+by+Region+(Survey+Results),+2002–10+ 7 6 5 score (1=low 7 =high) 4 3 2 1 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 SAR OECD MNA LAC ECA AFR Source:!Information!by!WEF!(2012)! These'increased'efforts'to'improve'spending'are'particularly'needed'as'new'infrastructure' gaps'are'likely'to'arise'in'the'future.'In'2013'the'population'of'LAC'is'617'million,'but'it'could'grow' up' to' 902' million' by' 2050' (UNPDESA' 2013).' This' will' add' substantially' to' the' demand' for' public' services' in' sectors' such' as' water,' energy,' and' roads.' This' can' add' further' pressure' to' improving' quality,'and'even'imply'backward'steps'if'it'is'not'matched'with'increased'efficiency.' Efforts' to' improve' efficiency' in' spending' require' higher' outputs' with' existing' resources.' But' given' the' size' of' the' infrastructure' gaps' highlighted' in' table' X.1,' it' is' clear' that' traditional' sources'of'finance'need'to'be'supplemented'with'new'sources'of'equity'and'debt'finance,'as'well'as' by' a' lower' cost' of' sovereign' borrowing,' to' be' achieved' through' improved' market' environments' (Andres,'Biller,'and'Schwartz'2013),'among'other'efforts.'The'region'is'already'using'publicPprivate' partnerships' (PPP)' to' a' larger' extent—driven' by' the' goal' of' tapping' into' additional' resources' during'the'economic'crisis—and'it'is'likely'that'such'PPP'arrangements'will'play'an'even'larger'role' in' the' future' (PPIAF' 2012).' However,' given' earlier' achievements' in' terms' of' infrastructure' coverage,' when' purely' measured' in' absolute' amounts,' the' required' additional' investments' and' financing'needs'are'likely'to'be'smaller'compared'to'other'world'regions'(figure'X.3).' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 8 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution Figure+X.3:+Annual+Infrastructure+Spending+Requirements+in+the+Developing+World+by+2020+ Source:!Calculations!based!on!Fay!et!al.!2010,!MDB!G20!2011,!and!Foster!and!BricenoIGarmendia!2010.! These'future'efforts'to'address'infrastructure'gaps'and'increase'efficiency'in'spending'must' be'conducted'against'the'backdrop'of'several'decades'of'continuous'change'and'adjustments'under' way.'Further'strengthening'of'processes'and'institutional'arrangements'cannot'ignore'past'history' and'already'ongoing'reforms.'' The+Evolution+of+PIM+Institutional+Arrangements+ In' recent' decades,' PIM' has' been' undergoing' considerable' change.' The' 1960s' were' driven' by' a' heavy' emphasis' on' planning.' In' contrast' to' many' of' the' rolling' plans' adopted' today,' during' those'years'Public'Investment'Plans'(PIP)'established'a'fixed'horizon'of'four'to'six'years.'Although' in'retrospect'they'were'very'rigid'instruments,'they'constituted'a'first'step'forward'by'establishing' projects'as'separate'units'of'analysis'and'management.'' In' the' context' of' the' 1970s' debt' crisis,' LAC' countries' recognized' that' public' investment' needed' to' play' a' more' dynamic' role.' Project' banks' were' created' that' provided' either' a' pool' of' project' concepts' requiring' further' appraisal,' or' a' bank' of' alreadyPappraised' projects' ready' for' funding'through'the'budget.'Project'banks'were'instituted'as'a'way'to'react'more'rapidly'to'scale' up' investment' and' thereby' spur' growth,' although' keeping' project' information' upPtoPdate' proved' costly'and'challenging'in'many'cases.' Project'banks,'while'often'still'rudimentary,'constituted'the'origins'of'proper'PIM'systems:' Sistemas. de. Inversión. Pública' (“SNIP,”' in' Spanish)' were' created' during' the' 1980s.' However,' these' years' were' characterized' by' fiscal' adjustment,' given' expansive' fiscal' policies' and' ensuing' debt' problems' in' many' countries.' The' SNIPs' established' a' specialized' process' for' public' investments' aiming'to'cover'the'whole'investment'cycle.'This'was'a'significant'improvement'over'many'of'the' still' largely' informal' processes' existing' in' many' countries.' However,' under' tightening' fiscal' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 9 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution constraints'and'resource'limitations,'the'emphasis'was'placed'largely'on'controlling'the'aggregate' level'of'investment'spending,'and'less'on'ensuring'proper'ex'ante'appraisal'of'investment'projects' or'on'ensuring'the'most'efficient'execution.'' As' specialized' systems,' the' SNIPs' were' also' created' as' isolated' systems—in' other' words,' they' were' disconnected' from' other' resource' management' systems,' particularly' those' related' to' budget' and' financial' management,' that' had' been' introduced' at' the' same' time.' In' the' context' of' firstPgeneration'reforms,'Treasury'Single'Accounts'were'put'in'place'to'improve'cash'management;' these'efforts'were'accompanied'by'systems'for'financial'management'as'governments'endeavored' to' increase' oversight,' efficiency,' and' transparency' in' resource' use.' In' some' countries,' system' efforts'also'entailed'procurement,'and'also'to'a'lesser'extent,'asset'management.' But'as'much'as'the'SNIPs'provided'a'significant'step'forward'as'a'specialized'process,'their' limited'integration'with'other'resource'management'systems'proved'problematic'in'the'long'run.' As'became'evident'later,'they'constituted'a'bottleneck'not'only'for'improved'resource'management' but'also'for'the'strategic'planning'with'which'countries'started'experimenting'during'this'period.' This'in'turn'required'increased'oversight'and'closer'alignment'of'planning'and'budgeting,'including' PIM.' Against' this' backdrop' of' institutional' evolution,' different' arrangements' and' models' have' emerged.' Roles+and+Responsibilities+in+the+Investment+Cycle+ The' two' entities' that' emerged' with' a' key' role' in' public' investment' in' many' countries' of' Latin' America' are' finance' ministries' and' planning' entities.' This' is' shown' clearly' on' the' map' of' departmental' responsibilities' along' the' eight' steps' of' the' public' investment' cycle' framework' promulgated'by'Rajaram'et.al.'(2010)'(table'X.2).'It'bears'noting'that'a'processPoriented'mapping' along' the' investment' cycle,' as' this' framework' proposes,' is' not' the' only' nor' exclusive' way' of' assessing'institutional'arrangements.'In'fact,'it'is'diametrically'opposed'to'the'early'models'of'PIM' promoted'by'the'UN'Economic'Commission'of'Latin'America'(ECLAC)'during'the'1980s'and'1990s.' As' underscored' by' CEPAL' (2002),' these' early' approaches' were' based' on' four' elements:' (1)' legal' framework;' (2)' methodology' for' identification,' formulation,' presentation,' and' evaluation' of' projects;'(3)'institutional'capacities;'and'(4)'information'systems'(Project'Banks).'Nevertheless,'by' proceeding'with'the'Rajaram'model,'the'following'institutional'arrangements'and'“models”'can'be' identified:'' • Ministry+of+finance+as+the+single+lead+entity.'This'“model”'is'used'by'Argentina,'El' Salvador,'Honduras,'Mexico,'Panama,'and'Peru.'However'it'also'bears'noting'that'in'some' countries,'although'the'finance'ministry'leads'investment'management,'it'has'an'internal' division'into'budget'and'planning'that'does'not'always'have'a'strong'relationship'between' both'areas.' • Divided+role+of+planning+entities+and+Ministries+of+Finance.'This'“model”'is'used'by' Bolivia,'Brazil,'Chile,'Colombia,'and'Ecuador.'A'special'arrangement'is'applied'in'Guatemala' and'Nicaragua'where'the'planning'entity'is'part'of,'or'constitutes,'a'specialized'unit'of'the' presidency.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 10 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution Table+X.2++++Models+of+Public+Investment+Management+ Main%steps%in%the%investment%cycle% Ministries%of%finance% Ministries%of% Executing% (based%on%Rajaram%et%al.%2010% planning% agencies% Framework)% Step%1:!Investment!guidance,!project! ! X! ! development,!preliminary!screening! Step%2:!Formal!project!appraisal! (Role!of!finance!ministry! ! X! under!unified!model)! Step%3:!Independent!review!of!appraisal! Does!not!apply! Step%4:!Project!selection!and!budgeting! X! ! ! Step%5:!project!implementation! ! ! X! Step%6:!project!adjustment! ! ! X! Step%7:!facility!operation! ! ! X! Step%8:!Basic!completion!review!and! (Role!of!finance!ministry! X! ! evaluation! under!unified!model)! It'becomes'clear'that'investment'guidance,'project'development,'and'preliminary'screening' (Step'1)'are'traditionally'undertaken'by'planning'entities.'However,'in'the'early'2000s'some'LAC' countries' eliminated' their' national' planning' entities' (Ecuador' and' Peru),' in' which' case' this' role' was' often' fulfilled' by' the' sectoral' lead' agency' (ministries' or' others).' The' region’s' backlash' to' planning' is' only' gradually' being' overcome,' and' new' efforts' at' planning' associated' with' resultsP oriented'management'and'policyPmaking'capacity'are'being'put'in'place.' Formal'project'appraisal'(Step'2)'can'be'either'in'the'hands'of'the'planning'entity'or,'in'a' unified' model,' the' responsibility' of' the' finance' ministry.' However' most' of' the' countries' give' this' responsibility'to'executing'and'sector'agencies.'Independent'reviews'(Step'3),'as'applied'in'some' countries'of'the'Organisation'for'Economic'CoPoperation'and'Development'(OECD),'are'done'only' sporadically' and' in' very' few' countries' (Chile,' Argentina' is' initiating),' and' for' largePscale' projects' only.3' However,' some' countries' endeavor' to' put' in' place' “objective”—if' not' specifically' “independent”—reviews:'Colombia,'Guatemala,'and'Venezuela'let'their'planning'agencies'conduct' the'revision'(quality'assurance)'of'projects'prior'to'granting'the'goPahead.'' Project'selection'and'budgeting'(Step'4)'is'the'responsibility'of'finance'ministries.'However,' the' selection' process' usually' involves' close' interaction' with' sectoral' ministries,' establishing' an' iterative'process'between'these'two'entities.'This'can'challenge'effective'gatePkeeping,'which'rests' on'the'assumption'that'only'fully'appraised'projects'are'being'selected'for'funding.' Responsibilities'for'project'implementation,'adjustment,'and'facility'operation'(Steps'5–7)' are' usually' under' the' aegis' of' the' executing' agency.' However,' the' monitoring' of' execution—both' financial' and' physical—' often' remains' challenging:' given' that' systems' coverage' is' limited' (discussed'in'the'next'section),'there'are'limited'possibilities'and/or'limited'incentives'to'formally' communicate' and' record' such' changes' in' project' design' and' execution.' Most' countries' in' LAC' do' not' use' systematically' formal' thresholds,' like' those' applied' in' Chile' and' Korea,' which' trigger' reappraisals'once'expenditures'or'implementation'times'exceed'planned'targets.'However,'it'is'also' true' that' some' countries—among' them' Colombia' and' Peru—require' formal' reappraisals' if' a' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 11 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution project'changes'its'objectives,'if'there'are'costPoverruns'(20'percent'in'the'case'of'Colombia),'or'if' there'are'extensions'in'the'duration'of'the'project.'' There' are' two' models' for' basic' completion' review' and' evaluation' (Step' 8).' This' can' be' under'the'remit'of'planning'entities,'but'this'responsibility'usually'belongs'to'finance'ministries'in' a'unified'model.'In'general'terms,'efforts'at'exPpost'evaluation'are'limited.'However,'it'is'also'clear' that' new' efforts' for' resultsPbased' management' can' increase' the' demand' and' opportunities' for' strengthened' exPpost' evaluation.' Chile' perhaps' provides' the' most' robust' exPpost' evaluation' approach'applied'in'LAC'to'date,'offering'many'lessons'for'countries'around'the'world.4' Although' there' are' few' comparable' indicators,' LAC' countries' are' at' different' stages' of' institutional'strength'across'the'eight'steps'of'the'investment'cycle.'These'variable'starting'points' to' a' large' extent' will' determine' the' way' forward.' By' and' large,' and' irrespective' of' differences' across' countries,' most' progress' in' institutional' development' exists' in' the' planning' and' appraisal' stages,' where' countries' have' been' undergoing' iterative' processes' of' improved' appraisal' in' the' various'sectors.'It'is'clear'that,'given'such'different'starting'points,'new'efforts'soon'have'to'more' emphatically' encompass' the' implementation' and' execution' stages.' Not' only' did' these' prove' cumbersome' during' the' recent' crisis' and' execution' of' fiscal' stimulus' plans,' but' the' risk,' more' importantly,' is' that' if' such' improvements' do' not' occur,' wellPdesigned' projects' will' be' poorly' implemented.'This'deficient'implementation'could'pose'a'dilemma'in'many'LAC'countries.'To'avert' or'mitigate'such'risk,'it'is'important'to'further'strengthen'financial'management'and'information' systems'for'PIM'since'they'can'play'an'important'role'in'this'effort.' Financial+Management+and+PIM+Information+Systems+ Countries' in' LAC' have' a' particular' history' in' the' implementation' of' integrated' financial' management' systems' (IFMIS)' and' their' public' investment' systems' (SNIP,' in' Spanish).' In' most' cases,' these' two' systems' were' initially' developed' in' isolated' fashion' from' each' other,' limiting' possibilities'for'improved'oversight.' However,' these' systems' have' evolved.' As' shown' in' table' X.3,' countries' exhibit' not' only' different' advances' in' the' integration' of' these' systems,' but' also' different' modalities' in' how' the' integration'with'the'budget'process'is'ensured.'Reflecting'advances'up'to'year'2010,'countries'like' Brazil,'Chile,'and'Colombia'have'put'the'following'changes'in'place:'(1)'interfaces'of'their'financial' management' systems' with' the' SNIP' and' (2)' adoption' of' a' single' project' code' in' both' systems.' These' changes' facilitate' tracking' and' identification' of' projects' throughout' the' budgeting' and' investment'cycle.'' Progress'in'this'area'is'uneven,'however.'By'2010'countries'like'Costa'Rica'and'Guatemala' had' not' advanced' at' all' with' IFMIS' and' SNIP' systems.' But' there' are' noteworthy' exceptions:' in' Honduras'the'project'code'for'social'investments'is'used'in'the'financial'management'system,'but' not' for' other' investments.' This' reflects' partial' advances' in' critical' sectors,' which' are' often' externally'funded.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 12 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution …&and&so&is the integration with Financial Management& Systems Table+X.3++++Integration+of+Public+Investment+into+Budget+Processes,+2010+ Country Interface-IFMIS-vs SNIP Single-project code in-IFMIS- Brazil yes yes Colombia yes yes Chile yes yes Costa-Rica no no Guatemala no no Honduras yes yes&(social&investments) Paraguay no yes (in&execution stage but not at&pre6investment level) Perú- no yes Bolivia no yes Uruguay no yes Source:&&IDB&Survey&200962010&and&World&Bank Source:!Data!from!CEPAL!Survey!2009–10!(CEPAL!2010).!!! Against' this' backdrop,' it' is' clear' that' there' are' different' degrees' to' which' investment' expenditures' are' captured' (“coverage”)' by' national' investment' systems' (Contreras,' Cartes,' and' Pacheco'2010).'Not'all'countries'have'ensured'that'public'investment'is'treated'in'an'institutionalP ized' and' formal' process' in' all' steps' of' the' project' cycle.' Percent' of' coverage' in' the' national' investment'systems'in'some'LAC'countries'is'as'follows:' • In'Colombia'all'Central'Government'investment'is'covered,'although'different'systems'are' being'used'(see'box'X.1);'however,'the'percentage'of'included'expenditures'is'much'lower' with'regard'to'subnational'governments.' • In'the'Dominican'Republic'about'90'percent'of'Central'Government'investment'is'covered,' while'subnational'governments'became'part'of'the'system'only'as'of'2009,'hence'coverage' is'fairly'limited.' • In'Peru'80'percent'(2009)'of'public'investments'of'the'central'level'are'covered'by'the'SNIP,' while'the'proportion'is'97'percent'at'the'regional'level'and'76'percent'at'the'level'of'district' and'provincial'municipalities.' • In'Mexico'about'76'percent'of'federal'investments'(2009)'are'covered.' • In'Guatemala'only'about'48'percent'of'central'government'investments'are'covered.' + Box+X.1+++Use+and+Functions+of+Information+Systems:+Colombia+and+Bolivia+ In' 2006,' Colombia' implemented' the' soPcalled' SUIFP' (Sistema. Unificado. de. Inversiones. y. Finanzas. Públicas),. which' aligns' and' synchronizes' the' information' managed' by' all' projects' in' all' four' stages:' preinvestment' (or' BPIN:' Banco. de. Programas. y. Proyectos. de. Inversión. Nacional);' x! budgeting;'execution'(SIIF:' Sistema.Integrado.de.Información.Financiera );'and'monitoring.'In'2008' Colombia'implemented'the'parallel'system,'SINERGIA'(Sistema.Nacional.de.Evaluación.de.Gestión.y. Resultados),' with' a' focus' on' policy' monitoring' and' evaluation—while' the' focus' of' SUIFP' is' on' project' monitoring' and' evaluation.' This' approach' ensures' coverage' of' all' major' aspects' of' public' policy'and'public'expenditures,'including'investment'projects.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 13 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution ' In'Bolivia,'in'turn,'the'SISIN'(Sistema.Nacional.de.Inversión.Pública)'is'a'“onePway'system,”' set'up'as'a'simple'information'system:'data'are'sent'by'implementing'agencies'to'the'national'level' without'any'further'benefit'for'management'decisions.'In'addition,'duplication'of'processes'with'its' financial'management'system'SIGMA'(Sistema.Integrado.de.Gestión.y.Modernización.Administrativa)' x! has' led' to' data' mismatch,' which' constitutes' a' serious' constraint' to' improving' resource' planning' and'management.'As'a'consequence,'monthly'data'on'execution'of'expenditures'of'both'systems'do' not' coincide,' leaving' room' for' interpretation,' thereby' not' only' weakening' the' credibility' of' both' systems'but'also'undermining'accountability.'A'recent'decision'to'use'only'SIGMA'as'the'system'for' financial'reporting'should'reverse'this'trend'in'the'future.' ' Given' this' history,' it' is' clear' that' the' early' decision' to' develop' independent' systems' for' public'investment'and'budgeting'still'weighs'heavily,'even'today.'Despite'the'fact'that'countries'are' making' progress' in' further' integration,' it' is' also' clear' that' the' quest' for' increased' oversight' and' coverage' is' continuously' challenged' by' the' increasing' role' of' subnational' governments.' Many' countries'started'to'decentralize'precisely'at'the'same'time'national'systems'started'to'mature,'but' at' a' time' when' these' systems' and' institutional' arrangements' were' not' yet' sufficiently' robust' to' being'exposed'to'hundreds,'even'thousands,'of'new'agents'at'the'local'level.' Decentralization+and+the+Role+of+Subnational+Governments+ Starting' in' the' early' 1980s,' the' following' decades' saw' rapid' adoption' and' deepening' of'' politically' driven,' it' entailed' elections' of' local' and' regional' authorities.' Fiscal' decentralization' followed,'but'was'often'limited'to'increasing'transfers'and'grants'to'subnational'levels.'But'the'role' of' subnational' governments' grew' particularly' strong' on' the' expenditure' side.' In' particular,' this' role'also'involved'public'investment,'giving'rise'to'the'need'and'challenge'of'coordinating'decisions' and'management'across'several'government'layers.' The'variation'in'the'degree'of'decentralized'public'investment'that'developed'is'significant,' as' demonstrated' in' figure' X.4' below.' It' ranges' from' 10' percent' in' Costa' Rica' to' 80' percent' of' investment' in' Argentina.' Such' variations' imply' different' requirements' and' approaches' for' coordination'across'levels'of'government.'' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 14 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution Figure+X.4++++Subnational+Government+Share+of+Public+Investment,+2010+ ! ! ! %!of!national!public!investment! ! ! ! ! ! ! ! ! ! ! ! ! Source:!Information!based!on!Global!Finance!Statistics!(GFS!2012/IMF),!cited!in!Frank!and!MartinezIVazquez!2013! forthcoming.! Such'coordination'is'particularly'warranted'because'decisions'about'current'expenditures' and' public' investment' expenditures' are' increasingly' assigned' to' different' levels' of' government.' Often,' public' investment' has' been' decentralized' while' current' expenditures' have' been' kept' centralized.' Such' arrangements' can' undermine' efficient' resource' allocation.' In' Colombia' and' Bolivia,' for' instance,' school' buildings' are' planned,' built,' and' managed' by' municipalities,' but' significant' proportions' of' current' expenditures' and' the' decisionPmaking' about' these' resources— including' personnel' salaries—were' kept' centralized,' leading' to' a' less' than' optimal' allocation' of' responsibilities' in' some' sectors.' Under' such' models,' decisions' for' infrastructure' planning' and' operation'may'not'be'sufficiently'aligned.'' At'the'same'time,'different'levels'of'spending'autonomy'have'developed.'Although'in'federal' countries'like'Brazil'the'role'of'states'and'municipalities'for'public'investment'is'large,'in'sectors' like' water,' these' subnational' governments' are' not' allowed' to' regulate' many' of' their' expenditure' responsibilities'themselves.'Provinces'in'Argentina'in'turn'have'a'high'degree'of'autonomy'in'the' selection' and' execution' of' investment.' In' Chile' regional' governments' act' as' deconcentrated' branches' of' the' National' Government,' and' their' principal' role' is' one' of' coPfinancing' and' coordinating'public'investments,'particularly'visPàPvis'the'municipalities,'which'are'autonomous.'In' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 15 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution the'unitary'country'Peru,'the'regions'and'municipalities'do'propose,'select,'and'execute'their'own' projects' autonomously,' but' they' must' follow' Central' Government' standards.5' In' unitary' Bolivia' a' hybrid' model' is' applied:' each' project' proposed' by' municipalities—even' those' which' are' autonomously'financed'at'the'local'level—must'be'cleared'and'reviewed'by'sector'ministries'at'the' national' level.' This' was' intended' to' strengthen' coordination,' but' in' practice,' informality' is' significant'and'not'all'sectors'and'municipalities'apply'the'same'procedures.'In'principle,'the'same' rules' apply' to' regional' governments,' which' have' been' elected' since' 2005;' however,' future' adjustments'as'part'of'the'regional'“autonomy”'process'might'be'introduced.' It' is' clear' that' such' varied' arrangements' challenge' coordination' across' levels' of' government.'Only'a'few'countries—among'them'Chile'at'the'regional,'deconcentrated'level—have' established'joint'subnational'planning'and'budgeting'platforms'similar'to'those'used'by'countries' of'the'OECD'in'which'there'are'incentives'for'independent'actors'on'different'government'levels'to' cooperate'in'an'institutionalized'manner.6'' As' expected,' the' planning,' execution,' and' operation' of' decentralized' public' investment' is' being' challenged' by' uneven' institutional' capacities' across' the' different' subnational' units.' In' response,' some' countries' have' adopted' simplified' processes' in' a' number' of' sectors.' Examples' include'Nicaragua,'which'differentiates'exPante'appraisal'for'municipalities,'as'well'as'Mexico'and' Peru,'both'of'which'use'different'procedures'for'different'sectors'or'services'(subsectors).'Judging' and'assessing'subnational'capacities,'however,'is'not'straightforward'in'cases'where'financing'from' natural'resources'play'a'role'(box'X.2);'execution'rates'have'increased'in'many'cases'at'subnational' levels,' demonstrating' basic' capacity' of' local' or' regional' entities' to' spend' investment' resources.' However,' unspent' balances' are' often' also' visible' as' additional' resources' are' still' too' large' to' be' spent. ' \ + Box+X.2+++The+Challenges+of+Natural+Resources+for+Decentralized+Public+Investment:+ Bolivia+and+Peru+ Both' Bolivia' and' Peru' are' remarkable' cases' for' the' increase' in' public' investment' expenditures'against'the'backdrop'of'economic'growth'and'availability'of'natural'resources.'' In' Peru,' in' 2003–05' public' investment' was' around' 2.7' percent' of' GDP,' but' by' 2009' the' percentage'had'almost'doubled'at'5.3'percent.'Subnational'governments'were'responsible'for'many' x! of' these' increases' in' expenditures.' During' 2005–09,' the' soPcalled' “modified' investment' budget”' was'increased'by'502'percent'for'regional'governments'and'by'438'percent'for'local'governments.7' These' considerable' increases' were' chiefly' associated' with' the' increase' of' natural' resource' revenues'from'the'soPcalled'canon,'which'is'a'50'percent'income'tax'on'the'exploitation'of'natural' resources'(particularly,'minerals,'oil,'and'gas).' Bolivia' is' a' similar' case:' it' nearly' doubled' its' investment' expenditures' in' GDP' terms' from' 2005' to' 2010,' and' a' lion’s' share' was' executed' by' departmental' governments' and' municipalities.' However,'there'was'considerable'underPexecution'of'budgets'for'investment'projects'in'several'' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 16 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution ' subnational' governments,' given' cumbersome' processes,' for' instance' in' procurement,' and' weak'institutional'capacities.'The'unspent'funds'remained'under'the'ownership'of'the'subnational' governments'and'could'be'carried'over'to'the'following'financial'year.'There'were'no'explicit'fiscal' rules'that'would'smooth'expenditure'patterns'over'time.'The'challenge'then'was'how'to'use'these' x! funds' in' the' future' so' that' expenditures' would' be' of' quality' and' contribute' to' improvement' in' services.'In'addition,'given'that'a'large'part'of'the'allocation'takes'place'in'equal'shares,'they'were' unevenly' distributed' across' subnational' units,' which' implies' that' there' are' inequities' in' the' proportion'of'twenty'times'the'per'capita'amounts'spent'among'departments.' ' Capacities' not' only' need' to' exist' with' regard' to' the' execution' of' expenditures' and' investment' projects,' but' they' increasingly' need' to' entail' the' capacity' to' set' up' a' regulatory' framework' for' PPP' arrangements.' In' fact,' an' emerging' practice' is' to' apply' PPPs' in' decentralized' settings.'' Different' models' have' developed:' federal' Brazil' provides' wide' leeway' for' states' to' set' up' their' own' rules' framework' within' federal' regulations,' while' unitary' Peru' applies' a' uniform' rules' framework'that'is'mandatory'for'all'levels'of'government.'' Emerging Trends: Results-oriented Management and Multi-year Planning New'modalities'with'regard'to'PPP'arrangements'in'public'investment'are'only'one'trend'in' LAC'countries.'Other'noteworthy'changes'are'related'to'larger'transformations'of'the'operation'of' the' public' sector' in' most' countries' of' the' LAC' region.' This' is' the' case' with' resultsPoriented' management' and' multiPyear' budgeting' and' planning.' Such' efforts' are' being' launched' with' the' objective' to' increase' responsiveness' to' social' demands,' enhance' accountability,' and' increase' efficiency' in' resource' management.' These' approaches' are' demanding' institutionally—most' countries'of'the'OECD'are'still'finePtuning'these'models'after'several'decades,'despite'starting'out' with'stronger'capacities'at'all'levels'of'government'than'most'countries'in'LAC.' ResultsPbased' approaches' and' multiPyear' budgeting' efforts' have' a' potentially' close' connection'with'and'impact'on'public'investment—the'part'of'expenditures'that'can'be'spent'more' flexibly' than' most' current' expenditures.' In' some' sectors' public' investment' is' often' multiPyear' in' nature' by' default,' and' so' the' design' of' multiPyear' expenditure' programs' can' benefit' greatly' from' initiating'them'in'a'few'sectors'and'investment'programs'before'such'resultsPbased'approaches'are' scaled'up'and'applied'to'other'sectors.' However,' several' institutional' and' capacity' requirements' must' be' in' place' before' implementing'a'multiPyear'planning'and'investment'framework.'Required'is'at'least'a'regular'and' reliable' information' flow' on' behalf' of' executing' agencies,' as' well' as' constant' updates' on' the' implementation' progress' of' investment' projects.' As' mentioned,' however,' not' all' LAC' countries' have' progressed' sufficiently' in' these' critical' steps' of' the' investment' cycle.' In' addition,' evaluating' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 17 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution outcomes' as' part' of' resultsPbased' management' requires' robust' ex' post' control' and' evaluation— particularly' the' steps' in' the' investment' cycle' where' most' countries' are' trailing' behind' and' progress' is' uneven.' Hence,' these' new' approaches' entail' both' risks' and' opportunities' for' public' investment.' For' instance,' there' is' the' risk' that' new' systems' and' procedures' for' resultsPbased' management'being'put'in'place'will'end'up'constituting—yet'again—parallel'processes'to'those'for' public'investment.'' With' this' new' impetus' to' improve' the' public' sector,' LAC' countries' are' facing' strategic' design' choices,' particularly' because' several' models' have' been' evolving.' The' two' emerging' approaches'for'multiPyear'planning'and'budgeting'are'respectively'a'“topPdown”'and'a'“bottomPup”' approach,'as'follows:' • Uruguay' represents' a' case' applying' a' “topPdown”' strategy:' its' existing' multiyear' budget' (used' in' a' fivePyear,' fixed' time' horizon' that' is' aligned' with' the' administration' period' of' a' government)' defines' a' fiscal' envelope;' the' budget' has' outcome' targets' that' are' disaggregated' into' expenditure' programs,' then' projects' are' defined' that' contribute' to' fulfilling'goals'of'the'programs.' • Peru,'in'turn,'represents'a'“bottomPup”'approach:'individual'projects'are'defined'and'then' associated' with' expenditure' programs.' The' programming' exercises' of' individual' projects' are' then' aggregated' into' a' national' level' database.' While' iterative' processes' between' the' sectors' and' central' level' entities,' particularly' the' Ministry' of' Economy' and' Finance,' are' increasing,'there'is'no'topPdown'fiscal'envelope'defined'specifically'for'public'investment,' nor'is'there'a'formal'linkage'of'the'public'investment'program'to'the'country’s'MultiPYear' Macro' Framework,' confirming' that' the' main' approach' for' planning' and' budgeting' public' investment'is'from'the'bottomPup'' Although'described'in'a'stylized'fashion,'these'two'approaches'are'likely'to'keep'influencing' the'future'evolution'of'multiPyear'budgeting'and'planning,'as'well'as'public'investment'in'the'LAC' region.' These' approaches' raise' fundamental' questions' for' critically' assessing' whether' a' “projectP byPproject”' approach' or' a' more' comprehensive' “program”' approach' should' be' followed.' Independent'of'the'approach'selected'by'each'country,'establishing'and'further'strengthening'the' linkages'with'public'investment'will'remain'a'large'task'at'hand.' Summary+and+Outlook+ A' review' of' the' main' institutional' arrangements' of' public' investment' management' in' the' LAC'region'demonstrates'impressively'that'its'reform'involves'an'ongoing'effort.'There'are'no'fixed' “models,”'but'arrangements'which'are'under'constant'refinement'and'transformation.'' In'this'process'the'main'risk'that'has'surfaced'time'and'again'is'the'parallel'implementation' of'different'procedures'and'systems.'It'is'clear'that'public'sector'reform'is'not'an'endeavor'that'can' be'planned'and'implemented'with'all'conditions'being'present'at'the'same'time.'In'fact,'PIM'reform' has' been' one' of' the' most' challenging' areas,' given' its' crossPcutting' nature,' and' it' has' required' individual' champions' to' lead' such' efforts.' Nevertheless,' in' the' medium' and' long' term,' isolated' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 18 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution approaches—in' systems,' planning,' and' budgeting—have' demonstrated' their' limitations' for' improved'resource'management.'' This' review' also' confirms' that' country' settings' are' important' determinants' for' public' investment.'In'line'with'other'research'conducted'in'the'scope'of'this'global'work'and'reviews,'the' LAC' countries' underscore' differences' in' institutional' features' and' capacities.' AidPdependent,' natural'resourcePrich,'advanced'economies,'demonstrate'the'large'heterogeneity'across'countries.' Necessarily' then,' progress' in' strengthening' PIM' systems' is' uneven.' An' assessment' of' capacities' based' on' the' eightPstep' Rajaram' (Rajaram' et' al.' 2010)' framework' would' suggest' that' a' few' countries—most' notably,' Chile—are' gradually' moving' closer' to' the' highPinstitutional' capacity' countries' of' OECD' countries' like' Korea.' These' countries' define' the' state' of' the' art' in' public' investment' today:' they' apply' independent' reviews,' conduct' riskPbased' approaches,' and' perform' robust' ex' post' evaluations.' Recognizing' the' different' starting' points' and' country' settings' as' determining' factors,' it' is' clear' that' other' countries' in' LAC' deviate' from' these' institutional' features—most'often'with'basic'capacity'constraints'still'needing'to'be'addressed.'' In'the'ongoing'quest'to'improve'institutional'arrangements,'more'recent'developments'like' resultsPoriented' management' can' trigger' further' improvements' and' provide' a' stimulus' for' countries' and' governments' to' improve' their' systems.' Addressing' the' everPpresent' risks' of' using' new' parallel' approaches,' there' is' a' clear' benefit' in' exerting' further' demand' and' pressure' on' implementing' agencies' to' keep' up' the' pace' of' reform' and' improve' expenditure' efficiency' and' quality,'much'needed'in'the'context'of'the'existing'and'newly'emerging'infrastructure'gaps.' Latin' American' and' Caribbean' countries' have' spent' significant' and' often' increasing' resources'for'public'investment.'There'is'growing'concern'that'these'resources'have'not'translated' into' commensurate' productive' assets.' However,' conviction' is' gradually' emerging' that' public' investment'serves'the'higher'purpose'of'improving'public'services.' In' the' future,' it' would' make' sense' to' focus' particular' attention' on' further' improving' and' refining' intergovernmental' and' decentralized' approaches' for' PIM' provision' and' service' delivery.' Given' the' existing' infrastructure' gaps' across' urban' and' rural' areas,' a' territorially' differentiated' approach'would'be'warranted'in'many'country'cases'' This' approach' to' revamping' PIM' systemswill' require' further' coordination' of' responsibilities'across'levels'of'government'in'all'steps'of'the'public'investment'cycle.'It'will'also' require' paying' increasing' attention' to' fiscal' equalization' in' order' to' address' the' existing' and' possibly'widening'disparities'in'fiscal'capacities,'in'costs'of'service'provision,'and'in'the'needs'of' the'population.'' Specific' approaches' to' equalizing' public' investment' expenditures' in' light' of' uneven' spending' levels' across' the' different' jurisdictions' in' countries' need' to' be' debated' further,' given' potentially' competing' objectives.' On' the' one' hand,' public' investment' serves' larger' economic' objectives' like' regional' development,' but' on' the' other' hand' there' are' local' service' delivery' objectives,'and'both'goals'need'to'be'balanced.'In'addition,'in'some'settings'intergovernmental'PIM' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 19 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution will' benefit' from' differentiation' and' targeting' of' policies' with' the' aim' to' apply' them' in' an' asymmetric'fashion,'tailored'to'where'the'needs'are'greatest.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 20 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution Notes+ 1. The'definition'of'“public'Investment”'is'not'standard'across'countries,'particularly'with'regard' to'public'corporations,'which'are'excluded'by'the'IMF'standard'definition.'' 2. However,' there' are' quite' significant' variations' in' the' importance' of' the' public' investment' compared'to'privatePsector'investments.'In'countries'like'Brazil'or'Chile'it'is'the'private'sector' that'invests'the'most'(in'these'cases,'public'investment'constitutes'merely'around'10'percent'of' total' investment),' whereas,' in' Bolivia' and' Venezuela,' public' investment' constitutes' nearly' 50' percent'of'total'investment.'' 3. The' use' of' independent' reviews' (Step' 3)' is' applied' consistently' only' in' Chile;' the' planning' ministry' MIDEPLAN' is' instituting' a' review' mechanism' for' complex' projects' based' on' factors' such'as'project'size,'but'more'importantly,'it'is'creating'specialized'treatment'for'projects'with' doubtful'impacts'and'outcomes.'Argentina'is'also'starting'to'develop'independent'evaluations' for' large' projects—those' not' conducted' by' the' finance' ministry—and' hence' would' assure' neutrality'in'the'appraisal.' 4. Chile'has'differentiated'evaluations'in'two'steps'(Arancibia'and'Biletska'2009):'(1)'the'first'is'a' simplified' ex' post' evaluation' of' the' execution' of' a' sample' of' representative' of' the' investment' initiatives' completed' during' the' past' two' years.' This' process' entails' evaluation' of' total' cost,' deadline' for' execution,' final' product,' and' compliance' with' procedures' and' schedules.' (2)' The' second' stage' is' an' inPdepth' ex' post' evaluation' of' specific' projects' undertaken' onPsite' where' data' on' the' operations' are' available.' In' line' with' broader' performance' orientation,' the' Government' is' reporting' to' Congress' on' programs' (instead' of' individual' projects).' Other' countries' are' starting' to' emphasize' ex' post' evaluation.' Peru' is' just' starting' to' develop' new' methodologies;'in'2010'the'Ministry'of'Economy'and'Finance'started'an'ambitious'evaluation' methodology' comprising' four' elements:' an' evaluation' of' completion,' ex' post' followPup,' evaluation'of'results,'and'impact'study.'' 5. About'half'of'subnational'governments—approximately'800'out'of'a'total'of'1800'entities—are' formally'part'of'the'SNIP'system,'which'obliges'them'to'follow'national'standards'in'the'whole' investment'cycle'(from'appraisal'to'ex'post'evaluation).' 6. A' useful' example' are' the' contrats' plan' region' used' in' France,' which' establish' planning' and' coordination'of'investment'in'a'rolling,'multiPyear'fashion.' 7. Information'of'the'SIAF'(Sistema'Integrado'de'Administración'Financiera),'Presupuesto'Inicial' de'Apertura.' ! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 21 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution References+ Andres,'Luis,'Dan'Biller,'and'Jordan'Schwartz.'2013.'“Infrastructure'Gaps'at'the'Subnational' Level,”'in'Jonas'Frank'and'Jorge'MartinezPVazquez'(eds.),' Decentralization.and.Infrastructure:.From. Gaps.to.Solutions,'Georgia'State'University'and'World'Bank,'forthcoming.'' Andres,'L.,'D.'Biller,'and'M.'Herrera'Dappe.'2013.'“Infrastructure'Gap'in'South'Asia:'Infrastructure' Needs,'Prioritization,'and'Financing.”'World'Bank,'Washington,'DC.' Arancibia,'Hugo,'and'Nataliya'Biletska.'2009.'“Public'Investment'Management—The'Case'of' Chile.”'World'Bank,'Washington'DC.'www.worldbank.org/publicfinance/pim' CEPAL(United'Nations'Economic'Commission'for'Latin'America).'2010.'Economic.Survey.of.Latin. America.and.the.Caribbean,'LC/G'2458PP.'CEPAL,'Santiago,'Chile.' Contreras,' Eduardo,' Fernando' Cartes,' and' Juan' Francisco' Pacheco.' 2010.' Los. SNIP. de. América. Latina. y. el. Caribe:. Historia,. Evolución. y. lecciones. aprendidas.' United' Nations' Economic' Commission'for'Latin'America'(CEPAL),'Santiago,'Chile.' Frank,'Jonas,'and'Jorge'MartinezPVazquez'(eds.).'2013.'“Decentralization'and'Infrastructure:' From'Gaps'to'Solutions.”'Georgia'State'University'and'World'Bank,'Washington,'DC.'' IEA' (International' Energy' Association).' 2010.' ' International. World. Energy. Outlook. 2010.' IEA,'Paris.' IMF'(International'Monetary'Fund)'2011.' World.Economic.Outlook.'International'Monetary' Fund,'Washington,'DC.' MDB'(MDB'Working'Group'on'Infrastructure).'2011.'“Infrastructure'Action'Plan.”'Multilateral' Development'Banks,'World'Economic'Forum,'Geneva.' PPIAF'(PublicPPrivate'Infrastructure'Advisory'Facility).'2012.'“Private'Participation'in' Infrastructure'Database.”'PPI.data.update.note.82,'World'Bank,'Washington'DC.' Rajaram,'A.,'T.'Le,'N.'Biletska,'and'J.'Brumby.'2010.'“A'Diagnostic'Framework'for'Assessing'Public' Investment'Management.”'Policy'Research'Working'Paper'5397,'World'Bank,'Washington,'DC.' UNPDESA'(UN'Department'of'Economic'and'Social'Affairs).'2013..World.Population.Prospects:.The. 2012.Revision.'United'Nations:'Population'Division'of'the'Department'of'Economic'and'Social' Affairs'of'the'United'Nations'Secretariat'(2013).'United'Nations,'New'York.' WEF'(World'Economic'Forum).'2012.'“The.Global.Competitiveness.Report.2011W2012.”'WEF,'Geneva.' www.weforum.org' World'Bank.'2013.'“RuralPUrban'Dynamics'and'the'Millennium'Development'Goals.”'Global. Monitoring.Report.2013.'World'Bank,'Washington'DC.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 22 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution Estache,'Antonio'and'Marianne'Fay.'2010'.'Current'debates'on'infrastructure'policy.'Commission'on' Growth'and'Development'working'paper'no.'49,'World'Bank,'Washington'DC.' Forter,' Vivienne' and' Cecilia' BriceñoPGarmendia.' 2010.' “Africa’s. Infrastructure:. A. Time. for. Transformation,”'The'World'Bank.' ! Bibliography+ Bhattacharya,'A.,'M.'Romani,'and'N.'Stern.'2012.'“Infrastructure'for'Development:'Meeting'the' Challenge,”'GP24'Policy'Paper,'London'School'of'Economics.'' Brumby,' James,' and' Tarsila' Velloso.' 2012.' “Public' Investment' in' Brazil.”' World' Bank,' Washington'DC.'www.worldbank.org/publicfinance/pim' CAF' (Corporación' Andina' de' Fomento).' 2009.' “Caminos' para' el' futuro:' Gestión' de' la' infraestructura'en'América'Latina.”'CAF,'Caracas.'' Calderón,' César,' and' Luis' Servén.' 2010.' “Infrastructure' in' Latin' America.”' Policy' Research' Working'Paper'5317,'World'Bank,'Washington'DC.' Cavallo,'Eduardo,'and'Christian'Daude.'2011.'“Public'Investment'in'Developing'Countries:'A' Blessing'or'a'Curse?”'Journal.of.Comparative.Economics'39:'65–81.''' Carranza,' Luis,' Christian' Daude,' and' Ángel' Melguizo.' 2011.' “Public' Infrastructure' Investment' and' Fiscal' Sustainability' in' Latin' America:' Incompatible' Goals?”' OECD' Working' Paper' 301,'Organisation'for'CoPoperation'and'Economic'Development,'Paris.' CEPAL'(United'Nations'Economic'Commission'for'Latin'America).'2002.'“La'modernización'de'los' sistemas'nacionales'de'inversion'publica:'análisis'critic'y'perspectivas.”'Serie.Manuales.no..23,' Santiago,'Chile.' ———.' 2010.' “CEPAL' Survey' 2009–10:' Survey' to' Public' Investment' Directors' in' Latin' America.”'United'Nations'Economic'Commission'for'Latin'America,'Santiago.'Unpublished.'' ———.' 2011.' “The' Economic' Infrastructure' Gap' in' Latin' America' and' the' Caribbean.”' Bulletin.FAL'293'(1).' De' Mello,' Luiz.' 2010.' “Fiscal' Decentralization' and' Public' Investment:' The' Experience' of' Latin'America.”'OECD'Economics'Department'Working'Paper'824,'OECD,'Paris.' Frank,'Jonas,'and'Gustavo'GuerraPGarcia.'2013.'“Public'Investment'in'Peru.”'World'Bank,' Washington'DC.'www.worldbank.org/publicfinance/pim'' Lora,' Eduardo.' 2007.' “Public' Investment' in' Infrastructure' in' Latin' America:' Is' Debt' the' Culprit?”'Working'Paper'595,'InterPAmerican'Development'Bank,'Washington'DC.' T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 23 COUNTRY CASE STUDY: LATIN AMERICA & THE CARRIBEAN 2013 ! Public Investment Management in Latin America and the Caribbean: Institutions under Evolution Lucioni,'Luis.'2009.'“La'Provisión'de'Infraestructura'en'América'Latina:'Tendencias,'Inversiones'y' Financiamiento”,'Macroeconomía.del.Desarrollo,'No.'72,'CEPAL,'Santiago.' Perrotti,' Daniel' E.,' and' Ricardo' J.' Sánchez.' 2011.' La. brecha. de. infraestructura. en. América. Latina.y.el.Caribe,.CEPAL'(United'Nations'Economic'Commission'for'Latin'America),'Santiago.' Rozas,' Patricio.' 2010.' América' Latina:' Problemas' y' desafíos' del' financiamiento' de' la' infraestructura.'Revista'CEPAL'101,'Santiago.+' ' !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 !The!definition!of!“public!Investment”!is!not!standard!across!countries,!particularly!with!regard!to!public! corporations,!which!are!excluded!by!the!IMF!standard!definition.!! 2'However,'there'are'quite'significant'variations'in'the'importance'of'the'public'investment' compared'to'privatePsector'investments.'In'countries'like'Brazil'or'Chile'it'is'the'private'sector'that' invests' the' most' (in' these' cases,' public' investment' constitutes' merely' around' 10' percent' of' total' investment),'whereas,'in'Bolivia'and'Venezuela,'public'investment'constitutes'nearly'50'percent'of' total'investment.'+ 3 !The!use!of!independent!reviews!(Step!3)!is!applied!consistently!only!in!Chile;!the!planning!ministry! MIDEPLAN!is!instituting!a!review!mechanism!for!complex!projects!based!on!factors!such!as!project!size,! but!more!importantly,!it!is!creating!specialized!treatment!for!projects!with!doubtful!impacts!and! outcomes.!Argentina!is!also!starting!to!develop!independent!evaluations!for!large!projects—those!not! conducted!by!the!finance!ministry—and!hence!would!assure!neutrality!in!the!appraisal.! 4'Chile'has'differentiated'evaluations'in'two'steps'(Arancibia'and'Biletska+2009):'(1)'the'first'is'a' simplified'ex'post'evaluation'of'the'execution'of'a'sample'of'representative'of'the'investment' initiatives'completed'during'the'past'two'years.'This'process'entails'evaluation'of'total'cost,' deadline'for'execution,'final'product,'and'compliance'with'procedures'and'schedules.'(2)'The' second'stage'is'an'inPdepth'ex'post'evaluation'of'specific'projects'undertaken'onPsite'where'data'on' the'operations'are'available.'In'line'with'broader'performance'orientation,'the'Government'is' reporting'to'Congress'on'programs'(instead'of'individual'projects).'Other'countries'are'starting'to' emphasize'ex'post'evaluation.'Peru'is'just'starting'to'develop'new'methodologies;'in'2010'the' Ministry'of'Economy'and'Finance'started'an'ambitious'evaluation'methodology'comprising'four' elements:'an'evaluation'of'completion,'ex'post'followPup,'evaluation'of'results,'and'impact'study.'' 5 !About!half!of!subnational!governments—approximately!800!out!of!a!total!of!1800!entities—are! formally!part!of!the!SNIP!system,!which!obliges!them!to!follow!national!standards!in!the!whole! investment!cycle!(from!appraisal!to!ex!post!evaluation).! 6 !A!useful!example!are!the!contrats!plan!region!used!in!France,!which!establish!planning!and! coordination!of!investment!in!a!rolling,!multiIyear!fashion.! T H E P O W E R O F P U B L I C I N V E S T M E N T M A N A G E M E N T' PAGE 24