* This study was presented at the XVII Regional Seminar on Fiscal Policy of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) in Santiago, Chile, on 24-27 January 2005 and at the Third Annual Meeting of the Euro-Latino-American Governance for Development Network of the Inter-American Development Bank (IDB) in Hamburg, Germany, on 12-13 December 2005. It is based on a World Bank working paper entitled Budget Institutions and Fiscal Responsibility: Parliaments and the Political Economy of the Budget Process in Latin America (World Bank Institute Working Paper 37253, 2005). The views and interpretation of this paper are those of the author and should not be attributed to the aforementioned institutions. The author gratefully acknowledges the suggestions and comments from Anne Mondoloni, Anja Linder, Barry Anderson, Vinod Sahgal, Mariana Llanos, Sonia Fleury, Edmundo Jarquin, Xavier Comas, Joachim Wehner, Joaquín Vial, Alejandro Foxley, Jesús Rodríguez, Oscar Lamberto, Gerardo Uña, Ernesto Stein, Ivo Hernandéz, Warren Krafchik, Tomas Bril, Sebastian Saeigh, Roberto Martinere, Beatriz Boza, and Edgardo Boeninger.

** Carlos Santiso is currently a public finance and governance adviser to Her Majesty Government’s Department for International Development (DFID) in Glasgow, United Kingdom, and a political economist at the Johns Hopkins School of Advanced International Studies (SAIS) in Washington, DC, United States.

Concluding remarks: Politics of public budgeting

Parliaments can make an important contribution to transparency and accountability in the management of public finances. However, there is an important gap between the legal rules and actual practices, as well as between the formal and informal institutions shaping the budgetary process. The politics of public budgeting largely explain variations in the quality and depth of legislative oversight of the budget. The existence of both institutional capacities and political incentives constitute critical enabling conditions. Four general conclusions can be derived from the analysis of the role of parliaments in the budget process.
A first issue concerns the role parliaments should have in the budget process. The debate over the degree of centralization of the budget most adequate to attain the different objectives of public budgeting is largely unresolved. However, while controversies tend to focus in parliaments’ legal prerogatives in the approval stage, more attention ought to be paid to their contribution to the latter stages of the process, in particular the oversight of budget execution, the demand for greater disclosure of fiscal information, and the ex-post control of budget performance. Parliamentarians have greater incentives to bargain over the appropriations of next year’s budget to obtain benefits for their constituencies rather than assess the performance of last year’s budget and discuss fiscal policy. In general, more research is required to compare and contrast the effectiveness of legislative oversight of the budget in presidential and parliamentary systems.

The question of strategy then becomes whether technical capacities or political incentives ought to be enhanced first. While capacity constraints partly explain why parliaments do not exercise their budgetary powers effectively, governance constraints explain why they sometimes fail to exercise them responsibly. Increasing technical capacity and enhancing analytical capabilities through building legislative advisory services or improving external auditing are likely to remain ineffectual as long as there does not exist enough political space for them to be exercised effectively. The key question is whether endowing oversight institutions with more technical capacity can strengthen them, or whether increased independence would lead these institutions to create and utilize more technical capacity. As Thomas Carothers aptly underscores, « to build effective legislatures, mobilizing political power is more important than increasing technical skill.»77

Third, parliaments cannot be strengthened in isolation. They are part of a broader system of fiscal control whose ultimate efficacy depends on the quality of inter-institutional linkages and the effective cooperation between its different components. Improving transparency and accountability in public finances necessarily requires focusing on the process of fiscal control inasmuch as the institutions of budget oversight. As Stein et al. underscore, « To intervene effectively, it is important to understand the complex interdependencies that exist among institutions. […] Trying to strengthen the legislature to improve its technical contribution to the design and implementation of policies requires changing the incentives for legislators to invest in such capacities, which in turn may require changing the electoral system or the party system.»78

Four, a key challenge of legislative budgeting is to adequately combine increased legislative oversight with the deepening of fiscal discipline. Schick summarizes the critical tension to be resolved: « as legislatures enhance their budget role, one of the challenges facing budget architects will be to balance the impulse for independence with the need to be fiscally responsible. The future of legislative-governmental relations will be strongly influenced by the manner in which this balance is maintained.»79. Finding the right balance between executive prerogatives and legislative oversight in public budgeting is a permanent challenge. However, these should not be seen as exclusive, but rather as mutually reinforcing. Indeed, the executive often has a vested interest in enhancing parliaments’ budget capacities in order to have a more reliable partner to engage with as parliaments with greater capacities and aligned incentives tend to play a more constructive role in the budget policy-making process. One institutional solution is to differentiate the role of parliaments in the different phases of the budget: while executive dominance in the formulation and management of the budget is more likely to ensure fiscal prudence, parliaments’ contribution to the budget process ought to be significantly strengthened in the latter phases, in particular its oversight and control.

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Notes

75. Figueiredo, Argelina (2003), «The Role of Congress as an Agency of Horizontal Accountability: Lessons from the Brazilian Experience», en Mainwaring y Welna, p.172.

76. Saeigh, Sebastian (2005), The Role of Legislatures in the Policymaking Process, documento de antecedentes no publicado para el Informe 2006 del BID sobre el progreso económico y social en América Latina, p. 36.

77. Carothers, Thomas (1999), Aiding Democracy Abroad: The Learning Curve (Washington, DC: Carnegie Endowment for International Peace), p.181.

78. Stein, Ernesto, Mariano Tommasi, Koldo Echebarría, Eduardo Lora y Mark Payne, eds. (2005), The Politics of Policies: Economic and Social Progress in Latin America (Washington, DC: IDB,) p. 258.

79. Schick, Allen (2002), «Can National Legislatures Regain an Effective Voice in Budget Policy». OECD Journal on Budgeting 1(3), p.14.

80. Ibid, p.17.