Economic Management and Social Policy Human Development 22083 181 ;,%oSAL 8e4 22083 -U OApril 2001 t / Xo Findings reports on ongoing operational, economic, and sector work carried out by the World Bank and its member govemments in the Africa Region. It is published periodically by the Knowledge and Leaming Center on behalf of the Region. The views expressed in Findings are those of the I WORLD 11 Nauthor/s and should not be attributed to the World Bank Group. Promoting Good Governance with ?N A4Df Social Funds and Decentralization Bad governance undermines de- United Nations Capital Development velopment. Corruption, lack of Fund. This note is based on the transparency and accountability, findings of the study. poorly designed decentral-ization, inadequate service delivery, and so- Aims and models cial exclusion can all direct re- sources away from the poor, needy, Social funds aim to empower and powerless to the rich, replete, communities by enabling them to and dominant. Development initia- participate in the selection, imple- tives by governments and their part- mentation, and operation and ners seek to redress these imbal- maintenance of development ances by supporting activities de- projects. Such funds provide direct signed to improve governance. Two financing for community projects important types of World Bank designed to quickly improve basic support for local governance are services and reduce poverty. Since social funds and broadly based 1987 the Bank has approved about support for governments commit- 100 social fund projects worth $3.4 ted to decentralizing responsibility billion in more than 60 countries. and power to local governments Though a variety of institutional and other local institutions. But models have been used, social there are concerns that these two funds have usually been established approaches, which address differ- as specialized units separate from ent elements of governance, some- traditional government line minis- times work at cross-purposes. A tries. To promote timely support, study was therefore commissioned social funds typically use proce- to examine the interaction between dures that are not subject to stan- social funds and decentralization in dard government procurement and Bolivia and Honduras (advanced other regulations. decentralization), Peru and Zimba- In contrast, decentralization fo- bwe (some decentralization), and cuses on formal government insti- Cambodia, Malawi, and Zambia tutions, both political and admin- (little or no decentralization). Fund- istrative. Decentralization is com- ing for the study was provided by plex and encompasses a wide range the Bank's thematic groups on de- of elements (see Parker 1995). Still, centralization, municipal finance, evidence from many countries sug- and social funds; by the govern- gests that three conditions must be ment of Switzerland; and by the met if decentralization is to improve governance (see Manor 1999): * Significant responsibilities and grating their resources with local reflected the poor state of school powers for local service delivery budget procedures as part of infrastructure, had communities should be devolved to local au- broader intergovernmental fiscal re- been free to select any type of devel- thorities in line with their capaci- forms designed to improve fund- opment intervention it is not clear ties (political decentralization). ing for local development. Using de- that they would always have se- * Sufficient resources-through a centralized local institutions, such lected a school. Thus the social combination of local taxes and as local governments, to manage fund approach is participatory but grants from higher-level govern- social fund operations holds out restricted, and is no substitute for ments-are needed to enable lo- the opportunity for scaling up ac- a local planning process that eluci- cal governments to meet respon- tivities that social funds might fi- dates the full range of community sibilities (fiscal decentralization). nance. development needs. * Proper channels are needed to Implementing a complete system encourage strong accountability Contrasting approaches of decentralized local planning is between bureaucrats and elected much more challenging because de- representatives network.and be- Despite efforts at working to- centralization ultimately involves tween elected representatives and gether the different objectives and the complete transfer of service de- their electorates (institutional de- focuses of social funds and decen- livery responsibilities to local gov- centralization). tralization efforts have raised ques- ernments. These governments tions about how best they can work must then try to prepare annual The need for mutual support together to improve poor people's development plans for basic ser- standard of living. As central gov- vices covering all their jurisdictions Social funds and decentralization ernments reallocate responsibilities in a strategic and coordinated fash- have supported each other in im- for providing basic services to sub- ion. Local plans are often not pre- portant ways. Forexample, social national governments, the potential pared in a participatory way, so the funds have encouraged decentrali- increases for the community-ori- preferences of poor communities zation where it has not advanced ented social fund approach to con- may not be reflected. But local gov- far. In Cambodia, Malawi, and flict with constitutionally mandated ernments are learning from social Zambia central governments were changes in local responsibilities, fund operations-especially ways of slow to decentralize functions and Different aspects of governance interacting with communities-and resources, so local governments were studied to examine the nature are adopting more participatory could not be relied on to deliver of this conflict. approaches. basic services. By channeling re- sources to community groups, so- Local planning Financing cial funds in all three countries Social funds have shifted Social funds are one of the few demonstrated the feasibility of and decisionmaking away from govern- central programs that are national potential for participatory plan- ment bureaucrats toward commu- in scope and provide direct fund- ning. In Zimbabwe local govern- nities that previously had little or ing for community-driven develop- ments have been assigned service no opportunity to influence deci- ment. Where there are few alterna- delivery responsibilities but often sions, especially in countries with- tive sources of funding for commu- lack sufficient resources. Thus the out decentralized local planning- nity development-especially in recently created social fund is in- such as Cambodia, Malawi, and poor, centralized countries like tended to strengthen decentraliza- Zambia. But the social fund ap- Cambodia, Malawi, and Zambia- tion processes and operationalize proach to local planning is limited: social funds provide an important participatory planning. it usually focuses on a community's source of direct funding. In Bolivia and Honduras decen- selection of one project from a menu But as decentralization reforms tralization has advanced rapidly supported by each fund. In Malawi establish fiscal systems that incor- and local governments are taking and Zambia about three-quarters porate central grants and local on more responsibilities for deliv- of social fund investments were for taxes, social funds can end up pro- ering services. Social funds in both primary school projects. While countries have responded by inte- these project choices undoubtedly outside official channels. This may elected local governments. But plans and budgets. Such integra- help speed project implementation, mechanisms for local accountabil- tion will increase the chances of ef- but it can conflict with the objective ity are often weak: they can be over- fective operation and mainte- of building accountable local gov- ridden by political forces and are nance-though much still hinges ernments. This happened in Peru, subject to subversion by powerful on the technical capacity of local gov- where the central government was elites. In Peru social fund spend- ernments to provide staff and un- not fully committed to empowering ing rose significantly just before two dertake routine maintenance. local governments, so the social recent presidential elections, and fund ended up bypassing elected projects were funded in provinces Conclusion local governments. where the political impact was likely For effective financing of local de- to be greatest (Schady 1998). Close Decentralization and social funds velopment, the challenge is to find scrutiny of accountability mecha- are closely related. As more coun- ways for social funds to work with nisms is therefore important to as- tries decentralize, local govern- local government institutions while sess the feasibility of having local ments are tapping into the lessons ensuring that poor communities governments manage social fund learned through social funds, and still benefit directly. In Bolivia and resources. many are seeking ways to adopt Honduras social funds work di- more participatory planning ap- rectly with the political and admin- Sustainability proaches, rore sustainable financ- istrative branches of local govern- Real development impact comes ing of recisrrent costs, and better ments to increase awareness, pro- only from the sustained provision mechanisms for accountability. In vide technical assistance, and co- of basic services over many years. countries with weak local govern- ordinate activities. But factors outside the immediate ments, such as Cambodia, Malawir control of social funds and local incroatdin local political incorporated in local political Accountability governments often determine decisionnaking. Nevertheless. coor- An important feature of social whether social fund investments dination between social funds and funds is the promotion of open have a lasting impact. local governments is improving in operations. Communities make In some cases social funds have all three countries. For example, in their own choices about many ele- effectively used cominunity institu- Zambia a window of financing for ments of the project cycle. includ- tions to operate and maintain ser- district council projects is being ing project selection, procurement, vices. In Zambia more the 60 per- and contracting. Many evaluations cent of parents pay fees to school fund aro ect t of beneficiary satisfaction with so- committees to cover the cost of rou- Honduras, Peru, and Zimbabwe cial fund projects have indicated tine maintenance of investments have varying degrees of decentrali- that this openness has helped re- supported by the social fund. But store community faith in the ability as responsibilities for service de- vvement by elected local goveri- of public institutions to provide livery are increasingly decentralized, vo ments in social fund operations. In essential services, and has helped local governments are expected to 1998 Honduras incorporated communities appreciate their own take on a more significant role in roles and responsibilities in these the funding and institutional ar- decisionmaking on social fund projects into its system of town hall activities. rangements needed to ensuremeetings, though recent events have Accountability is also an essen- sustainability. Yet local governments migs, tho recent en have tial part of decentralization. Suc- are often constrained by limited ca- highing hted t d y of main- taining such a broad approach to cessful decentralization requires pacity and resources, so social g mechanisms that hold local govern- funds in Bolivia and Honduras early to evaluate the impact of these ments accountable to their elector- have gone one step further and now changes on development outcomes. ates. It also requires that local bu- require that local governments in- reaucrats, whether local officers of clude the operation and mainte- slowly becoming more assertive, central line ministries or local tech- nance expenses of their social fund and the social fund is providing re- nical staff, are accountable to projects in annual development sources to address shortages in local funding. In Peru, however, the projects that have been identified Further reading lack of decentralization has re- through participatory municipal stricted opportunities for the so- development plans. Economy oJ Democratic Decentrali- cial fund to work with local govern- All the social funds studied are zation. A Directions in Development ments. investigating ways to increase the book. Washington, D.C.: World Bank. Bolivia7s social fund has come the involvement of local governments. Parker, Andrew. 1995. "Decentralization: closest to complete integration with Some funds are beginning to trans- The Way Forward for Rural Develop- ment?" Policy Research Working Pa- the operations of elected local gov- fer more project responsibilities to per 1475. World Bank, Washington, ernments. Sweeping legislative re- local governments, especially in D.C. form, especially the 1994 Law on Bolivia, Honduras, and Zimbabwe. Parker, Andrew, and Rodrigo Serrano. Popular Participation, established Such funds will face the challenge 2000. 'Promoting Good Local Gover- important requirements for com- of transforming themselves from centralization" Social Protection Dis- munity involvement and conferred agencies that manage the direct cussion Paper 0022. World Bank, new responsibilities on local gov- implementation of projects to agen- Washington, D.C. ernments. The social fund is an cies that support local capacity Schady, Norbert. 1998. "Seeking Votes: The Political Economy of Expendi- important part of these arrange- building for project implementa- tures by the Peruvian Social Fund ments, and has promoted closer in- tion. Similarly, local governments (FONCODES), 1991-1995." Policy tegration between communities and face the challenge of learning from Research Working Paper 2166. World local governments by financing only social fund procedures that have Bank, Washington, D.C. empowered poor communities. This article has been reprinted as is from PREM Notes No. 51, January 2001. This note was written by Andrew Parker (Senior Learning Specialist, Office of the Vice President, PREM Network), based on Parker and Serrano (2000).