71472 CONTENTS ii Acknowledgments iii Foreword iv Foreword 1 The Participatory Anti-Corruption Initiative: Building a Coalition against Corruption John Mario González, Andrea Gallina, Geli Redondo, Carolina Rendón, Miguel Eduardo Sánchez, Davide Zucchini, and Christian Contín 4 Results-Focused Planning in the Dominican Republic Magdalena Lizardo, Juan T. Monegro, Davide Zucchini, and Alejandro Medina Giopp 8 Engaging Civil Society in the Public Expenditure Management Cycle Andrea Gallina, Sarah Keener, and Marcos Villamán 12 The Citizens’ Portal María Felisa Gutiérrez, Timothy Cheston, and Aline Coudouel 15 Legislative Technical Assistance for the Dominican Congress: Developments and Challenges John Mario González and David Canaán 19 Budget Rigidities and Fiscal Space in the Dominican Republic Miguel Eduardo Sánchez and Edgar Victoria 24 The Quality of Public Expenditure in the Electricity Sector David Reinstein, Jasmin Chakeri, and Celso Marranzini 28 Improving the Quality of Public Expenditure on Education: The Role of Information Javier Luque and Víctor Sánchez 31 How Procurement Contributes to Increasing the Efficiency of Public Expenditure in the Dominican Republic João N. Veiga Malta and Eric Hazim 34 Introducing Performance Contracts in the Public Administration Pedro Arizti, Joanna Watkins, and Juan T. Monegro 39 The SIUBEN Targeting System Susana Gámez, Timothy Cheston, and Aline Coudouel 43 The Institutional Architecture of Country M&E Systems: Some Perspectives for the Dominican Republic Nidhi Khattri 47 Change Management Strategies to Build a Culture of Results and Institutionalize M&E Systems Ximena Fernandez Ordonez and Arianne Wessal Improving the Quality of Public Expenditure in the Dominican Republic i ACKNOWLEDGMENTS The individual notes compiled in this book are part of the series “Improving the Quality of Public Expenditure in the Dominican Republic� (www.worldbank.org\lacpublicsector), commissioned by the World Bank and the Dominican Republic Ministry of Economy, Planning and Development (MEPyD). Much of the work reflected in these notes was carried out jointly by the World Bank and the Dominican Republic Government during the last three years. Development of the series of notes was coordinated by Pedro Arizti, of the Public Sector and Governance unit in the World Bank’s Latin America and Caribbean Region (LCSPS). The editing and production of this book was jointly coordinated by Pedro Arizti and John Mario Gonzalez (LCSPS), the World Bank’s Independent Evaluation Group, with the contribution of Ximena Fernandez Ordonez and Nidhi Khattri, the World Bank’s Dominican Republic Country Office, MEPyD, and the Ministry of Finance. The editorial contribution of Patricia Rogers is gratefully acknowledged. Special thanks to Minister Juan Temístocles Montás, Magdalena Lizardo, Juan Tomás Monegro, and Roby Senderowitsch, who helped launch the book. We would also like to recognize the great support of Jasmin Chakeri and Miguel Eduardo Sánchez; also thanks to Carolina Rendón, Andrea Gallina, Gisela Redondo, Davide Zucchini, Maritza Rodríguez, Catherine Abreu Rojas, and Alejandra de la Paz for their contributions. Will Kemp, Tomoko Hirata, and Adam Broadfoot provided outstanding technical support, and Valerie Hermann Perez and Bertha M. Mburugu provided excellent administrative and logistical support. And finally, thanks to Davide Zucchini, Valerie Hermann Pérez, Pamela Mieses, the Dominican Republic Ministry of Tourism, and Radhamés Reyes of the MEPyD for their contributions of photographic material. ii Improving the Quality of Public Expenditure in the Dominican Republic FOREWORD Although the international economic crisis that began in 2007 did not start with structural fiscal deficits, it has revealed impor- tant lessons for fiscal policy and for the role of, and challenges to, the quality of public expenditure. Many countries did not reduce their budget deficits sufficiently during the boom years when revenues were relatively high. Today, therefore, they have little fiscal room to fight the crisis and improve overloaded public sector structures. Fears of a new recession have awakened both developed and developing nations to the need to improve the quality of public expenditure. This does not solely—or even necessarily—imply imposing austerity measures and cuts in spending. Rather, it means developing mechanisms for better expenditure management, increasing the quality of public services, and improving public accountability mechanisms through more robust monitoring and evaluation systems with better indicators and higher- quality data. In this context, concern about the quality of public expenditure and about how spending is carried out is fundamental to achieving substantial cost savings and avoiding new tax increases or unintended reductions in services. Equally important are good governance, the decision to fight corruption, and long-term political commitment (because in most cases achieving positive effects takes many years). The Dominican Republic has already embarked on an ambitious agenda to improve the quality of its public expenditure, and it has made some notable achievements: for example, the National Development Strategy 2030 has been approved; prog- ress has been made on multiyear planning; public servants are required to fulfill a State Affidavit; a Citizens’ Portal has increased the transparency of public spending; a Single Treasury Account is being created; the Chamber of Accounts, the Comptroller General´s Office, and other institutions for internal control have been strengthened; purchases and supplies for the National Health System have been unified; mechanisms for monitoring education outcomes have been improved; and the efficiency of the energy sector has been increased. In spite of these accomplishments, however, much remains to be done. This publication compiles a set of technical notes that look at both the achievements and the challenges for the Dominican Republic’s public sector, offering lessons and examples intended to help country officials and public agencies carry the agenda forward. It demonstrates that although the process is still ongoing in the Dominican Republic, and therefore there are important challenges to face, government officials at all levels are showing increasing interest in adopting new management strategies, improving the quality of public expenditure, and producing better results for the country and its citizens. Francoise Clottes Rodrigo Chaves Hans-Martin Boehmer Director Sector Director Senior Manager Caribbean Country Management Unit Poverty Reduction & Economic Independent Evaluation Group Latin America and Caribbean Region Management World Bank Group World Bank Latin America and Caribbean Region World Bank Improving the Quality of Public Expenditure in the Dominican Republic iii FOREWORD The appropriate level of public expenditure has long been a point of ideological controversy. Some believe that lower public spending leaves more resources available to the private sector, which, they assume, has the capacity to allocate them efficiently to meet the needs of the population. Others believe that the market does not have the capacity to handle difficult social and economic challenges, so that active intervention by the State through increased public spending is essential. In fact, both positions oversimplify the relationship between the State and the people. Society’s needs and demands cannot be satisfied by quantitative levels of public spending alone. What is needed is a particular composition of expenditure, and mechanisms for carrying out that expenditure, to facilitate the production of public goods and services by appropriate institu- tions in sufficient quantities and of adequate quality to achieve the public policy results and impacts. Optimal use of the available real and financial resources is essential to achieve this end. The new results-based management model is based on this premise. Its use requires a sound planning system that frames and guides public management, as well as a permanent, systematic monitoring and evaluation system that can verify compliance with policies, adopt any needed corrective measures, and meet the society’s information needs. In addition, performance-based program budgets, modern human and physical resource management systems, and a redefinition of the role of the legislature and audit entities are needed. These Technical Notes on the Quality of Spending in the Dominican Republic, sponsored by the World Bank, expand on these topics and broadly encompass the state-of-the-art analysis of the quality of public spending in the Dominican Republic, with emphasis on planning, energy, procurement, civil society, citizen participation and the role of the Congress, and education. They help to demonstrate the political will of the Government of the Dominican Republic to enhance the transparency and quality of public spending, and thus to make the policy objectives and goals set out in the planning documents—particularly the National Development Strategy, the National Multiyear Plan for the Public Sector, and the other instruments of the National Planning System—more achievable. Juan Temístocles Montás Minister of Economy, Planning and Development Dominican Republic iv Improving the Quality of Public Expenditure in the Dominican Republic THE PARTICIPATORY ANTI-CORRUPTION INITIATIVE: Building a Coalition against Corruption This note describes the process and results of the anti-corruption coalition-building process that took place in the Dominican Re- public between June 2010 and February 2012. With the support of the international development agencies, the multistakeholder Participatory Anti-Corruption Initiative (IPAC) has established a broad participatory mechanism under which representatives from the Government, Dominican civil society, and the private sector sit at the same table to coordinate efforts to fight corruption in the country. The IPAC established 10 working groups, developed 30 recommendations, set up milestones to mark implementation progress, named governmental focal points, and held four accountability workshops to follow up on the recommendations. The IPAC—a new country approach to tackling corruption—has led to tangible improvements in the quality of public expenditures by making the budget execution more transparent and accessible and the procurement process more integrated with the financial management system, and by contributing to significant progress in the creation of a single treasury account. It has successfully introduced administrative and institutional changes in public entities to strengthen transparency and reduce corruption, and it has kept the spotlight on corruption as one of the main concerns of the country’s people. The Context sector to analyze the most challenging issues affecting the country’s governance and prepare a set of recommendations to address them. Although the Dominican Republic has undertaken important ini- On the Government side, the process was coordinated by tiatives against corruption in the last decade, the results have not the Ministry of the Presidency, the Ministry of Economy, Planning been enough to increase people’s confidence in public institutions. and Development, and the National Commission on Ethics and In the Dominican Republic, as in any country, corruption has led to Fight against Corruption. It also involved other ministries and poor quality in public services, which in turn reduces the public’s public entities that work to prevent and sanction corruption in confidence in the public administration, generating tax evasion and the Dominican Republic: the Office of the Comptroller General eroding social support for political reforms. of the Republic, the National Office to Prosecute Administrative Since 2009, the Dominican Republic has been collaborating Corruption, the Chamber of Auditors, the General Directorate closely with the international development agencies in a significant Office of Procurement, the Ministry of Public Administration, process for enhancing transparency and accountability. There are the National Congress, and governmental Offices of Information indications that important systemic changes are being achieved and Access. The process also involved the main civil society organiza- institutions reinforced. tions that specialize in transparency issues, institutional reforms, and quality of service delivery, together with important private sector groups. It was officially launched in mid-2010 as the Participatory Anti-Corruption Initiative, or IPAC (www.ipacrd.org). Building an Anti-Corruption Coalition The IPAC worked under the direction of an Organizational Committee composed of representatives of each sector, supported Concerned by citizens’ loss of confidence in the Government’s capac- by a team from the international development agencies. The IPAC ity to fight corruption and by frequent media reports of corruption was not intended to merely diagnose corruption—a diagnosis scandals, in July 2009 President Leonel Fernández appealed to the already existed—nor to reproduce the previous anti-corruption international development agencies for support in preparing a plan strategies that were already being implemented. Instead, its objec- to fight corruption in the Dominican Republic. The World Bank and tive was to identify and implement, through a participatory multi- 12 other institutions1 helped set up a participatory process involving stakeholder process, a set of activities to strengthen transparency representatives from the Government, civil society, and the private and institutional integrity while reducing the risk of corruption in Dominican Republic institutions. The IPAC created a new approach to fighting corruption by including different actors in the formula- 1 Embassy of Canada; Embassy of France; Embassy of the Netherlands; tion of the recommendations, promoting public accountability Embassy of the United Kingdom; European Union; Inter-American events, and publishing the recommendations and their monitoring Development Bank; International Organization for Migration; Organization on the Internet. Independent monitoring by civil society and the of American States; Pan-American Health Organization; Spanish International private sector was considered critical to ensuring the sustainability Development Agency; United Nations Children’s Fund; and United States of the anti-corruption initiative by creating an important incentive Agency for International Development. for implementing the promised reforms. Improving the Quality of Public Expenditure in the Dominican Republic 1 IPAC Process BOX 1 The IPAC was based on the voluntary participation of all actors IPAC: SOCIAL MONITORING and was facilitated by the international development agencies. Much was accomplished during the first few months. A consortium of 14 civil society organizations established a social auditing system—the IPAC Civil Society Observatory—to monitor the June 8, 2010: After several preparatory meetings, the IPAC was implementation of the IPAC anti-corruption measures and inform citizens launched at a workshop with the participation of 260 people from about the implications for the quality of service delivery and state different sectors of Dominican society, including the media, which transparency. The Observatory also aims to inform youth about the gave broad coverage. At the workshop 10 multistakeholders work- IPAC and increase their capacity to use social networks and information ing groups were established (Procurement and Acquisition; Civil Service; Planning and Financial Management; Access to Information; technology as advocacy tools for better governance. The Observatory is Infrastructure; Public Health; Education; Energy; Water; and Fiscal an important factor in ensuring the sustainability of the reforms and in Supervisory agencies). creating the momentum for a coalition-building process to reduce the level of corruption in the Government. July 27, 2010: For six weeks, the 10 groups worked in a highly participatory way to develop a document analyzing 30 key issues and recommending concrete ways to address them. The recom- mendations were made public on the Internet. A public road map January-December 2011: All participants worked to implement the was then developed, with priorities, implementation arrangements, 98 activities to achieve the 30 recommendations, and independent donors’ responsibilities, responsible government units, a calendar, monitoring by civil society was established (see Box 1). In July 2011, and concrete milestones. the Government focal points completed a monitoring table to oversee recommendations, with milestones until December 31. October 20, 2010: The recommendations were officially presented to the President in a second workshop, which also had very high attendance and extensive media coverage. The recommendations suggested measures to correct the Government’s purchasing and Follow-up to the IPAC Recommendations procurement system; proposed a bill to be enacted by the Congress to rationalize the state’s macro structure; and called on the Government To create momentum and enhance accountability, in March, to instruct all officials to comply effectively with the 41-08 Public June, and October 2011, the IPAC Organizing Committee held Service Law.2 The recommendations also urged several other important three “Accountability Workshops to Follow up on the IPAC’s measures: adoption of the single treasury account as a financial tool Recommendations� in Santo Domingo. The workshops were to centralize all public resources in a single bank account and ensure intended to promote dialogue among the Government, civil society, greater transparency in the management of public funds, creation of the private sector, the international community, and the media on a monitoring system to support the management and supervision the status of implementation and on the challenges ahead (see of work contracts managed by the state, and the unification of drug Box 2). A final evaluation workshop was held in February 2012. purchases and medical supplies for public sector institutions. November–December 2010: In two separate sessions, the Council BOX 2 of Ministers discussed and adopted the IPAC’s recommendations IPAC: THE ROLE OF THE MEDIA as a priority of Government policy and assigned to each recom- mendation a focal point with responsibility for implementing the The media have shown a constant interest in the IPAC, publishing actions. Continuing to demonstrate political will and support for the the implementation results and hosting key players on TV and radio anti-corruption initiative, President Fernandez declared 2011 to be the “Year of Transparency and Institutional Strengthening.� programs. They have also shown a genuine interest in engaging in a constructive way and raising the level of the debate on the corruption December 2010–January 2011: By the end of January all Govern- issue. They were one of the IPAC’s best allies in promoting citizens’ ment focal points completed a monitoring table to oversee the awareness of the initiative and in maintaining the pressure of public implementation of each recommendation and its milestones, mark- opinion on the issue of corruption. Since the inception of the initiative, ing implementation progress up to the end of June 2011. This table was made accessible to the public on the IPAC webpage. This was over 220 articles have appeared in the print and online newspapers; and the official beginning of the IPAC implementation phase. media coverage was exceptional during the October 2010 workshop, when the 30 recommendations were officially presented to the Executive, and during the Council of Ministers meetings of December 2010, with IPAC 2 This law, enacted in 2008, created the Ministry of Public Administration news appearing on the front pages of the main national newspapers. and provided measures to modernize the civil service and strengthen the public administration. 2 Improving the Quality of Public Expenditure in the Dominican Republic To measure Government agencies’ compliance with the agreed civil society, the Government itself, and international organizations, measures, the workshops introduced a traffic lights scorecard the IPAC has encouraged different ministries and governmental system: green indicated recommendations that had been adopted agencies to collaborate and speak the same language. completely; yellow showed that some advances had been made All too often, anti-corruption endeavors dwindle away amid but the action had yet to be finalized; and red signified that the routine activity and sudden changes in government priorities. In the recommendation was delayed. The instrument not only measured Dominican Republic, however, the process has remained active, has implementation status, but also served to remind the different moved through different phases, and has been in place for more Government departments about the need to meet a specific than a year, continuing to involve 16 Government focal points, inter- deadline. Government entities made strong efforts to develop the national entities, and the consortium of civil society organizations. knowledge and expertise they needed to implement the recom- In an initiative that is as ambitious as the IPAC, coordination mendations. As of October 2011, of the 98 activities needed to in bringing together international support and expertise, facilitation implement the 30 recommendations, milestones for 62 had been by the government, and monitoring of and accountability for reform completed on time, 16 were still in progress, and 20 were delayed.3 actions becomes a test of leadership itself—and the Government The progress shows how this new way of making the Government of the Dominican Republic has certainly risen to the challenge. accountable on a specific plan created important incentives for many actors, although some still resisted the implementation of reforms. Going Forward: Sustaining the IPAC Reforms During each Accountability Workshop, the IPAC Civil Society Observatory was invited to present the findings of its indepen- dent monitoring, marking a new stage of constructive engagement Although the IPAC has come a long way, it faces critical challenges. between the Government and civil society. The Observatory’s To make irreversible advances against corruption in the Dominican results were also published on the IPAC webpage (www.ipacrd.org). Republic, the early actions will need to be strongly institutionalized in the public administration to gain more legitimacy by political stakeholders. The continued engagement of the international devel- Achievements opment agencies is important, but the commitment of the national and local Dominican political leadership is absolutely crucial. The The IPAC represents a new country approach to tackling corrup- fact that the Civil Society Observatory will continue monitoring the tion. It has been successful so far in introducing administrative and recommendations that remained uncompleted by the December institutional changes in public entities to strengthen transparency 31 deadline is a good indication that the process can be sustainable. and reduce corruption. In addition, it has elicited and stimulated the The possibility of organizing a “transition workshop� following the Government’s willingness to fight corruption, and has continued to Presidential elections in May 2012 can also pave the way for further spotlight the issue as one of the main concerns of public opinion in engagement of the new administration. the country. The IPAC has yielded tangible results: (a) the publica- The fight to conquer political resistance requires not only lead- tion of a web-based user-friendly tool that will provide public access ers with deep convictions about how Dominican society and insti- to budget information from the Financial Management Information tutions will benefit in both the short and long term from breaking System (SIGEF); (b) a web-based portal with monthly updates down corruption, but especially a dense network of coalitions for that inform citizens of the expected and actual electricity supply in reforms within the private, public, and civil society sectors. Without each circuit; (c) a new performance assessment framework for civil a strong coalition that keeps the pressure on policy makers, the servants that will contribute to the professionalization of the public IPAC is unlikely to be able to reverse popular skepticism about administration; and (d) significant progress in the establishment of the reforms, co-opt important support to make them viable, and the single treasury account as a financial tool to centralize all public confront the opposition of political and entrepreneurial sectors resources in a single bank account and ensure greater transparency where corruption could be rooted. In this sense, the media scrutiny in the management of public funds. Other important recommenda- and the organized civil society have played a fundamental role that tions that are being completed are the creation of a monitoring needs to be maintained. system to support the management and supervision of work As long as corruption persists in the Dominican Republic, it contracts managed by the Dominican State, and the unification of will be exceedingly difficult to reduce poverty and increase well- drug purchases and medical supplies for public sector institutions. being in the country. Therefore the Government and the political It is important to highlight that carrying out the IPAC’s recom- parties, whether or not they are in opposition, should hold the mendations has not only introduced specific changes, but—what is battle against corruption as part of a continued social pact, which perhaps even more important—has generated positive institutional endures and deepens beyond a presidential term. synergy within various entities. Different unit teams have been encouraged to deepen and broaden the scope of possible adminis- This note was prepared by a World Bank team of John Mario González, trative and operational reforms. Also, because there is monitoring by consultant; Andrea Gallina, consultant; Geli Redondo, consultant; Carolina Rendón, Public Sector Specialist; Miguel Eduardo Sánchez, Junior Economist; Davide Zucchini, consultant; and Christian Contín, 3 At the time of writing, the results of the final quarter (October- consultant, in collaboration with the Government of the Dominican December 2011) were not yet available. Republic. Improving the Quality of Public Expenditure in the Dominican Republic 3 RESULTS-FOCUSED PLANNING IN THE DOMINICAN REPUBLIC Since 2006, the Dominican Republic has been engaged in a public management reform process covering the areas of planning, financial administration, auditing systems, and the public service. In this reform context, the country launched a participatory process aimed at building consensus around a long-term vision of the future that would serve as a road map for all activities in the public sphere. That vision of the future was set out in the 2030 National Development Strategy. The reform process seeks to enhance the quality of public expenditure to ensure that it is appropriate, effective, and efficient, based on the vision and strategic development objectives. Significant progress has been made toward ensuring that public policy management is increasingly implemented in keeping with that vision, but a number of challenges remain. Introduction Economía, Planificación y Desarrollo) created the legal framework for a national planning system. The Dominican Republic’s experience with planning dates back to During the past decade, the Dominican Republic has launched the 1960s.The country was one of 13 in Latin America that, between several reform processes aimed at laying the foundation for and 1961 and 1963, “passed laws establishing planning ministries, offices, gradually developing sound tools to implement the new results- or councils.�1 In 1965, with the creation of the National Planning based public management system at the macro, institutional, sec- System (Sistema Nacional de Planificación), and in particular, the pas- toral, and local levels. sage of Law No. 55, the practice of planning was institutionalized in One critical feature of the new planning system is its systemic the Dominican Republic, and the administrative, consultative, and linkage with the public financial administration system, with the pub- operational entities of the planning system were established.2 lic service, and with the national system for internal State auditing.3 In many Latin American and Caribbean countries, including It is required to coordinate and link public policies so as to make the Dominican Republic, the planning system adopted in the 1960s them coherent from a sectoral standpoint and in terms of timelines, entered a crisis phase in the 1980s. There were several reasons for so that they are connected, create synergies, and strengthen the this failure: (a) excessive focus on the preparation of plans rather impact on development objectives. than on their execution; (b) limited technical capacity; (c) the chal- Significant progress has also been made with the development lenges of compiling uncoordinated (and incomplete) information; of SNPIP tools, primarily at the macro and institutional levels. One (d) the strong bias toward five- or six-year timeframes and the very important milestone in the development of this system has scant attention given to the annual budget; (e) the low level of been the formulation process and its passage into law as the 2030 application of these plans to programs and projects; and (f) the National Development Strategy [Estrategia Nacional de Desarollo, or attempt to make these plans mandatory by enacting them into law. END], on which consensus was reached with a wide cross-section During the 1980s, the failure of planning efforts and laissez-faire of civil society groups, through a broad participatory exercise. economic policies spawned “the notion of what is called the crisis The END, the most important tool in the National Planning and in planning in Latin America and the Caribbean.� Public Investment System, sets out the vision for long-term national In the late 1990s, the Dominican Republic started a far-reaching development and outlines the public policy path to be followed state reform process which, along with a number of lessons learned to achieve the expected results and to implement this vision of from the 2003 banking crisis, led to a “series of laws related to development (see Figure 1). planning, public investment, and state financial administration.� In In sum, the new planning system is a novel tool. It is a key particular, Law No. 498-06 establishing the Planning and Public component of the new public management cycle and is innovative, Investment System (Sistema de Planificación e Inversión Pública, or linked to financial administration, public administration management SNPIP) and Law No. 496-06 creating the State Secretariat for the (which includes administrative careers), the national public procure- Economy, Planning, and Development (Secretaría de Estado de ment system, and internal auditing and government accountability, 1 García D’Acuña E. “The Past and the Future of Planning in Latin America,� in Pensamiento Iberoamericano, No. 2, July-December, 1982, pp: 15–45. 2 Merrete, J., 2002. “The national public investment system in the Dominican Republic: project inventory monitoring system—strengths and weaknesses,� 3 Secretariat of State for the Economy, Planning, and Development. 2008. in Sistemas nacionales de inversión pública en América Latina y el Caribe: National Development System. http://economia.gov.do/eWeb/Archivos/ balance de dos décadas. General Compendium, November 2001. Libros/2008120420332_La_Nueva_Institucionalidad.pdf 4 Improving the Quality of Public Expenditure in the Dominican Republic FIGURE 1. NATIONAL PLANNING SYSTEM • Outlines the long-term vision for the country • Medium-term planning tool • Guides short- and medium-term National • Aligned with END targets; public actions Development implements the END Strategy • Sets forth the vision for carrying • Establishes strategic targets • Sets goals to be achieved out public actions and policies National Multiyear Plan • Contains priority programs and • Establishes lines of action for the Public Sector projects • Stipulates financing criteria • Projects the resources required Multiyear for implementation Sectoral Territorial Public Plans Plans Investment Plan International Assistance Multiyear Budget Institutional Planning Annual Budget Results-based Contracts Training Information Research Advisory Services Cross-cutting support Ministry of the Economy, Planning, and Development among others.4 One objective is to overcome a short-term The Ministry of the Economy, Planning, and Development focus and fragmented systems by introducing a forward-looking submits the updated PNPSP to the Ministry of Finance, so that the approach. At the end of the cycle is the monitoring and evaluation document may serve as a frame of reference for preparation of function—an activity oriented toward transparency, accountability, the annual budget. This approach seeks to ensure that the annual and the strengthening of planning processes. budget is consistent with multiyear planning and the country’s long- The second most important tool in the SNPIP is the National term vision set out in the National Development Strategy.The 2012 Multiyear Plan for the Public Sector (Plan Nacional Plurianual del document, the product of the third updating of the PNPSP, covers Sector Público, or PNPSP). This medium-term (four-year) plan aligns 2012–2015. priority public production (based on the execution of programs, An IT platform, designed to interface with the network of projects, and policies) with targets and expected results. Production government institutions and the Ministry of the Economy, Planning, targets and results therefore cover a four-year period. The PNPSP is and Development, has generated enthusiasm and strengthened updated every year to reflect a review and revision of the strategic planning momentum. The platform incorporates not only programs plans and multiyear programming of roughly 50 government institu- and policies, but also priority public production over a four-year tions, which execute public programs, projects, and policies. This period, as well as production, results, and impact indicators, so that updating process is characterized by a methodological focus on the follow-up action may be taken with respect to targets. public value chain. To sum up, the interrelation among these three linked systems in the context of the new approach to public management in the Dominican Republic involves five major processes. 4 A series of laws was passed in the context of this comprehensive • The development of systematic strategic planning processes in public management reform process (the Planning and Public Investment public institutions with a view to results-based management. System)—the Organic Law of the Secretariat of the Economy, Planning, and Approximately 50 public institutions, which account for 70 Development; the Organic Law of the Secretariat of Finance; the Law on percent of the general budget, engage in robust strategic plan- the Integrated Financial Administration System; the Law on Public Credit; ning exercises, with priority public production being covered in the Treasury Law; the Law on Procurement, Contracting, and Concessions; the National Multiyear Plan for the Public Sector. the Internal Auditing Law; the Organic Public Sector Budget Law; the Civil Service Law; and the Law on Government Accounting. Improving the Quality of Public Expenditure in the Dominican Republic 5 • Significant reform of the way in which institutional budgets are The National Statistical Office (Oficina Nacional de Estadística), prepared.This process now involves strategic planning, marking which is under the Ministry of the Economy, Planning, and a departure from the traditional budget preparation process Development, has assisted with the validation process related to based on historical values. More and more, institutions are the relevance and quality of the PNPSP indicators. It is also com- linking the multiyear programming of their public production pleting the National Statistical Plan, which seeks to improve the to budget availability projections when updating the PNPSP. timeliness, adequacy, and reliability of the information that feeds into • A high level of correlation between the plan, budget, and orga- the planning system. nization so as to link targets and desired results with each unit In recent years, the National Public Investment System (SNIP) in the organization. In this regard, the joint work of the main has been strengthened, and the central government, decentralized public administration policy-making bodies (the Ministry of and autonomous institutions, and public companies are registering Finance, the Ministry of Public Administration, and the Ministry public investment projects in the scheme, subject to compliance in of the Economy, Planning, and Development) is helping estab- formulating internationally accepted standards. Thus the country is lish a stronger link between planning and budgeting processes. increasingly institutionalizing the culture of public sector projects. No investment project to be financed with public resources—whether • The optimization of administrative processes to facilitate loan, donation, or Treasury resources—can be funded through the target-based resource allocation and the establishment of a national budget without a SNIP Code, because of the link between monitoring and evaluation system that allows for the delega- the Integrated Financial Management Information System (SIGEF) tion of authority for handling resources. and SNIP. • The strengthening of a management, monitoring, and evalu- Monitoring and evaluation activities are critical, given the focus ation auditing system that facilitates follow-up in the areas of on planning, the new public management approach, and the design results and processes. Significant strides have been made in of the system tools. The Ministry of the Economy, Planning, and this regard, and the main policy-making bodies are working Development is coordinating the effort to develop the National jointly toward this goal. Monitoring and Evaluation System, which will include (a)  moni- toring and evaluation of public program and policy execution Challenges of Planning and Quality of under the supervision of the Ministry of the Economy, Planning, and Development; (b) monitoring of the physical and financial Public Expenditure execution of the budget under the supervision of the Ministry of Finance; and (c) the monitoring and evaluation system for institu- In recent years, the Dominican Republic has followed in the foot- tional performance, under the supervision of the Ministry of Public steps of Brazil, Chile, Costa Rica, Colombia, Mexico, and Peru in Administration. Added to these processes is the development of making more rapid progress toward implementing a results-based technical auditing capacities in the Office of the Auditor General management model.5 The focus on planning—centered on the of the Republic. Also helpful is the progress made with financial identification of the value chain of government institutions and of administration reform processes and other initiatives, such as the indicators for monitoring and possibly assessing the impact of public effort under way to upgrade the National Statistical Office so that production on END development targets—is giving the greatest it can assume its role as the main policy-making body of the national impetus to results-based management and, in this context, to prog- statistical system. ress in the quality of public management. In summary, although progress has been made, much remains In keeping with the focus on results-based management, plans to be done to create optimal conditions to facilitate the new were formulated to strengthen five pilot institutions with a view public management approach. Going forward, seven challenges to to implementing results – and performance-based contracting. To the continued successful implementation of the far-reaching public date, two such contracts have been concluded between the main administration reform process outlined in this document can be policy-making bodies and the Ministries of Education and Health. noted. The National Development Strategy, approved in January 1. Approval of the National Development Strategy and formula- 2012 after three years of work involving the drafting of proposals, tion of a Multiyear Plan for the Public Sector represent impor- consultation, and discussion with broad sectors of Dominican soci- tant milestones. The establishment of a computer system to ety (about 8,000 individuals and more than 1,400 organizations), update the PNPSP, which was recently introduced, represents sets forth a series of strategic targets and indicators through 2030. a step in the right direction. However, the process of formulat- The Law leaves it to the “institutional, sectoral, and regional strategic ing sectoral and regional plans remains fragmented. A specific plans as well as the National Multiyear Plan for the Public Sectors� and standard methodology that facilitates the linkage of public to address the “interim indicators and targets, linked to the broader policies at both the horizontal and territorial levels is needed. indicators and targets set forth in the 2030 National Development Strategy.�6 2. Significant strides have been made with capacity building in the areas of preparing public investment projects and linking them with budgeting processes. The system covers all central 5 Bellos Barros, R. 2011. “Evaluation and Planning for Development.� government institutions and decentralized entities in the ILPES-ECLAC non-financial public sector, including public entities. Significant 6 Law 1-12 challenges are the integration of municipalities into the SNIP 6 Improving the Quality of Public Expenditure in the Dominican Republic scope, building technical capacity in the preinvestment phase, country would need (a) a system to assess the capacity of local and improving institutional capacity to ensure that decision institutions to provide specific services, and (b) a management and making is better linked to the rule specifications and proce- oversight system that uses the clear identification of the actors dures of the SNIP, as well as the priorities of the END. It is responsible for carrying out tasks to assign resources based on pro- also necessary to develop good practices in joint intersectoral jected products and the capacity to manage them. The 2010 PEFA8 projects, to increase synergies in the achievement of global and report for the Dominican Republic notes these problems related regional development. to the quality of municipal expenditure (ID-8—“transparency of intergovernmental fiscal relations�), the rating for which under 3. The Integrated Financial Management Information System must the indicator “timeliness of reliable information from subnational be strengthened and must include all state units. Furthermore, governments on their allocations from the central government� was a connection must be established among these units to facili- relatively poor. The development of local management tools, includ- tate linking planning systems with financial management. The ing the financial and fiduciary audits required by law, which foster implementation of the Single Treasury Account also needs to integration into the national planning process, would mark a begin- be completed. The creation of a transaction website for public ning in the effort to narrow the gap between the two levels. At the procurement and contracting would lead to more efficient same time, the creation of Single Planning Regions, the Territorial resource use that is clearly linked to the targets and goals of Zoning Plan, regional plans, and the appropriate structure of devel- the National Development Strategy. opment councils would create the conditions to begin linking the 4. Stronger linkage of the planning system with sectoral medium- planning process in the country. term expenditure frameworks, which are being established, Without a doubt, strengthening the planning process serves as would lend greater consistency to multiyear planning and the compass on the path to change aimed at improving the country, enhance the predictability of public expenditure. as set forth in the National Development Strategy. 5. The process for assessing public investment via the National This note was prepared by Magdalena Lizardo, Director of the Economic Public Investment System should be deepened and should and Social Analysis Advisory Unit, and Juan T. Monegro, Director General also include investments by municipalities, in the context of for Economic and Social Development, both in the Dominican Republic’s strengthening a national monitoring and evaluation system Ministry of the Economy, Planning, and Development; and by Davide that facilitates evaluation of the different development plans Zucchini and Alejandro Medina Giopp, consultants in the World Bank. included in the planning system. 6. The gradual development of institutional plans with a standard methodological framework and of a monitoring and evaluation system that incorporates international best practices would call for the institutional strengthening of the planning and development units of public administration entities and offices. 7. The quality and timeliness of the information generated by the national statistical and geographical system need to be improved. Going forward, one of the main challenges the country faces is linkage between public policies. The Constitution approved in 20107 establishes, in practical terms, a new set of local entities (municipal districts) which, along with municipalities, form the core of the local administrative policy-making system (art. 199). Beyond considerations related to the capacity to manage local services and establish cooperative ties with other state entities, the increase in the number of local institutions from 156 to 387 hardly seems consistent with efforts to strengthen a results-based management system—something that, by its very nature, calls for target-based allocation of resources rather than allocation based on the exis- tence of institutions whose resources are allocated by law. Lastly, there are “bottom-up� and �top-down� flows in the planning system in the Dominican Republic, which operates at both the national and the local level. While significant progress has been made at the national level, challenges persist at the local level. The 8 Shepherd, J. A. and Saldarriaga, G. 2011, Preparation of a public expendi- ture and accountability report to measure PEFA performance. http://www. 7 2010 Constitution of the Dominican Republic http://www.senado.gob.do/ hacienda.gov.do/politica_legislacion_tributaria/otras_publicaciones/2010/ senado/Portals/0/Documentos/Constituciones/const.%202010.pdf Informe%20Final%20PEFA%202010%20Republica%20Dominicana.pdf Improving the Quality of Public Expenditure in the Dominican Republic 7 ENGAGING CIVIL SOCIETY IN THE PUBLIC EXPENDITURE MANAGEMENT CYCLE In countries where the delivery of public services is characterized by little or no infrastructure, absenteeism among such service providers as teachers and doctors, corruption, favoritism, discrimination, lack of transparency, and so on, adding resources alone is not sufficient to improve outcomes and delivery. Participatory public expenditure management (PPEM) can help produce significant operational results (e.g., improved performance, the introduction of corrective measures) and process outcomes (e.g., institutional, behavioral, and relational changes). The Government of the Dominican Republic has introduced several initiatives that improve the environment for PPEM. Introduction ture management (PPEM) can help produce significant operational results (e.g., improved performance, the introduction of corrective measures) and process outcomes (e.g., institutional, behavioral, and In weak governance environments, the rationale for engaging orga- relational changes).4 nized civil society in the public policy cycle lies in two fundamental and intertwined aspects: political competitors do not make credible commitments unless broad groups of citizens act jointly, and the incentives to provide public goods (those that benefit not just elite Challenges to Transparency and groups, but all citizens) are stronger when citizens act collectively to hold political leaders accountable.1 Accountability in the Dominican Republic For example, in many developing countries lack of resources leads to deficiencies in the delivery of public services. Traditional By international standards the Dominican Republic does not score policy responses focus to a great degree on increasing public well in the areas of budget openness and transparency. For example, expenditures to improve actual outcomes and delivery of public it scored 14 points out of 100 in the 2010 Open Budget Index services; however, development theory has evolved in recent developed by the International Budget Partnership (Figure 1). And years to recognize the importance of institutions, governance, and according to Transparency International’s “Corruption Perception accountability incentives in the delivery of services. More specifically, Index 2010� Report, the Dominican Republic ranks 19th among the the lack of “voice� by, and accountability to, citizens in general, and 28 countries in the Americas. to poor people in particular,2 has been recognized as contributing These problems have a practical impact on the country’s to failures in service delivery.3 Collective action to monitor the qual- development. The 2011–2012 Global Competitiveness Index ranks ity of public expenditures can help to ensure that resources are not the Dominican Republic at 110 out of 142 countries, with a score misallocated, that they reach front-line service providers, and that of 3.7 points on a scale from 1 (low) to 7 (high). Indicators on they are used in transparent and accountable ways. transparency and accountability under the “Institution Pillar� are at One of the ways to achieve such action is to promote collec- 3.1 points, and the ranking is low at 126 out of 142 countries. In tive civic engagement in the entire process of allocating, spending, the accompanying survey, business executives cite corruption, taxes, and monitoring public resources. Such participatory public expendi- inefficient bureaucracy, and poor education among the most critical factors hindering business (see Figure 2). However, there are also some recent signs of improvement 1 Keefer and Vlaicu (2008) in Keefer, Philip (2011), “Collective Action, in this area. The most recent monitoring report by Participación Political Parties and Pro-Development Public Policy,� Policy Research Ciudadana (the Dominican Republic’s chapter of Transparency Working Paper WPS5676, Washington: World Bank. International) shows that, of 82 public institutions surveyed, 62 have 2 Janmejay Singh and Parmesh Shah (2003), “Making Services Work for improved their compliance with the Access to Information Law;5 Poor People. The Role of Participatory Public Expenditure Management 54 (66 %) have published a detailed budget online, although only a (PPEM),� Social Development Notes No. 81, March 2003, Washington: World few (35%) published the budget as it was executed through their Bank. 3 Research has shown that in general the correlation between increased public expenditure and actual outcomes or improvements in service 4 http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTGOVANTIC delivery is weak: Filmer, D., Hammer, J.S., and Pritchett, L. (2000), “Weak Links ORR/0,,contentMDK:22715016~menuPK:7430607~pagePK:210058~piPK:2 in the Chain: A Diagnosis of Health Policy in Poor Countries,� World Bank 10062~theSitePK:3035864,00.html Research Observer 15(2), quoted in Janmejay Singh and Parmesh Shah 5 Participación Ciudadana, 2011. The 5th Monitoring Report summarizes the (2003). results for the period July-December 2010. 8 Improving the Quality of Public Expenditure in the Dominican Republic FIGURE 1. OPEN BUDGET INDEX 2010 Accountability Responses in the Dominican United Kingdom Republic Brazil As part of an extensive effort to address the population’s percep- Peru tion of corruption by modernizing the state administration, the Colombia Government has put in place various participatory mechanisms to strengthen its transparency, accountability, and responsiveness in Argentina the delivery of key public services—including measures to improve budget transparency. El Salvador In the PPEM area there are four main entry points for engaging Ecuador civil society: budget formulation, budget review, budget expenditure tracking, and performance monitoring (see Figure 3).The Dominican Dominican Republic Government took action in all of these areas. 0 20 40 60 80 100 Budget formulation. The 2007 Participatory Budgeting Law (170- Note: the Open Budget Index is a comprehensive analysis and survey that 07) has helped improve transparency and participation at the evaluates whether governments give the public access to budget informa- local level by institutionalizing municipal participatory budgeting tion and opportunities to participate in the budget process at the national (MPB). MPB is currently implemented by 172 municipalities, and level. Countries receiving a score between 81 and 100 are categorized as the Dominican Republic Federation of Municipalities (FEDOMU) providing extensive information on their budgets; those scoring between 61 is providing technical assistance to 224 municipalities. The Office and 80 are categorized as providing significant information on their budgets; of the President for Information and Communication Technologies those scoring between 41 and 60, some information on their budgets; those scoring between 21 and 40, minimal information on their budgets; and those and FEDOMU are piloting the use of mobile technology as an scoring between 0 and 20 are categorized as providing scant or no informa- innovative approach to enhance citizens’ participation in MPB and tion on their budgets. social accountability. The project also addresses the area of budget Source: International Budget Partnership, 2010 expenditure tracking by developing citizen mobile surveys (using cellular phones) to measure the levels of satisfaction with the public works and services provided by the MPB.6 programs and projects; 60 percent have published procurement Budget review and analysis. The Public Budget Monitoring Project, notices online, and many also publish the results of the process; and implemented by the Centro Juan Montalvo and sponsored by 78 percent publish information about the salaries of public employ- ees and consultants (although sometimes it is difficult to access this information using the institutions’ webpage search engines). 6 The project is funded by the World Bank Institute Korean Trust Fund. FIGURE 2. THE MOST PROBLEMATIC FACTORS FOR DOING BUSINESS Corruption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7 Tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6 Inef cient government bureaucracy. . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 Inadequately educated workforce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.6 Access to nancing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 Inadequate supply of infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9 Crime and theft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 Restrictive labor regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Poor work ethic in national labor force. . . . . . . . . . . . . . . . . . . . . . . . . 5.2 In ation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 Tax regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 Policy instability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Poor public health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 Foreign currency regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Government instability/coups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 0 5 10 15 20 25 30 Percent of responses Source: The Global Competitiveness Report 2011–2012, World Economic Forum, 2011. Improving the Quality of Public Expenditure in the Dominican Republic 9 FIGURE 3. THE PARTICIPATORY PUBLIC EXPENDITURE MANAGEMENT CYCLE Budget Formulation This involves direct citizen/CSO participation in formulating public policy and budgets Performance Monitoring Budget Review & Analysis This entails citizens groups or communities Budgets are reviewed by CSOs in order to assess CIVIC ENGAGEMENT monitoring and evaluating the implementation whether allocations match the government’s and performance of public services announced social commitments Budget Expenditure Tracking This involves citizen groups tracking how the government actually spends funds Source: http://gackowledge.worldbank.org/dfgg/Pages/ppem-framework.aspx the World Bank Governance Partnership Facility, publishes peri- Access to Information Law of 2004 (Law 200-04), the nationwide odic analyses of the budget to show whether allocations match dissemination campaigns coordinated by the National Council for Government commitments. The review has provided important State Reform (CONARE), and the progress of designing and creat- information for the civic movement that demands that 4 percent of ing the oversight body for the Access to Information Law.8 GDP be devoted to education. The project produces very simple comic strips explaining the impact and implications of budget alloca- Performance monitoring. The Government is working to expand tions, helping to demystify the technical content of the budget, raise the Community Scorecards in both geographic coverage and awareness about budget-related issues, and improve budget literacy. the scope of the services covered, and strengthen the feedback The project also addresses the area of budget expenditure track- loop that is necessary to ensure the full accountability of service ing through such community-based activities as the Budget Murales providers and decision-makers. With the Solidaridad program, the that use public meetings to disseminate data—obtained through Government is piloting social auditing of the implementation and participatory social audit—on inputs and expenditures related to a performance of conditional cash transfers, thus enabling users and specific public work (a school, a small bridge, a bicycle parking lot). service providers to come together to discuss the evidence and seek solutions. Expenditure tracking. The Government of the Dominican Republic has also progressed toward a more open budget by publishing the Presupuesto Ciudadano, an easy-to-understand guide intended to improve public understanding of the budget process, and by Conclusions and Ways to Increase Civic publishing on the Internet the Consulta Amigable, a web-based user-friendly tool that provides public access to budget information Engagement in the PPEM Cycle on budget execution, revenues, and financing from the Financial Management Information System (SIGEF). The Consulta Amigable, The Government has embarked on an ambitious process to address part of a broader public management modernization program long-standing deficiencies in budget transparency and accountability, led by the Ministry of Finance, is a tool by which civil society can creating increased opportunities for civic engagement. Although it generate better demand for transparency and accountability. The is too early to assess the recent reforms in public financial manage- Government’s commitment to ensure the gradual expansion of ment, there are signs of progress. The adoption of a medium-term the Consulta Amigable to cover all Dominican Government entities expenditure framework and the use of performance information to (both decentralized and autonomous) is key to the long-term suc- improve the quality of public spending have increased the budget’s cess of this initiative.7 Other important steps are the approval of the credibility, predictability, and control. The budget now identifies transfers to and from projects of decentralized agencies, and the deviation between what is in the budget and what is financed by 7 The first phase of the project, providing basic information on budget it has been reduced, from 19.6% in 2007, to 5.9% in 2008, and execution and revenues, was made available on September 30, 2011. The second phase will incorporate more detailed information on budget appropriation and execution and year-on-year comparative tables. The third phase will add more detailed statistics to a data warehouse, permitting access to disaggregated and aggregated information. Finally, the fourth phase 8 A Draft Law establishing the Dominican Institute for Access to Public will add managerial-only reports for the Ministry of Finance. Information was submitted to Congress on February 3, 2012. 10 Improving the Quality of Public Expenditure in the Dominican Republic 2.3% in 2009.9 Law 423-06 increased the type and detail of budget information that the Government is mandated to present before Congress in its budget proposal. Gradually all this information will be transferred into the Consulta Amigable web portal. The new enabling environment has contributed to increasing participation: the number of municipalities implementing MPB meetings has increased from 59 in 2005 to 172 in 2010. Nongovernmental and civil society organizations that specialize in transparency issues are now able to structure their demands around more precise and readily available and updated evidence. This kind of progress provides positive indications about the Government’s political will to improve accountability and increase access to information. However, there are still weaknesses in the control environment, the audit institutions have limited capacity to oversee the Executive, and performance-based multisectoral agreements are used for only a few pilot institutions. To enhance transparency, accountability, and participation in public expenditure management, the Government and the development partners could promote the following initiatives: • Ensure civil society’s effective use of the Consulta Amigable by advertising the tool; expand the tool to cover all centralized and decentralized agencies; incorporate municipal government information into SIGEF; and open consultations between civil society and the Administration on ways to continue improving transparency. • Develop mechanisms for scaling up the existing participatory budgeting process to the national level through the use of information and communication technologies; or explore the possibility of developing an approach to national participatory budget formulation that uses “alternative budgets� prepared by civil society actors to influence budget formulation by expressing citizen preferences. • Strengthen the capacity of local community-based organiza- tions and civil society organizations at the national level to advocate for public administration accountability and transpar- ency, participate in policy analysis and formulation, enhance and continue ongoing efforts in improving access to informa- tion, and monitor the delivery of pro-poor services. This note was prepared by Andrea Gallina, consultant, and Sarah Keener, Senior Social Development Specialist, World Bank, and by Marcos Villamán, Director of the Dominican Republic National Council for State Reform (CONARE), with the support of the Spanish Fund for Latin America and the Caribbean. 9 ACE International Consultants and FIIAPP (2010), Elaboración de un informe de gasto público y de rendición de cuentas en medición desempeño. PEFA Informe Final, p. 31. Improving the Quality of Public Expenditure in the Dominican Republic 11 THE CITIZENS’ PORTAL The Dominican Republic Citizens’ Portal (Portal del Ciudadano Dominicano) is a public information and communications web portal, launched on September 30, 2011, to promote greater transparency of public finances. Established in response to citizens’ demand for access to clear and complete information on public spending and revenues and developed in consultation with users, it provides citizens with a user-friendly interface to interact with the Government and formulate specific queries related to revenues, budget allocation and execution, and results. The initiative is an important element of the country’s broader efforts to modernize public expenditure management while providing new spaces for citizens’ interaction with the Government. The Context create a platform for engagement on public transparency issues, including spaces for dialogue and action, based on the informed demands of citizens. By international standards, the Dominican Republic has historically exhibited limited budget openness and transparency. In 2010, the country received a score of 14 out of 100 on the Open Budget Index developed by the International Budget Partnership, ranking Shaping an Ambitious Transparency Agenda 76th among the 94 countries surveyed. Thus the country is in the lowest category: countries that provide “scant or no information� Over the past decade, the Government of the Dominican Republic on the public budget. has launched an ambitious program to increase transparency Transparency and budget openness are fundamental bases for through more open, participatory, and accountable public budgeting. the quality of public expenditures. Or, at least, the lack of transpar- First, the Access to Public Information Law approved in ency and budget openness is widely recognized to possess cor- 2004 recognizes citizens’ rights to request and receive complete, rosive potential across the realms of corruption, competitiveness, accurate, adequate, and timely information from the Government. accountability, confidence in public institutions, and human devel- It grants access to nearly any public document, and it mandates opment. The 2010 Corruption Perception Index by Transparency the proactive publishing of information about all State acts and International gave the Dominican Republic a score of 3 on a scale activities, including budgets. It requires the Government to establish of 1 to 10 (where 1 means perceptions of highly corrupt govern- a permanent information service to publish information on all ments), ranking 19th out of the 28 countries surveyed in Latin central and decentralized public agencies, the National District, and America and the Caribbean, a slightly worse position than in previ- municipalities. Each government agency must also establish public ous years. The lack of trust in public institutions is further reflected information offices. The implementation of the law has been slow, in a 2008 survey funded by USAID that found that 82 percent but there has been tangible progress. Transparency International, in of citizens viewed public sector corruption as widespread, and in its report on Participación Ciudadana, shows improved compliance the 2010 Latinobarometer Survey, which indicates a consistent with the Access to Information Law in 62 public institutions (out of decrease in trust in public institutions over the past 14 years. The 82), but notes that only 66 percent of the institutions published a Global Competitiveness Report 2010-2011 found that governance detailed planned budget online (usually the previous year’s budget), issues related to transparency restrict the country’s competitive- and even fewer—35 percent—published information about budget ness, as corruption ranks as the most problematic factor for doing execution. business in the Dominican Republic. The UNDP’s 2008 Human Second, over the past five years, the Government has Development Report for the Dominican Republic presented similar undertaken an ambitious series of reforms to modernize public findings, identifying weaknesses in the rule of law and low levels of sector management. A series of laws enacted in 2006 and 2007— transparency and access to information as key obstacles to human on the Ministry of Finance; Economy, Planning and Development; development. and the laws on the Public Sector Budget; Public Planning and This note provides an overview of the major initiative under- Investment; Government Procurement and Contracting; and the taken by the Government to increase the public transparency Integrated Financial Management System—introduced a new of budget information, the Dominican Citizens’ Portal (Portal del legal framework for public financial management that creates Ciudadano Dominicano, herein the Citizens’ Portal), a user-friendly, the basic conditions for a transparent and accountable budget web-based interface that allows timely access to public budget process. While the legislation has been implemented gradually, information. The Citizens’ Portal represents the culmination of one each law has the explicit objectives of increasing transparency segment of an elaborate transparency agenda advanced by the and ensuring public access to budget information. For instance, Government over the past decade. The note also highlights the the Financial Management Law mandates that all institutions use continuing agenda to ensure that the Citizens’ Portal achieves its full systems that share common concepts and methodologies in terms objectives—beyond providing access to budget information—to of processing and reporting financial information. This has helped 12 Improving the Quality of Public Expenditure in the Dominican Republic to consolidate the development of the Financial Management Information System (SIGEF). Zeroing in on Budget Data: Putting a Third, the government launched the Participatory Anti- Citizens’ Portal in Place Corruption Initiative (IPAC) to coordinate civil society, Government, private sector, and international development agency efforts to fight corruption (see the note on IPAC in this series). Ten IPAC Working In the context of this reform agenda, the Ministry of Finance has Groups, including groups working on financial management and developed and launched the Citizens’ Portal to respond to citizens’ access to information, developed a broad range of proposals— requests and provide timely information on revenues, budget allo- among them proposals to ensure the standardization and quality cation and execution, and results. The Government has also made of the information presented by Government agencies, to establish important efforts to strengthen citizens’ and civil society’s capacity mechanisms to punish noncompliance with information laws, to to monitor the budget. In addition, it has created new spaces for create a communication campaign to develop citizens’ knowledge civil society organizations and the Government to meet and discuss of the Access to Public Information Law, and to determine and pub- budget data. licize best practice in setting up public information offices. The sig- nificant traction achieved by IPAC led the Government to dedicate Objectives 2011 as the “Year of Transparency and Institutional Strengthening.� Fourth, the Government has introduced performance-based The core objectives of the Citizens’ Portal are to (a) improve the budgeting in social sectors through a series of Performance public’s knowledge and understanding of the State’s sources of Contracts (Contratos por Resultados y Desempeño) for priority health income and its expenditure patterns by providing free access to and education programs (see the note on performance contracts reliable and timely data on public finance, and (b) promote citizens’ in this series). These Performance Contracts, intended to link the greater understanding of budgets to strengthen the culture of provision of budget resources and the desired improvements in transparency. the sector’s performance, include commitments regarding (a) insti- Indirectly, the Citizens’ Portal aims to have a positive effect on tutional objectives and goals verifiable by performance indicators, the quality of public spending by promoting transparent expendi- involving such managerial and institutional processes and systems as ture management practices, fostering greater accountability in the planning, procurement, monitoring, personnel, statistics, and organi- use of public resources, and promoting independent scrutiny from zational structure; and (b) objectives and goals of priority programs, citizens and civil society. The Citizens’ Portal also looks to democ- involving elements related to the volume and quality of goods and ratize Government decisions through greater and better-informed services delivered by the program. This is a significant departure participation by citizens, strengthening democracy in the country from traditional budgeting practices, which focus on inputs (and and enhancing the fundamental management of state institutions. not on results). In addition, implementation includes self-evaluation, The intended users of the Citizens’ Portal include civil society validation of the results, and dissemination to internal users, such organizations, nongovernmental organizations, private firms, media, as the Cabinet, and external users, including Congress and citizens academics, researchers, and members of the general public. at large. Finally, the country has taken important steps to build an Content of the Portal enabling environment for civic participation. At the policy level, the Public Planning and Investment Law strengthens the role of citizens’ At the time of its launch in September 2011, the Citizens’ Portal participation and mandates the creation of procedures that guar- contained budget information on the core central agencies. The antee participation during planning processes. This law also creates information is organized to respond to the following questions: several public planning committees at the regional and municipal • What is the Government spending on? levels, which must include the participation of relevant local organi- zations, including nongovernmental organizations. The Government • Who is spending? also opened and institutionalized spaces for civil society participa- • Where is the Government spending? tion in social policy-making and monitoring by creating the Civil Society Consultative Council (Consejo Consultivo de la Sociedad Civil) • What type of spending is it? in 2001 and later signing an inter-institutional agreement with the • What is the source of funding? Social Cabinet to advise on the definition, formulation, execution, • How much was planned to be spent? and monitoring of social programs in the country. Notwithstanding the Council’s institutionalized character, observers tend to agree • When does the Government spend? that it has effectively functioned as an independent body. Also, some • How does actual budget execution compare to what was programs have developed participatory tools for social account- planned? ability—for example, the Solidaridad conditional cash transfer program, which is gradually expanding a Community Scorecard to The Citizens’ Portal targets the needs of citizens—using easy- seek feedback on services. to-use mechanisms for queries, making information accessible in a number of formats (Excel, PowerPoint, PDF), and presenting a combination of data tables and their corresponding automatically generated graphs. Improving the Quality of Public Expenditure in the Dominican Republic 13 Improving Citizens’ Budget Literacy And finally, there is a need for continuing efforts to secure the effective use of the tool by civil society. The greatest challenge will In addition to the information on revenues and expenditure, the be to ensure that civil society and citizens receive adequate training Citizens’ Portal also proposes a Citizens’ Budget (Presupuesto in the use of the tool and that the portal reflects their informational Ciudadano)—an easy-to-understand educational report to inform needs and is presented in a timely, accurate manner. In essence, the citizens of the Government’s proposal in terms of the use and des- challenge is for the Government to see the launch of the portal tination of public resources for each fiscal year. The objective is to as an important tool for the larger objective of engagement and explain clearly and simply how the Government intends to obtain action to address public transparency issues. The Government has the financing to fund its activities and how it plans to spend the taken a marked step forward by launching the Citizens’ Portal. If this resources to achieve the stated objectives. The report also outlines opportunity is not quickly seized by civil society, and citizens more the budgetary processes, including development and review of generally, to strengthen their oversight capacity, things can fall apart, the budget, its principal contents, priority activities, and additional or at least fall back. Ultimately, there has to be a leap of faith—not actions the Government is taking to improve financial management. just by Government or just by civil society, but by both making the jump together. Providing a Platform for Debate This note was prepared by María Felisa Gutiérrez, Vice Minister of The Citizens’ Portal also serves as a participatory mechanism Finance, Dominican Republic; and by Timothy Cheston, Junior Professional through which civil society can demand transparency and account- Associate, and Aline Coudouel, Lead Economist, World Bank. ability. Initially, the development of the Citizens’ Portal included a series of consultations with civil society and the IPAC Working Groups on Financial Management and Transparency, and the com- ments and recommendations from these consultations informed the design and content of the Citizens’ Portal. The Portal encour- ages users to provide comments and suggestions to help further improve the tool. Finally, the Government plans to institutionalize its meetings with civil society to discuss the data presented on the Portal, opening the door for public discussions on budget allocation and execution. Continuing Agenda The launch of the Citizens’ Portal—a landmark step toward public transparency of budget information in the Dominican Republic—is only the first of multiple phases to ensure that the tool captures the desired information and is fully put to use by civil society. The second phase has already begun: incorporating information about the products funded by public expenditure, to respond to such questions as “What does the spending produce?� and incorporating more detailed information on budget appropriation, execution, and year-on-year comparisons. A third phase will provide more detailed statistics to allow users to obtain disaggregated information. It will also cover decen- tralized and autonomous Government entities that were not included initially. It will broaden the scope of the information by providing details on the results achieved by spending, responding to the question “What does the Government achieve with its spend- ing?� This phase will also incorporate results indicators alongside budget execution information. The Citizens’ Portal has already demonstrated important results and challenges. Over the month that the Portal was unoffi- cially launched, the site received over 210,000 hits—a level of inter- est that far exceeded expectations. Nevertheless, training efforts to build the capacity of civil society organizations and citizens to use the tool remain critical to ensure greater use of the information. Translating this initial interest into sustained oversight is critical for the Portal to achieve its objectives. 14 Improving the Quality of Public Expenditure in the Dominican Republic LEGISLATIVE TECHNICAL ASSISTANCE FOR THE DOMINICAN CONGRESS: Developments and Challenges The Congress of the Dominican Republic has made clear progress in its effort to establish itself as a dynamic actor in the democratic process and serve as a counterweight to the Executive Branch in a traditionally strong presidential system. Legislators are nonethe- less faced with the challenge of boosting the institution’s technical capacity to help enhance the performance of its oversight and representation functions, improve public expenditure performance, and thus achieve its governance objectives. This paper argues for the establishment of a nonpartisan, highly skilled technical advisory body that can support legislators and parliamentary committees in overseeing public policies and monitoring public expenditure. Congress and its Institutional Environment a virtuous circle are not made to the structure and functioning of the Congress. It must also be borne in mind that factors external to the As democracy is consolidated in Latin America, the focus of atten- institution can have a major impact on its work. Because Congress tion is shifting toward the functioning of democratic institutions in is part of the entire political system, the electoral system and the the region’s presidential regimes and the effect of these institutions structure of the political parties, to name just two factors, clearly on public management and improved living conditions for the play a role in encouraging legislators to perform their duties. For population. example, if the electoral system promotes a personalized relation- One institution that has assumed greater relevance in this ship between a member of Congress and his or her constituents, transition is the Legislative Branch. Not only does it have a role as and the political parties have a weak institutional framework, a counterweight, which it exercises in the context of its representa- Congress may comprise legislators who are less inclined to reach tive and legislative function in relation to the Executive Branch, but out to civil society and display party discipline, and who adopt less also it has oversight and policy supervision duties that allow it to coherent legal initiatives. However, strong political parties that have play a critical role in drafting effective public policies and promoting a reasonable ideology and internal democratic mechanisms serve transparency in public affairs. as a forum for discussion and a platform for preparatory work, thus In light of this growing importance and the fact that public favoring the development of the legislators’ capacity. trust in the Legislative Branch and its ability to discharge its func- Another factor that can affect the Congress’s functioning, its tions is critical to democratic stability, international organizations institutional strengthening, and its incentives to perform its over- and several cooperation agencies1 have implemented initiatives sight function is the nature of its communication with society. If, to build the institutional capacity of Congresses across the region, in general, its deliberation with society is poor and ineffective and including in the Dominican Republic, and in particular to support communications media fail to provide systematic and substantive their efforts to strengthen legislative technical assistance. coverage of its work, legislators may perceive adopting an oversight The institutional and technical strengthening of Congresses role vis-à-vis the Executive Branch as less rewarding than promoting not only contributes to achieving governance objectives, but can legal initiatives or intermediating on behalf of the electorate. also lead to the improved technical quality of laws and to more effective performance of their oversight and representation func- tions. A strengthened Congress would be able to contribute more effectively to improved public expenditure performance, which in New Powers Require New Public Policy turn would result in more efficient use of taxpayers’ resources, avoiding significant new tax increases or unintended reductions Analysis and Monitoring Tools in services. However, in any country technical support alone may have a limited impact on increasing the capacity of the Legislative In recent years the Dominican Congress has made clear progress Branch if additional changes that will create synergies and produce in its effort to establish itself as a dynamic actor in the democratic process and, incrementally, as a counterweight to the Executive Branch, particularly in view of the concentration of powers in the 1 “Handbook on Legislative Strengthening,� USAID Center for Democracy Office of the President during disruptions in the country’s demo- and Governance, 2000. The World Bank and the Inter-American cratic process. However, to enhance its performance of its functions, Development Bank have also implemented legislative strengthening particularly its oversight role, it still needs significant improvement programs. in its technical capacity. Improving the Quality of Public Expenditure in the Dominican Republic 15 The Dominican Republic’s constitutional reform process, which House of Representatives. began on March 24, 2009, and culminated with the declaration of In the legislative session that ended in June 2011, the units in a new Constitution on January 26, 2010, expanded the powers the House of Representatives had to contend with 1,588 initia- and duties of the Legislative Branch, in particular with respect to tives—485 (30.5 percent) pertaining to draft laws, 293 (18.5 per- oversight and policy supervision. These powers and the dynamic cent) to internal resolutions, and the majority (810) to the approval new internal process have given Congress a greater role in public or rejection of contracts submitted by the President of the Republic. policy formulation and design. However, a review of the powers that the Constitution delegates to Congress and by extension to its legislators points to the need to provide them with considerable technical capacity or advice. Legislative Technical Assistance: Recent For all of the responsibilities held by Congress—for example, (a) levying duties, tariffs, or general taxes; (b) voting each year on Developments the General State Budget Law, as well as approving or rejecting extraordinary expenditures for which the Executive Branch As part of the modernization process, in a bicameral resolution in requests a credit; (c) legislating on the public debt and approv- 2003 the Dominican Congress created the Permanent Advisory ing or rejecting credits and loans signed by the Executive Branch; Office (OPA) to provide professional, technical advice with an (d) approving or rejecting contracts submitted by the President for institutional focus to legislators, committees, and other bodies amounts exceeding the equivalent of 200 times the minimum wage belonging to the National Congress. Experience with this unit was in the public sector; and (e) increasing or reducing the number of markedly positive, as it generated legislative material and reports appeals courts and establishing or dismantling courts—the neces- that informed parliamentary work, in particular the discussion of sary analysis requires a high level of technical expertise. the General State Budget Law. However, it lasted for only one year, Almost all of the cross-cutting functions of Congress have an thanks in part to political changes and the challenge of harmonizing economic and budget variable, although, as the Organization of priorities on the agendas of the Presidents of both Houses. American States (OAS) has found, members of Congress do not The House of Representatives then established the OASEP in necessarily possess budgetary knowledge. The OAS notes that this 2008 to provide technical advisory services to the committees and points to the need for specialized offices to provide assistance and parliamentarians in the House, with the expectation that it would support to legislators during the discussion and decision-making be transformed into a bicameral body that would assume the func- process.2 If the legislators are to carry out their oversight functions, tions of the OPA. Nevertheless, although the OPA was formally they require trustworthy teams of advisers that are well trained in confirmed by both the House of Representatives and the Senate in finding and processing government information. Although, generally August 2010, it has not yet been implemented.3 speaking, all countries in the region have offices that support the The institutional mission assigned to the OASEP, and by exten- legislative process, the fragile nature of their institutional framework sion to the future OPA, is to function as a nonpartisan, technically is more evident when, as in the Dominican Republic, legislators do skilled, and objective entity providing support to legislators and the not have a specific legislative unit assigned to their office. various committees. It is also intended to help the members of Although Law 02-06 on Administrative Careers of the Congress develop their skills in budgeting, using better international National Congress provides for trustworthy public officials who oversight practices, and expanding and updating the operation of are appointed and removed freely to provide direct assistance to information systems, and to assist committees with drafting the legislators, the provision does not indicate that it is binding, provides quarterly reports they submit to the plenary session, including a no precise definition, and assigns great discretionary powers to report on the oversight of the execution of the approved budget the Presidents of the Houses in question. A future revision of the and public policies. Among the OASEP’s most important activities regulations of both Houses should formalize the legislative work are (a) measuring and analyzing the macroeconomic, fiscal, and unit, minimum professional requirements, and pay scales. social impact of the laws and resolutions passed by the National In the absence of legislative work units assigned to each Congress, in particular the General State Budget; (b) implementing legislator offices, they do not have a tool to improve their initia- a system to monitor and analyze macroeconomic variables and indi- tives before submitting them. Currently, technical analysis of legal cators; and (c) implementing a monitoring and evaluation system initiatives is essentially the responsibility of the Department for for the fiscal management of the consolidated public sector. the Coordination of Committees and the Technical Office for The World Bank and other international organizations have Legislation Review, which assess the constitutional, legal, and lin- supported the work of the OASEP with a view to assisting the guistic viability of the initiatives submitted for consideration by the House of Representatives in its constitutional oversight respon- House. To some extent this work is also being done by the Office sibilities, boosting its institutional capacity, promoting transpar- for Budget Analysis, Monitoring and Evaluation (OASEP) of the ency and accountability, and thus improving public expenditure 2 “Fiscal capacity, budgets, and parliaments: The case of FOPREL countries� 3 Previous projects for the institutional reform and modernization of (Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Congress had recommended the establishment of an Office of Advisers, Nicaragua, and Panama), OAS, Unit to Support the Legislative Branch, which would comprise advisers in various fields whose tasks would include Washington, DC, 2009. impact assessments of the laws passed by Congress. 16 Improving the Quality of Public Expenditure in the Dominican Republic BOX 1 BOX 2 THE LEGISLATIVE INFORMATION SYSTEM A REFERENCE CASE: THE MEXICAN CONGRESS The SIL, a key component of Congress’s information system and work, Centros de Estudio (Research Offices) are specialized research entities cre- is used during the entire legislative cycle by the various departments ated by Mexico’s Congress to support the members’ legislative, oversight, comprising the Legislative General Secretariat (the Department for the and representation functions. These offices provide objective information Preparation of Proceedings of Sessions, the Department of Legislative on various topics of interest, specifically providing legislators and political Transcription, the Department for the Coordination of Committees, the party groups with information on draft laws submitted for their approval, Technical Office for Legislative Revision, and the Legislative Comptroller’s the multidimensional impact of the various public policies implemented Office) as well as other internal users such as the executive office, party by the Federal Government, and the formulation, approval, and execution blocs, advisers, legislative assistants, and the Access to Information Office. of the expenditure budget. The SIL has been in operation since 2002. Given the volume of Established through the Organic Law of Congress, the research units are information it produces and the growing needs of internal and external technical institutions that seek to maintain the highest levels of political users, which exceed its technical capacities, it is in need of updating. impartiality. Their management and technical staff are selected by open competition, and their composition reflects the party ratios in the House of Representatives. performance in the Dominican Republic. The World Bank has Of the five Research Offices in operation (Public Finance; Law and also assisted with the contracting for updating and expanding the Parliamentary, Social, and Public Opinion Research; Advancement of Legislative Information System (SIL),4 which is provided through the Department of Planning and Institutional Development in the Women and Gender Equality; Sustainable Rural Development; and Food House of Representatives (see Box 1). Sovereignty), the Public Finance Office is considered to be the most By providing reports on and analysis of the General State important. It receives the most funding and has the most solid operating Budget, the OASEP has provided very important legislative structure. In fact, it is the only Office whose functions are outlined in a resources to the Budget, Public Debt, and Tax Committees and the law (see http://www.cefp.gob.mx). Audit Office in the House of Representatives. It has also supported high-level training in oversight and policy supervision, as well as a fact-finding mission related to the operations of the Research Offices in the House of Representatives of the Mexican Congress (see Box 2). allocations for the functioning of these offices.5 The Presidents and executive offices of both Houses must allocate a budget for the functioning of an OPA in each House, which will provide stability, facilitate their administrative autonomy, and ensure Conclusions and Recommendations continuity. This decision would help reduce centralization of legislative work in the hands of the President of each House. Ensuring full achievement of the OASEP’s goal of supporting Cooperation agreements with international organizations may constitutional oversight duties and contributing to improved public serve as an additional source of financing and, in particular, sector expenditure performance in the Dominican Republic, and of foreign legislative experience. However, in the long term, transforming it into the bicameral OPA, will require an additional Congress’s own budget must be the main source of financing firm and sustained commitment to its institutionalization and for the OPA. strengthening. Various steps can be taken to achieve this objective. With the joint adoption of the OPA by both Houses, or of an • A commitment from the Presidents and executive committees OPA for each House, the Dominican Congress would be making of both Houses of Congress would be required for implemen- progress in its strengthening (as some Parliaments in the region tation of the bicameral resolution that established the OPA in have already done) and would be acquiring technical tools for 2003 and the resolutions that formally confirmed it in 2010. improved oversight. • One of the main obstacles to the success of the moderniza- Government action and decision-making processes in the tion projects for the Congress, in particular with regard to modern world are complex, and most governments possess legislative technical assistance, is the lack of permanent budget the technical capacity to design and execute public policies. The 5 “Modernization of the Honduran Congress,� Inter-American 4 See www.camaradediputados.gob.do. Development Bank, September 2000. Improving the Quality of Public Expenditure in the Dominican Republic 17 Dominican Congress, like others, is facing the challenge of acquir- ing similar technical and expert capacity to monitor and oversee public policies. Its success in this effort will be a major factor in the country’s increasing transparency, accountability, and, ultimately, social benefit. This note was prepared by John Mario González, consultant, World Bank, in collaboration with J. David Canaán of the Dominican Congress. 18 Improving the Quality of Public Expenditure in the Dominican Republic BUDGET RIGIDITIES AND FISCAL SPACE IN THE DOMINICAN REPUBLIC Compared to most of the countries in Latin America, the Dominican Republic makes low budget allocations to public goods (education, health), and the quality of the services in these areas is low. A narrow tax base, budget rigidities, and the energy sector deficit result in little fiscal space to accommodate a sustained increase in expenditure in key areas such as public services or investment. Fiscal space in the Dominican Republic, now below pre-crisis levels, is expected to increase in the coming years as the debt level eases. A reduction in tax exemptions, electricity sector reform, and the introduction of a medium-term expenditure framework are some of the policy actions that would help to further enlarge fiscal space. Context GDP, respectively5). Nevertheless, it is worth noting that during the global economic slowdown, expenditure on health and education in the Dominican Republic, as a share of total public expenditure, In spite of notable achievements over the last six years, the increased from 18.5% in 2008 to 24.8% in 2010. Dominican Republic still lags behind other countries in the Latin This note analyzes to what extent there is fiscal space in America and Caribbean Region (LCR) in many key indicators of the Dominican Republic to increase social spending and public social service delivery. Inequities in access to public services remain, investment to improve the country’s human development and and the quality of public services is widely questioned. For example, competitiveness.6 since 2005 the country’s maternal mortality rates have been stuck at 100 per 100,000 live births1 (the regional average is 66); cover- age under the fully subsidized public health program has quickly risen to 2 million, but is still far from including the country’s 3.4 mil- Evolution of Revenues lion poor people; immunization coverage has improved but remains below regional averages; and people are financing a high share (56 The Dominican Republic, like many other countries in LCR, has a percent) of their health services through regressive out-of-pocket narrow tax base. Tax collection in the Dominican Republic averaged expenditures.2 The Dominican education system is characterized 14.5 percent of GDP in 2000–2010—relatively low for a country by double-shifting, high teacher/pupil ratios, teacher absenteeism, with important infrastructure and human capital deficiencies that and inadequate supervision. In the region, Dominican students wants to improve the quality of its public services, especially given rank at the bottom in mathematics and reading at both at the 3rd that the Government does not collect significant non-tax revenues. and 6th grades,3 with marks 15–20 percent below those of Latin The country lacks progressivity in taxation, with a tax system American countries with similar income levels. According to the that relies heavily on indirect taxes: the value-added tax (VAT) World Economic Forum,4 the Dominican Republic ranks 107 out of accounts for 33.6 percent7 of total tax collections, and selected 139 in the quality of health and education services. taxes on fuel, tobacco, and services represent 27.2 percent. Direct One of the reasons for these results is the low level of public taxes, including the personal and corporate income taxes and spending on social sectors, which can be mostly explained by the property taxes, account for 27 percent. Finally, foreign trade-related country’s narrow tax base and budget rigidities. Social expenditure tariffs amount to 9.6 percent of total tax collections, and social suffered sharp cuts in 2003 during an economic recession, and it has security contributions and other taxes amount to 2.6 percent. not yet returned to pre-crisis levels. Although spending on health The Dominican Republic has struggled to collect taxes.Tax rev- and education increased from 1.4 percent and 1.7 percent of GDP enues as a percentage of GDP declined from 14.9 percent in 2006 in 2006 to 1.8 percent and 2.2 percent in 2010, the Dominican to 12.8 percent in 2010. The global financial crisis in 2009 caused a Republic still ranks at the bottom of the region in terms of allo- 20.8 percent decline in external VAT (related to a sharp reduction cated expenditure (regional averages are 4 and 4.7 percent of 5 WDI indicators and UNESCO Institute for Statistics, and SISDOM Dominican Indicator System, 2010. 6 Fiscal space is “the availability of budgetary room that allows a govern- 1 WHO country health statistics, 2011. ment to provide resources for a desired purpose without any prejudice 2 Encuesta Nacional Demográfica y de Salud (ENDESA). Informe Final. to the sustainability of a government’s financial position�; see Heller, P.S., CESDEM. Santo Domingo, 2007. 2005. “Understanding Fiscal Space,� IMF Policy Discussion Papers 05/4, 3 Human Development Report for the Dominican Republic, UNDP, 2010. International Monetary Fund. 4 Global Competitiveness Report 2010–2011. World Economic Forum, 2010. 7 DR Central Bank, data for 2010. Improving the Quality of Public Expenditure in the Dominican Republic 19 in imports). Revenues from selective taxes on certain consumption goods (tobacco, alcoholic drinks, fuel) declined 8.2 percent in real Evolution of Expenditures terms. Income tax collections contracted 10.2 percent in 2009 and 5.7 percent in 2010, limiting the country’s recovery from the crisis. Central Government expenditures in 2010 can be broken down Additionally, foreign trade tax collections have been declining since into current expenditure (12.6 percent of GDP) and capital expen- 2005. diture (3.7 percent of GDP). Within current expenditures, the According to the General Directorate for Internal Taxation, payroll accounted for 3.8 percent of GDP and current transfers besides the effect of the international crisis, other factors help 5.1 percent; of these, 1.2 percent of GDP were electricity sector explain the decline in tax pressure between 2007 and 2010: transfers, 0.8 percent social security, and 0.5 percent subsidies tariff declines (2006) to prepare the country for the DR-CAFTA administered by the Administradora de Subsidios Sociales (ADESS).9 agreement and the Economic Partnership Agreement with the EU; Interest payments consumed 1.9 percent of GDP, capital transfers the reduction in income tax rate from 30 percent to 25 percent 1 percent, and public investment 2.7 percent. (Figure 1 depicts the (September 2007); the elimination of fees and taxes on documents evolution of expenditures since 2000.) (Law 173-07); the creation of new fiscal incentives for industrial Public expenditures at the level of the Dominican central companies (Law 392-07); a special regime for mining and construc- Government had increased rapidly between 2004 and 2008 (on tion contractors; and a reduction in state retentions (Law 182-09). average, 18 percent annually in real terms), to fall by 11 percent in The General Directorate calculates the forgone revenues resulting 2009, in the midst of the international financial crisis and the local from these measures at 1.29 percent of GDP in 2008, 1.4 percent economic slowdown. The expenditures that were mainly affected in in 2009, and 1.68 percent in 2010.8 2009 were the acquisition of goods and materials (–17.7 percent in real The authorities estimate that today total tax exemptions terms), current transfers (–18.1 percent), investment (–30.8 percent), (including those that existed before 2007) may amount to 6 per- and capital transfers (–21.4 percent); at the same time, the more cent of GDP. Moreover, the selective tax on hydrocarbon is not “rigid� personnel expenditures increased by more than 13 percent. indexed, resulting in low tax elasticity to GDP growth. During the last quarter of 2009 the Government launched Tax revenues are expected to recover gradually, thanks to countercyclical policies to respond to the economic slowdown, increased economic activity and moderate efficiency gains from mainly by expanding public investment in infrastructure (32.4 per- improved tax administration. Additionally, in June 2011, a new tax cent), but fiscal consolidation resumed again in the second half of package was introduced (see Box 1). However, it is not a com- 2010. In 2011, the Government reacted to lower-than-expected tax prehensive tax reform, as some of the measures adopted are collection and high oil prices (implying a RD$13.2 billion estimated programmed to last just two years. increase in transfers to the electric sector) by announcing an auster- ity plan that includes 12 percent cuts in public spending (except for the social sector). For education the original budget has remained BOX 1 untouched; but the modified budget approved in mid-July presented a 5 percent decrease in allocations to the Ministry of Public Health NEW FISCAL PACKAGE IN THE DOMINICAN REPUBLIC In June 2011, amid the pressures to finish the delayed 5th and 6th FIGURE 1. EVOLUTION OF EXPENDITURES, GOVERNMENT OF THE reviews of the Stand-by Agreement with the IMF, the Government issued a DR (% OF GDP) draft bill for tax reform, which Congress approved with modifications in 25.0% just one week. The reform is expected to raise tax revenues by around 0.44 percent of GDP in 2011 and 0.3 percent in 2012. The following are 20.0% some of the measures in the final decree: Capital ■■ The income tax on companies was increased from 25 percent to 15.0% expenditure Interests 29 percent for two years. ■■ A 1 percent tax was imposed on the financial assets of the banking 10.0% Other current expenditure sector, also for two years. Payroll 5.0% ■■ A 2.5 percent income tax was imposed on free zone sales in the local market. 0.0% ■■ Specific operation payments and fees on gambling and lottery licenses 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 were implemented. Source: Central Bank of the Dominican Republic, authors’ calculations. 8 “Presión Tributaria: entendiendo los factores que han incidido en su 9 ADESS is the institution in charge of the administration of social subsidies, reducción entre 2007 y 2010.� Dirección General de Impuestos Internos. including the Solidaridad CCT program, Incentivo a la Educación Superior, Santo Domingo, March 2011. Bonogas, and Bonoluz. 20 Improving the Quality of Public Expenditure in the Dominican Republic FIGURE 2. CYCLICALITY OF DR FISCAL POLICY 20.0% “Fixed� expenditure (% GDP) Transfers to the electricity sector Rest of “non- xed� expenditure (% of GDP) 15.0% Overall balance (% GDP) GDP growth 10.0% 5.0% 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 –5.0% Source: Authors’ calculations using DR Central Bank data. and Social Assistance. Overall, non-electricity current expenditure fiscal revenues. Most of the jump in non-fixed expenditure between was maintained at budgeted levels and capital expenditure was 2003 and 2004 was due to an increase in current transfers from cut by 7.5 percent over the originally approved budget—a total 2.3 percent of GDP to 5.6 percent of GDP. of RD$11.9 billion in cuts. Austerity measures notwithstanding, it is The Government began running larger fiscal deficits in 2008 worth noting that during 2009–2011 spending on education and (3.0 percent of GDP) because of expansion in non-fixed expendi- health increased by 9.46% and 14.52% in real terms, respectively. ture (partly due to rising international oil prices) and deterioration in state revenues. Countercyclical fiscal policy envisaged in the first stage of the Stand-by Agreement signed with the IMF (November 2009) was offset by fiscal consolidation in the second half of 2010, Fixed and Non-fixed Spending: Cyclicality resulting in an overall decline in public spending. As Figure 3 shows, social expenditure in the Dominican of Spending Republic12 has also had procyclical trends (contrary to what would be desirable). In particular, the economic and financial crisis of 2003 This section looks briefly at budget rigidities and the cyclicality of brought sharp cuts in the budget allocated to education and health. fiscal policy. For simplicity, fixed expenditures comprise only salaries, Following expansion in 2004–2008, the 2009 economic slowdown interest payments, and social security payments, omitting other brought a reduction (in relative terms) of expenditure in the field budget rigidities.10 of social assistance. In 2011, health cuts are envisaged as part of the In 2000–2010, fiscal policy in the Dominican Republic was austerity plan. mainly procyclical (see Figure 2). For instance, in 2003 during the To summarize: domestic economic and financial crisis, both fixed and non-fixed • Fiscal policy and social expenditure in the Dominican Republic expenditures11 declined in relative terms to accommodate a reduc- over the last decade have been mainly procyclical. A deficient tion in revenues, finally resulting in state accounts presenting a budgeting process13 and the lack of a medium-term expendi- surplus of 1.1 percent of GDP. Expansionary fiscal policy resumed in ture framework have often led to undesired expenditure cuts. 2004, with a sharp rise in non-fixed spending that was consolidated in 2005–2007, with high levels of economic growth and improving • As expected, the behavior of non-fixed expenditure has been more volatile than that of fixed expenditure. In the last five years, variations in non-fixed expenditure can be largely 10 For instance, Central Bank recapitalization payments/transfers were explained by changes in electricity sector transfers, which may estimated to represent 0.8% of GDP in 2010, and compulsory transfers to city halls accounted for 1.1% of GDP in the same year. 11 Rest of “non-fixed� expenditure includes non-personal services, supplies 12 Both current and capital expenditure are considered. and materials, other current transfers (except for electricity sector and social 13 See See PEFA Report on Public Expenditure and Accountability in the security), and capital expenditures. Dominican Republic. European Union, 2010. Improving the Quality of Public Expenditure in the Dominican Republic 21 FIGURE 3. SOCIAL EXPENDITURE IN THE DOMINICAN REPUBLIC A more quantifiable approach understands fiscal space as (AS % OF GDP) inverse to the “ratio of the outstanding public debt to the de facto 12.00% tax base [over the last six years].�15According to this definition, in 2006 the Dominican Republic had slightly less fiscal space than the 10.00% average for low-income countries. However, it is worth noting that using tax collections in absolute nominal terms may not provide an 8.00% accurate picture of fiscal space. If we look at tax pressure in rela- tive terms (as a percentage of GDP), the ratio for the Dominican 6.00% Republic was 2.6 years of tax collection to cover total debt in 2006 (similar to current levels and closer to that of middle-income 4.00% countries). The latest debt sustainability analysis for the Dominican 2.00% Republic seems to point to a progressive enlargement in fiscal 0.00% space in the coming years as debt levels ease (in Figure 4, the enlarging blank space below the bars), provided an average consoli- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011* –2.00% dated primary surplus of 1.1% of GDP is generated in 2011–2016.16 *Data for 2011 and 2011 calculated using budget documents from the Ministry of Nonetheless, in 2011 and 2012 fiscal space will probably remain the Treasury. below pre-crisis levels. 17 Social Security Public expenditure on health % GDP growth In sum, given low tax collections and an improving but still Social Assistance Public expenditure on education large electricity sector burden, the Dominican Republic begins 2012 Source: SISDOM. FIGURE 4. EVOLUTION OF FISCAL SPACE IN THE DOMINICAN *Data for 2011 and 2011 calculated using budget documents from the REPUBLIC Ministry of the Treasury. 50.0% 0 45.0% be considered as an additional rigidity that burdens the budget 0.5 40.0% and limits, for instance, further increases in spending on social services in a context of fiscal austerity. 35.0% 1 30.0% 25.0% 1.5 Fiscal Space and Debt Sustainability 20.0% 2 15.0% Once we have analyzed fiscal rigidities, a broader concept such as 10.0% fiscal space, which also encompasses debt sustainability, can help us 2.5 to provide a more accurate picture of the Government’s margin 5.0% to expand expenditures in needed areas. Fiscal space is needed 0.0% 3 to increase key spending (infrastructure, health, education) in a 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 sustainable way, as well as to prepare the country to better react to economic crises. Debt/GDP ratio divided by average tax revenues/ GDP ratio in the last six years According to Heller,14 there are mainly five different ways in which a state can create fiscal space: (a) new taxes or enhanced Consolidated debt to GDP ratio collection, (b) cuts in expenditures, (c) recurring to domestic or Tax revenues as a % of GDP external financing, (d) receiving grants from external sources, and (e) “printing money� (seignorage). In the Dominican Republic, Source: Bank staff calculations based on debt sustainability analysis. external grants and donations are not as significant as they may be in low-income countries; and seignorage is not often advisable, 15 Aizenman, J. and Jinjarak, Y., 2010. “De facto Fiscal Space and Fiscal and under the IMF agreement and the upcoming inflation-targeting Stimulus: Definition and Assessment,� NBER Working Papers 16539, regime the monetary authorities’ room for maneuvering in this field National Bureau of Economic Research, Inc. is limited. Thus, the Government will mainly rely on fiscal measures 16 The Ministry of the Treasury and the IMF offer a more optimistic forecast, and external financing to create fiscal space. with consolidated primary surplus averaging 1.5% of GDP in 2011–2016. 17 In this case we have revised the definition by Aizenman and Jinjarak (2010) to include both relative measures in the numerator and the denominator: we use debt-to-GDP ratio divided by tax revenue-to-GDP 14 Heller, 2005, op. cit. (Figure 4). 22 Improving the Quality of Public Expenditure in the Dominican Republic with considerably less fiscal space than it had four years ago. The • Finally, fiscal management in the Dominican Republic should be country will face the dilemma of whether to maintain austerity in upgraded from merely observing macroeconomic and fiscal an election year or to have recourse to financing to incur new targets and projections to developing a medium-term expen- expenditure lines that may not be sustainable over time and could diture framework (MTEF) that incorporates national develop- compromise fiscal space in the future. ment priorities and encompasses an evaluation of costs and results. The MTEF would also help ensure debt sustainability in the medium term. Strategic Institutional Plans elaborated by the Ministry of Economy, Planning and Development Policy Actions (2008) and the Ministry of the Treasury (2010), as well as the recent approval of the National Development Strategy Improving development outcomes in the Dominican Republic will (January 2012), constitute important advances in this sense, require an increase in both the quality of public expenditure and but there is still a long way to go before introducing multi- the quantity of resources dedicated to priority sectors. The follow- year performance-informed budgeting techniques. A recently ing are some key policy actions that could contribute to greater approved Trust Fund on Public Expenditures Management fiscal space in the country in the coming years. has already formulated some of the relevant milestones: by end-2012 monitoring and evaluation tools should be ready; • On the revenue side, a reduction in tax exemptions could yield by end-2013, forecasts of fiscal aggregates on the basis of important gains in the tax-to-GDP ratio. However, deeper main categories of economic and functional/sector classifica- analysis of existing exemptions is needed before deciding to tion should be introduced in the budgeting process; and by phase them out or remove them; previous studies highlight end-2014, a SIGEF software module should be designed to that many of the VAT exemptions or preferential rates are integrate performance-informed budgeting and the national applied to basic food and other products and may have M&E system. important distributive implications.18 The full implementation of the recently approved tax reforms will gradually increase This note was prepared by Miguel Eduardo Sánchez, Junior Economist, tax receipts, but mainly in 2011 and 2012, as the main mea- World Bank, in collaboration with Edgar Victoria, General Directorate for sures are limited to two years. The introduction of taxes on Public Credit, Ministry of Finance, Dominican Republic. personal interest and dividend gains could be also considered. Also, stricter controls could be implemented on central institu- tions and autonomous bodies with tax collection capacities (General Directorate for Customs, Ministry of Tourism). Finally, an improved labor market policy aimed at reducing the size of the informal sector would enlarge the income tax base and help make social protection sustainable. • On the expenditure side, the single most important measure is to reduce the deficit in the electricity sector (see the electric- ity sector note in this series). This would free up resources for priority spending and help reduce the fiscal deficit. The implementation of a mechanism to attain the “technical tariff � would help to alleviate fiscal constraints in a year of expected economic slowdown. In the health sector, organized large-scale acquisitions through PROMESE/CAL, together with a progres- sive increase in the share of generic medicines, could save the health system significant resources that could be reinvested in other activities or equipment.19 One of the components of the second phase of the World Bank-funded health sector reform loan is to improve the quality of public spending on health care goods and services, and for this purpose there is ongoing work on the pharmaceutical supply chain information system. Also in progress is work to update the cost of the basic health plan of the Subsidized Regime, which is expected to be ready by end-2012. 18 See IADB (2009). La ruta hacia el crecimiento sostenible en República Dominicana. 19 See Montenegro, 2010, in Dominican Republic Policy Notes, as well as other sector documents. Improving the Quality of Public Expenditure in the Dominican Republic 23 THE QUALITY OF PUBLIC EXPENDITURE IN THE ELECTRICITY SECTOR The Dominican Republic’s electricity sector has long been known for its underperformance, including unreliable supply and financial troubles. This underperformance is a key development challenge because it affects both the business climate and private households. But it has also created an important fiscal problem, as the deficit in the sector has been covered by transfers from the Treasury, representing on average 10 percent of total primary expenditures between 2006 and 2010. Solving the challenges in the sector is therefore important to ensure that public resources are available for priority expenditures. Sector Performance up generator; indeed, some larger firms have even built their own power plants. In 2001, a survey conducted under the supervision of the National Commission for Energy concluded that auto- The Dominican Republic’s integrated power company, Corporación generation capacity (2,715 MW at the time) was already similar to Dominicana de Electricidad (CDEEE), has failed to provide efficient installed capacity in the national interconnected system; and in 2005 and reliable electricity service since at least the 1980s, when power it was estimated that private expenditures for auto-generation had cuts lasting up to 20 hours per day were common. In the mid- reached US$400 million for the commercial and industrial sectors, 1990s, CDEEE addressed capacity shortages by entering into power and at least another US$150–200 million for households. The sec- purchasing agreements with independent power producers, who tor’s inefficiencies have also harmed the environment, through the signed contracts to supply the CDEEE as the single buyer of energy. use of both obsolete, high-polluting thermal generation technolo- Some of the agreements involved high prices for energy and large gies and the inefficient back-up diesel generators that firms and capacity payments. even some households use. In 1999, the Government invited new private investment in To address the problems in the sector, in July 2001 the the sector by auctioning 50 percent of the shares in newly formed Government adopted a new electricity law that largely promoted generation and distribution entities and giving management con- private participation and open competition, while limiting the trol to the private sector. Unfortunately, this privatization was not Government’s role to establishing policy and regulating the power grounded in a well-defined legal and regulatory framework. In the sector. Although this reform created a modern, competitive sector absence of an electricity law, agents’ activities were regulated by structure, serious problems remained, including institutional weak- the privatization contracts and by executive decrees. Though these nesses and inconsistencies in the legal framework. Most seriously, instruments established the regulator and the basic legal framework, the sector remained plagued by the problems that had undermined they lacked the legal weight of a law. In addition, the regulatory its financial sustainability: (a) a tradition of illegal connections and framework had definitional deficiencies, which were aggravated by non-payment of bills (less than 60 percent of all energy provided the regulator’s lack of autonomy and weak institutional capacity. was paid for through tariffs), (b) the Government’s unwillingness to Opening the power sector to private investment attracted adjust tariffs to fully reflect changes in fuel prices and the exchange some US$l billion in direct foreign investment.1 However, these rate, and (c) inadequate fiscal resources to cover the resulting gap considerable investments were not enough to satisfy the increas- between costs and revenues. ing demand for electricity. The result was power rationing through recurrent blackouts, large voltage fluctuations that damaged electrical machinery, and extremely high prices for electricity (at US$0.14/kWh, the average price in 2004 was one of the highest Fiscal Implications in the region). These problems have limited the country’s economic growth The Dominican power sector, which relies heavily on imported in several ways. First, they have deterred both domestic and fossil fuels, is extremely vulnerable to oil price and exchange rate international investment, especially in sectors that use electricity shocks. Starting in 2004, and in particular during the first half of intensively. Second, they have forced households and firms to incur 2008, the rise in international oil prices put pressure on electricity the additional costs of setting up alternative sources of electricity. It production costs, worsening the financial position of distribution has been estimated that 18 percent of households own an inverter companies and increasing the gap between generation costs and or generator, and about 50 percent of all businesses have a back- electricity payments. Without a floating tariff indexed to oil prices, exchange rate fluctuations, and inflation, the power sector deficit skyrocketed from US$580 million in 2006 to US$1.3 billion in 2008. 1 In fact, the power sector alone has accounted for 23.3 percent of all As prices declined in 2009 and 2010, so did the deficit. However, foreign direct investment since 1995, reaching 40 percent in 2001. with a renewed spike in oil prices in early 2011, the deficit was 24 Improving the Quality of Public Expenditure in the Dominican Republic FIGURE 1. BUDGETARY TRANSFERS TO THE ELECTRICITY SECTOR projected to reach US$690 million in 2011—despite several tariff increases since December 2010. As of July 2011, the average techni- 16% cal tariff was still 20 percent higher than the actual tariff, resulting in 14% a revenue shortfall equivalent to US$25 million per month.2 12% To avoid accumulating arrears to generators, the Dominican 10% Republic has financed the deficit with large budgetary transfers. Transfers to CDEEE peaked in 2008, when they were equivalent 8% to 2.7 percent of GDP, or 15.4 percent of primary expenditure. 6% In 2011, transfers were initially budgeted to reach $350 million, 4% but with the increase in oil prices in the first half of the year the 2% projected transfers doubled, to US$690 million, or 1.2 percent of 0% GDP (see Figure 1). 2006 2007 2008 2009 2010 2011* The large transfers have affected spending in other areas, including priority programs. In 2011, for instance, the Government Budgetary transfers to CDEEE (% of GDP) announced drastic spending cuts to limit the impact of higher Budgetary transfers to CDEEE (% of primary expenditure) electricity transfers on the fiscal deficit. The Government initially proposed that (a) there would be no cuts to social spending, and Source: Ministry of Finance. (b) the overall expenditure envelope would remain the same (i.e., the deficit would not increase). However, the supplemental budget approved by Congress in mid-July included cuts across the board, including in some health and social protection programs. Investment Political Will to Implement Sector Reform projects were particularly hard hit, with budgeted capital expen- diture decreasing by 7.5 percent. Since the savings from the cuts did not cover the entire increase in electricity transfers, the overall Electricity plays an important role in the Dominican political envi- deficit would increase to 1.9 percent of GDP (from the originally ronment: it is a key theme in political platforms and figures promi- budgeted 1.6 percent), to be financed by additional resources from nently in the concerns of the electorate. This prominence is due to the Petrocaribe fund. the historically poor quality of service and high level of subsidies for In addition to the generalized subsidy through the transfers to residential users, the significant costs that individuals and businesses CDEEE, the Government maintains a program to make electricity incur to access back-up sources of energy, the severe constraints more affordable to the poor—the Blackout Reduction Program that intermittent service and high electricity costs impose on busi- (PRA). Established in 2001 and targeted to consumers in poor nesses of all sizes, and the generally held perception of poor sector neighborhoods, PRA was designed to extend users’ hours of governance and of the importance of CDEEE as a channel of politi- access to electricity and improve collection rates, while maintaining cal influence. The reform of the electricity sector had to take these heavy subsidization. However, the subsidy was not very efficient factors into account. at reaching poor consumers: it is estimated that only 44 percent A recent World Bank analysis of the political economy of the of the 450,000 households in PRA areas were actually poor. The Dominican Republic highlighted factors that contribute to the inef- Government has therefore replaced the PRA with a new program, ficiency of the Dominican power sector—factors that are specific Bonoluz, which uses the same targeting criteria as the conditional to the Dominican power sector, but exacerbated by the national cash transfer program (Solidaridad) and is therefore more efficient political landscape. Factors unique to the power sector include at reaching those who are in need. Thus far, Bonoluz covers only the limited opportunity for outside stakeholders to participate in 140,000 of the potential 800,000 poor households identified in the political decisions; the ease with which political executives interfere beneficiaries database. Part of the problem is that Bonoluz did not in the electricity sector; and the relative ease with which CDEEE receive any budget allocations in 2011, and the program had to contracting, employment, or funds may be diverted for other uses. be funded through a reallocation among social assistance programs No public hearings are held before regulatory decisions, and no within the Social Cabinet.3 participatory processes contribute to the work of governance institutions or to public policymaking. For the last decade, invest- ment decisions have been made through bilateral negotiations between CDEEE and potential investors, with little transparency. 2 Current tariffs would be consistent with an oil price (fuel oil #6) of Thus management and decisions are rooted in political, rather than US$76 per barrel, but the actual price is US$99 per barrel. economic, considerations. In the context of the clientelism that is 3 The price of fuel oil #6, the main component of the electricity price, prevalent in national politics, this approach has concentrated power was higher in 2008 than in 2010–2011, but more electricity was delivered in the executive branch. In addition, the fact that there is little dif- to consumers. At the same time, monetary transfers from the central ference between the political parties has fostered a number of budget to the electricity sector were reduced, both in cash terms and as a power sector inefficiencies. Decisions and investments are largely percentage of the GDP, for several reasons: the optimization of hydrother- made before electoral processes, minimizing the political cost and mal generation, increased use of natural gas (today close to 30 percent), and maximizing short-term benefits (e.g., postponing rate increases or savings obtained through voluntary negotiations with generators. increasing energy supply). Improving the Quality of Public Expenditure in the Dominican Republic 25 BOX 1 Past reform efforts have been hindered by the fact that many of the required measures—adjusting tariffs to ensure some pass- TECHNICAL TARIFF through of oil prices to consumers, improving the targeting of subsidies, or applying tough sanctions for electricity theft—carried A tariff study financed by the World Bank and carried out in 2010–2011 high political cost. There was no strong communication strategy to aimed to (a) determine the annual revenues that the distribution educate public entities and customers about the need for reform companies (EDEs) should be allowed to collect from tariffs charged and to build constituencies for reform among key stakeholders. The to their customers, based on a separate calculation of each of the Government appeared unwilling to address entrenched interests components of the total costs of efficient provision of electricity service; sufficiently vigorously to achieve the objectives of the reform. Moreover, until the Constitutional reform of 2010, there was a (b) define procedures, formulas, and frequency for periodically adjusting legislative or a Presidential election every two years, leaving very each of the components of the “allowed revenues�; (c) allocate allowed short windows of opportunity to implement difficult or unpopular revenues among tariff categories and rates in each category in the measures. existing tariff structure; and (d) propose improvements to make the tariff Now, however, building on the results of institutional strength- structure simpler and fully compatible with social safety nets (Bonoluz), ening and technical studies, the Government has initiated actions to and to promote efficiency in electricity consumption. It proposed a four- address the long-standing issues in the electricity sector: (a) tariff adjustments in 2009, 2010, and 2011 (12.5 percent, 11 percent, and year transition period (“glide path�) to move from the current situation 8 percent, respectively); (b) dismantling of the PRA and the creation to the “steady-state� condition defined by full application of the improved of the Bonoluz program, which better targets the poor; (c) installa- tariff structure and related rates reflecting total costs of efficient service tion of a new head of CDEEE and replacement of the distribution provision (tarifa tecnica). companies’ management teams with new professional teams; and (d) the design and implementation of new transparency and cost- The main outcome of the study is the updated quantification of the reduction measures by the new CDEEE administration. Under the IMF Stand-By Agreement, the Government has also committed to cost components in the electricity supply chain. In late 2011, energy adopt new legislation that would support the implementation of purchased represented close to 80% of the total average technical tariff. the technical tariff (see Box 1). Given the volatility inherent in the global oil market, the key conclusion emerging from the study was the crucial need to periodically adjust the tariffs the EDEs charge their customers to reflect actual changes in costs Priority Actions Going Forward of energy purchases. Those adjustments should be made every month, have upper and lower bounds to make them socially acceptable, and be Priority actions in the short and medium term should aim to complemented with the creation of a special-purpose fund to stabilize consolidate the reforms that have already been made, including fluctuations. The Electricity Superintendence (SIE) must define and make building a better and more efficient institutional framework for the public the procedures and formulas for the periodic adjustments, as formulation, implementation, regulation, and evaluation of energy prescribed in the Electricity Law. But once those regulations are issued, policy. In the long term, it would be desirable to give priority to efforts to achieve the sustainability of the sector and ensure its their effective and systematic application becomes fully automatic, ability to respond promptly and efficiently to future electricity transparent, and publicly disclosed. In practice, this means the elimination demand. In addition, the current subsidy schemes should be revised of any political intervention in the process for setting and adjusting to promote equity in the sector once reforms are made, and to electricity tariffs in the country. However, the Government must remain meet the needs of the poorest consumers. fully involved in the sustainable operation and fine-tuning of the social Consolidating the reforms implies interrelated actions in three safety nets aimed at protecting low-income consumers. areas that can also contribute to achieving medium-term sector sustainability. • Rationalize tariffs. Tariff rationalization would reduce the crisis in the electricity sector and diminish the fiscal deficit, send- Ultimately, the combination of economic and political factors ing signals to customers, and would improve cost coverage create what the analysis termed “inverse equilibrium�: that is, major throughout the entire electricity production chain. This would deficiencies in the generation of revenue from the sale of electricity allow for CDEEE to contract for new generation through com- to end-users, combined with gross inefficiency in the management petitive mechanisms, use new technologies (for example, using of sector organizations (itself deriving mainly from their poor a larger volume of natural gas in generation), and pay adequate governance), have severely curtailed the financial self-sufficiency of remuneration for transmission and distribution. Adopting and the sector, distorting and undermining private investment in the implementing the technical tariff and flexible pricing mecha- sector, and increasing direct government intervention in it—all of nism, which the Government committed to under the IMF which has fed back into the issues of governance, management, and program, is the most important step the country can take to revenue generation. The inverse equilibrium maintains the status consolidate previous reforms and pave the way for the sector quo, while resisting reform efforts. 26 Improving the Quality of Public Expenditure in the Dominican Republic to achieve a long-term sustainable financial situation. The IMF 2011 country plan suggests, as an intermediate step, eliminat- ing the 20 percent gap between the current (applied) tariff and the “indexed tariff � (which covers the generation costs). • Improve operative efficiency in the sector. Introducing an effi- ciency improvement plan would help ensure that an increase in the cash recovery cost is not absorbed by administrative inefficiencies. The Electricity Superintendence should define company management indicators, and control and follow-up mechanisms should be implemented for the administrative, financial, and technical management of these firms. It is also urgent to implement schemes for competitive energy sup- ply, and to exercise rigorous financial planning that will allow CDEEE to regularize payments to current generators and at the same time take on commitments with new investors. • Target subsidies to the poorest population. The replacement of the PRA with the Bonoluz program, which targets poor people, is an important step in the right direction. However, it is important to continue gradually reducing cross-subsidies, with the final objective of providing subsidies only to poor households whose monthly electricity consumption is substan- tially below the average for the country. The 2004 Dominican Republic expenditure review advises the Government to gradually reduce subsidies for large consumers, while continu- ing to protect consumers using less than 200 kWh per month. Additionally, the payment to the distributors should come from a Stabilization Fund to cover remaining subsidies. Finally, it is worth mentioning that the implementation of the technical tariff would allow the Government to demonstrate its commitment both to better-quality electricity services and to future reductions in the costs of electricity once cheaper generation is introduced into the electricity market. This note was prepared by David Reinstein, Senior Energy Specialist, and Jasmin Chakeri, Senior Country Economist, World Bank, and Celso Marranzini, Executive Vice President of the Dominican Corporation of State Electricity Companies (CDEEE). Improving the Quality of Public Expenditure in the Dominican Republic 27 IMPROVING THE QUALITY OF PUBLIC EXPENDITURE ON EDUCATION: The Role of Information The Dominican Republic has made great strides in the area of education. According to UNESCO, the country’s gross enrollment rate in primary education is 106 percent, and in secondary education is 77 percent—among the highest in Latin America.1 The importance assigned to education in the country is reflected in the fact that about 40 percent of 20-year-olds are attending an educational institution (most of them universities). However, there are major problems with the efficiency of the education system: expenditure in terms of GDP is low, student progression through the education system is generally slow, and the learning students achieve is low in comparison to other Latin American countries. The medium-term strategy of the Ministry of Education (MINERD) seeks to overcome the education system’s efficiency problems and ensure that education guarantees future growth for the country and well-being for its citizens. MINERD looks at developments on information as a vital element for the implementation of that strategy. Challenges for the Education System Although student achievement is conditioned by the interac- tion of family situation, community, and school, the State—through The major challenges that the Dominican Republic education sys- MINERD as education provider and regulator—seeks to ensure tem faces are to increase efficiency and address the lack of proper that all students have access to quality schools. However, lack of funding for the sector. The education system’s efficiency problems resources affects student results; and despite recent improvements, are most serious for the poorest sectors of the population. With the Dominican Republic’s low education budget (among the low- respect to efficiency, measured as student progress through the est in the region) may itself be a source of efficiency problems. education system, 20-year-old students from the lowest socioeco- For example, given the lack of classrooms, classes tend to be nomic quintile of the population have studied for an average of 11.1 overcrowded and school days are short to allow multiple shifts years and completed only 7.8 grades, while those from the highest within schools. Under such conditions, even the resources that are quintile have studied for an average of 12.3 years and completed invested in education cannot produce quality results. 10.1 grades. Other countries of the region have a higher efficiency rate (see Table 1). With respect to efficiency in producing quality education, the achievement of Dominican students is below that of students with similar income levels in other countries (see Figure 1). Lack of efficiency on student results is related to inefficiencies TABLE 1. YEARS OF EDUCATION (ESCOLARIDAD) OF 20-YEAR-OLDS within MINERD that keep resources and information from flowing Efficiency smoothly. Several studies, among them a 2010 study by the World Education ratio Bank, have identified a range of problems: Total Passed • Duplication of the functions of the various government levels (A) (B) (B)/(A) in the education system. Costa Rica 11.8 9.3 78% • Processes based on inefficient communication. Guatemala 9.2 6.3 68% • Vertical relationship between central headquarters and the Nicaragua 9.9 8.1 82% schools, with little opportunity for feedback. El Salvador 10.6 9.2 87% • An inefficient process of teacher monitoring. Honduras 9.6 7.7 80% • Training not geared to needs identified in the education system. Panama 11.5 10.5 91% Dominican Republic 11.6 8.8 76% Poorest quintile 11.1 7.8 70% 1 Net enrollment is the percentage of students of the appropriate age enrolled in a grade; gross enrollment is the number of students of any age Highest-income quintile 12.3 10.1 82% enrolled in a grade, divided by the number of students of the appropriate age. Thus a high gross enrollment indicates a large number of students Source: Latest available household survey for the Dominican Republic (data repeating a grade. from 2007). 28 Improving the Quality of Public Expenditure in the Dominican Republic FIGURE 1. RESULTS OF UNESCO’S SECOND REGIONAL BOX 1 COMPARATIVE AND EXPLANATORY STUDY (SERCE) FOR THE SIXTH GRADE BY SOCIOECONOMIC CONDITION TEN-YEAR EDUCATION PLAN 2008–2018 Central America & Dominican Republic 1. Mobilize public and private efforts to ensure that, beginning at the 600 age of five, all children receive one year of early childhood education 550 and eight years of quality basic education. 2. Consolidate, expand, and diversify quality middle education for 500 citizenship and as a transition to the labor market and/or higher education. 450 3. Regularly review, disseminate, and apply the approved curriculum, 400 (a) promoting a culture that complies with the curriculum from –2 –1 0 1 2 the perspective of education in values that promote comprehensive Index of socioeconomic conditions human development; and (b) using the curriculum as a standard Costa Rica El Salvador and guide for major decisions in the education system, linking all Guatemala Nicaragua the dimensions of science into the educational levels and using Panama Dominican Republic information and communications technologies. 4. Establish clear standards of quality and an evaluation system for Improvements in efficiency and proper use of any additional monitoring the education system’s performance to stimulate mobiliza- resources will clearly require access to information. Information sys- tion of the school, family, and community for better education and tems have the potential to bring different entities of the education to guarantee to the country that diplomas and degrees granted are process closer together, provide clearer, on-time information on student enrollment to assign resources, allow for fast dissemination supported by the expected learning. of student results, and allow timely verification of improvements in 5. Create the necessary conditions and mobilize Dominican society and education outcomes due to improvements in financing. the educational communities to ensure strict observance of a school calendar and classroom time that will enable the students to learn. 6. Give priority to the training of highly skilled human resources for Government Education Policy the education sector and promote the retention and professional growth of personnel already hired. The Government of the Dominican Republic has established the 7. Promote educational equity with support for students from the most Ten-Year Education Plan 2008–2018 “to implement an efficient vulnerable social sectors. education system with broad coverage that embodies the quality 8. Encourage the participation of the family, the community, and and equity needed to sustain the country’s development in the nongovernmental institutions in the implementation of educational first decades of the twenty-first century.� The Ten-Year Plan includes a set of 10 policies intended to ensure all Dominicans access to policies, programs, and projects. relevant, quality education (see Box 1). Each policy has a set of 9. Do successive reorganizations to maintain a responsive and flexible measurable results for the short, medium, and long term, and clearly structure that is open to participation and school-centered, so the designates the executing entities. educational policy’s plans, programs, and actions can be executed. Despite the detailed plan and society’s broad support in 10. Mobilize the domestic and international public and private sectors to elaborating it, implementation has been slow, partly because of the lack of appropriate public funding for education. The country’s find the resources needed to achieve the objectives of educational education expenditure is expected to increase in the short term, coverage, quality, and equity that are essential for meeting the allowing broader implementation of the policy. Efficient use of the economic, political, and social challenges of the twenty-first century. extra resources will require improved information systems. Information and MINERD 1. Improvements in the system for evaluating student achieve- ment. Although the Dominican Republic has had a student To carry out its medium-term plan, MINERD has given priority to performance evaluation system since the 1990s, MINERD has the use of information, both as an element for checking on how taken steps to ensure that the tests reflect the curricula. In well the education system is working, and as a means for upgrading addition, in 2010 the Ministry resumed diagnostic tests in the management capacity at all levels. MINERD has launched four initia- 4th grade. The 8th and 12th grade tests are census-based, and tives in information use: count for at least 30 percent of the students’ final grade. Improving the Quality of Public Expenditure in the Dominican Republic 29 2. Implementation of the School Management System (Sistema de Gestión de Centros Educativos, or SGCE). The SGCE is a Introduction of Performance-based computer platform developed by MINERD in 2008 to give the Budgeting various stakeholders in the education system (school princi- pals and authorities at the district, regional, and central levels) a tool to support pedagogical and institutional management Public administration in the Dominican Republic is moving toward for real-time monitoring of the various education indicators. the adoption of performance-based management and budgeting School principals are the key elements in the SGCE, because through management agreements. This framework should promote they are the primary providers of information on the students the generation and use of performance data throughout the entire (enrollment, attendance, and performance), and the data budget cycle. gathered must enable them to intervene quickly to overcome MINERD is actively considering the use of management agree- problems in their schools. Although the system is based on ments to improve its management capacity. In cooperation with the current operation of the education system, it is intended other entities of the Government of the Dominican Republic, it to stimulate each school’s use of the information for better is establishing a framework for performance-based management. self-management. MINERD has distributed more than 6,500 The existence of reliable sources of information will be key to the personal computers with Internet connection to public school establishment of this public management strategy. The expansion principals, and has provided training in their use to the princi- of the information system will provide clear benchmarks to assess pals and other school staff, so that all schools in the Dominican performance under these agreements. Republic have access to the SGCE. This system also has the capacity to support other Government programs, such as the Solidaridad program (for conditional cash transfers), because it permits rapid verification of families’ execution of shared Conclusion responsibilities. The Dominican Republic is facing the great challenge of increas- 3. Introduction of the Monitoring and Supervision System (SAS). ing the efficiency of its education system. Through dialogue with The SAS, a tool used by the district supervisory team, permits the principal stakeholders in the Dominican Republic’s education standardized use of electronic instruments to validate and system, MINERD has developed a set of policies for medium-term guide the fulfillment of the schools’ pedagogical and adminis- improvement of the efficiency of the education system. At the same trative objectives, providing real-time data. It facilitates targeted time, it has identified—and committed to addressing—the need to support and monitoring by the school district and other levels have data to identify the progress in and challenges to the fulfillment of the education system to help the schools improve student of its objectives, assessing teachers and students. If the resulting learning and the overall quality of education. information is used to its potential, a major improvement in the 4. The Administrative and Financial Management System, part management of the education system could be expected. of MINERD’s upgrading process, has expanded the Ministry’s technological, operational, and information management This report was prepared by Javier Luque, Senior Education Economist, capacity. It covers the areas of planning, finance, administra- World Bank, and Víctor Sánchez, Vice Minister of Education of the tion, and human resources, as well as the implementation of a Dominican Republic. planning module and a subsystem for personnel management and payroll. Interfaces are being developed through which all these infor- mation systems can interact to manage the data and requirements from the various levels of the education system (schools, districts, regions, and central headquarters), contributing efficiently to decen- tralization and the generation of the reports needed at each level for planning, management, reporting, and decision-making. Nonetheless, successful implementation of the information upgrade will require training at different levels, and a commitment from different actors to move toward information-(evidence-) based policymaking. 30 Improving the Quality of Public Expenditure in the Dominican Republic HOW PROCUREMENT CONTRIBUTES TO INCREASING THE EFFICIENCY OF PUBLIC EXPENDITURE IN THE DOMINICAN REPUBLIC Public procurement in the Dominican Republic has long been fragmented and characterized by lack of attention to transparency and accountability. Early reforms have moved in the right direction, but the function still faces challenges. Now, following the IPAC roundtable process, the country is demonstrating the political will to launch the necessary reforms, including introducing e-procurement. Introduction The Dominican government has made some significant improvements—the introduction of a new legal framework unifying the procurement of goods, services, and works under one law, and Public procurement is a key aspect of public administration that the creation of a procurement directorate as the regulator for pub- links the public financial system with economic and social outcomes. lic procurement. The Dirección General de Contrataciones Publicas Thus it is a major determinant of the quality of community services (DGCP) is now working on the second phase of this modernization and infrastructure and of the effectiveness of government. In addi- initiative and has identified five key objectives to be achieved within tion, because the procurement function cuts across almost all areas the next three years: of planning, program management, and budgeting, it is an instrument • Develop standardized documentation for Government entities. of public policy. The OECD has estimated that in any jurisdiction public pro- • Develop and implement an e-procurement system. curement accounts for 14.48% to 19.96% of GDP. Thus a public procurement system that optimizes value-for-money has wide- • Develop and implement at least five framework agreements ranging national benefits; but if procurement management is weak, to be mandated across all public sector entities. social services are underdelivered and sovereign risk for foreign • Increase the number of suppliers by 30%, giving special empha- investment increases. The OECD reported in 2007 that “public sis to small and medium-sized enterprises. procurement is the government activity most vulnerable to waste, fraud and corruption due to its complexity, the size of the financial • Ensure that at least 80% of procurement activities are carried flows it generates and the close interaction between the public and out in the fiscal year for which they were planned. the private sectors.� In many countries, civil society is increasingly demanding greater results from government. The emergence of a culture of performance is a key driver of strategic reforms in procurement Continuing Challenges management to more effectively deliver economic and social out- comes. For this reason, in many countries public procurement is In spite of these efforts, the public procurement system in the a priority target for strengthening as part of the public financial Dominican Republic faces several challenges. management agenda. The country’s procurement system is still highly fragmented: Transparency and accountability are cornerstones of a well- each public entity carries out procurement using its own criteria, functioning public procurement system. Not only do they ensure its own rules, and its own processes. This fragmentation results that the system delivers its intended outcomes, but they also affect in a high level of inefficiency, especially in the procurement of society’s trust in government. However, if these two dimensions similar items. It has also generated “niche markets,� in which sup- are to function well, all stakeholders must have ready access to pliers specialize in providing goods, works, or services to specific meaningful information. entities rather than par ticipating in procurement oppor tunities throughout the Government. This in turn creates incentives to limit other entrants into the market through the use of discretionary The Context requirements, as well as increasing the oppor tunities for corrupt practices to flourish. Public procurement in the Dominican Republic represents approxi- In addition, many line agencies do not comply with the require- mately 40% of the Government budget and around 20% of GDP. ments of the regulatory framework and regulatory bodies, or with The Government has estimated that 1% in savings would generate Governmentwide directives. For example: around 3.4 million pesos—savings that could be used to increase services, build new infrastructure to support economic develop- • According to the DGCP, only about 30% of the public ment, and generate employment. procurement processes are published in the Government’s Improving the Quality of Public Expenditure in the Dominican Republic 31 procurement portal Comprasdominicana—although the law BOX 1 mandates that all Government entities publish their bidding opportunities and results on this website. E-PROCUREMENT IN PANAMA • In addition, the law requires that any public procurement The introduction of the new e-procurement platform has increased activity must first be submitted to and authorized through opportunities for private sector participation in the public procurement the financial management system; however, large numbers of procurement activities are carried out without meeting this system. According to Eldis I. Sánchez, DGCP Director General, “The ability requirement. to receive proposals electronically through PanamaCompra V2 has allowed small and medium-sized enterprises to offer their products and services The failure to seek budget approval undermines good financial to more governmental institutions, increasing the competitiveness and management, procurement planning, and budget management, and the lack of transparency further weakens the governance of the the responsiveness of procurement processes.� The number of firms national procurement system. The DGCP has been working with participating in government bidding opportunities has increased from an the relevant authorities, in both the Ministry of Finance and the average of three per process to an average of eight. Controller’s office, to identify ways to end such practices. In this area the Government has received the full support of the donor community. Procurement Issues • Pharmaceuticals. The procurement of pharmaceuticals is acknowledged worldwide as a very specialized and complex The Dominican Republic’s Participatory Anti-Corruption Initiative niche market that requires a high degree of skill and appropri- (IPAC), through its roundtable process, has identified three key ate market knowledge. The IPAC roundtable working on issues issues related to public procurement. related to the procurement of pharmaceuticals also identified the lack of transparency as a key concern. The DGCP should • Public works. The issues relate to limited competition, project work with the appropriate specialized entities in the health specifications and cost estimations, poor contract manage- sector to develop the tools to monitor the procurement of ment, and change orders. Although the public procurement law pharmaceuticals. provides that a public bidding process is the default method for selecting contractors for public works, in practice many The DGCP has identified as one of its key objectives the procurement activities related to civil works are awarded on a implementation of framework agreements to increase the efficiency sole-source basis. Even when a public bidding process is used, of the procurement of goods and generate savings by aggregating there are indications that the planning and design of projects demand. To do this, DGCP should take several steps: is not as rigorous as it should be, often leading to significant cost overruns through major modifications to the contract or • Modify the existing regulatory framework to allow the use of change orders. The difficulty of accessing aggregated data on such agreements. these procurement processes makes it hard to quantify the • Develop—according to international good practice—a cata- exact effect of such practices on public expenditure. logue of goods and services for the Dominican public sector. • Publication of bidding processes and results. For the DGCP This catalogue will allow the DGCP to plan and manage the to be able to exercise its regulatory function, the IPAC Government’s aggregated demand. roundtable recommended that the public procurement por- • Develop Government purchasing standards, particularly for tal Comprasdominicana be transferred from the Ministry of the procurement of motor vehicles, IT equipment, and other Finance to the DGCP (Box 1 highlights Panama’s experience specialized common-use goods. with a similar change). The DGCP will need to develop the mechanisms—in terms of both technology and alliances with Finally, like many other countries in Latin America and the other regulatory bodies such as the Comptroller’s office and Caribbean, the Dominican Republic faces the major challenge of the Ministry of Finance—to ensure that line ministries comply satisfying increasing demand from the community for improving with the requirement to publish public procurement informa- the quality of the public procurement services. What is needed is tion in this portal. At the same time, the DGCP will need not a significant shift to a performance culture. Therefore, to deliver only to build its own institutional capacity to monitor and the outcomes required by the community, the DCGP should evaluate compliance with publication requirements, but also adopt a new approach focusing on management accountability and to strengthen public awareness as a further oversight tool. value-for-money. While the DGCP has worked with the donor community to However, the DGCP cannot successfully meet all these chal- develop the functional requirements of a new e-procurement lenges by operating in isolation; rather, the effort will have to be a platform, the next challenge is to develop and implement the Governmentwide approach with support and leadership from the platform. highest levels. 32 Improving the Quality of Public Expenditure in the Dominican Republic Progress oversee the whole procurement process. The new system will bring several advantages: In response to the proposals of the IPAC roundtables, the DGCP • By linking the budget approval process with the procurement worked with a wide range of stakeholders—civil society, other process and the payment phase, it will ensure that, in carrying government entities and oversight bodies, chambers of commerce, out procurement activities, public entities will have to comply suppliers—and with donor organizations to develop its strategic with all of the budget, procurement, and payment requirements. plan. The strategic plan identifies 10 key areas, each with substrat- egies, and folds in the five previously identified objectives (listed • The new system will also allow for the electronic receipt of above): offers from prospective bidders, increasing the transparency of procurement activities. Once the system is fully operational, • unified national public procurement system the DGCP and other regulatory entities will be able to use the • standardization data to monitor the performance of the public procurement • linkages with budgeting system. • strengthening competition • The design also includes the functional specifications for an e-purchasing module that will allow for the application of • aggregating demand framework agreements through the system. In countries • contract management where such e-purchasing systems are in operation, there have • public information been major reductions in both time and cost throughout the procurement cycle. • e-procurement It is critical that the DGCP be given full control of the resources • professionalization and planning associated with delivering this important activity. By • monitoring and oversight leading this exercise and working with all the other relevant stake- holders, the DGCP could have the new e-procurement platform in The DGCP has been making progress in several areas of the operation within the next 18 months. strategy. In particular, to strengthen its own capacity to function as a fully independent oversight body, it has been developing strategic alliances with civil society, chambers of commerce, and such other Next Steps oversight bodies as the Comptroller’s office. To accelerate the learning process, the DGCP has also Perhaps the greatest challenge faced by the Government of the embarked on several knowledge exchange exercises with other Dominican Republic, and in particular the DGCP, is sustaining the jurisdictions. It has worked very closely with the Government of effort to strengthen the public procurement system. The DGCP Panama, through the Panamanian procurement directorate, to gain has demonstrated the leadership and vision that are required to from their experience in the application of framework agreements deliver the services the community expects to receive. Through and other regulatory functions (see Box 2). greater oversight and performance management, the Dominican In a major step, the DGCP has developed the functional Republic can ensure that its public procurement system addresses specifications for a new e-procurement platform that would help it the growing needs of its society in a fair, transparent, and equitable manner. There are several key steps that the Government should consider as it continues to reform and strengthen the procurement BOX 2 system: FRAMEWORK AGREEMENTS IN PANAMA • Develop an e-procurement platform with transactional mod- ules for tendering and purchasing. By using framework agreements, in 2009 Panama was able to save • Develop standard documentation and enforce its use. US$20 million in gasoline, approximately 50 percent of the fuel budget. Previously 70 Government agencies were consuming 100 percent of • Link the e-procurement platform to the financial management the fuel budget; today 280 agencies are served, with a total decline in system, to ensure that publication is mandatory for payments to occur. consumption of 10 percent. At the same time, Panama has been able to significantly increase the number of common-use items available: in • Implement the use of framework agreements for common use 2009, the number of items was 2,452; but by the end of 2011, just two goods and services. years later, the number of items available in the electronic catalogue was • Develop a statistical database to monitor and evaluate the 26,180. This increase in items has also been accompanied by a significant performance of the procurement system. increase in the number of suppliers, strengthening both governance and competition. This note was prepared by Joao N. Veiga Malta, Senior Procurement Specialist, World Bank, in collaboration with Eric Hazim, Director of the Dominican Republic’s Office of Procurement (DGCP). Improving the Quality of Public Expenditure in the Dominican Republic 33 INTRODUCING PERFORMANCE CONTRACTS IN THE PUBLIC ADMINISTRATION In the last decade, governments around the world have designed and used performance contracts, with mixed experiences. Many see performance contracts as a useful mechanism to improve management processes and enhance the effectiveness and efficiency of public programs and as a way to introduce performance incentives in the public administration. During 2011, the Dominican govern- ment introduced the concept of performance contracts by law, and the Ministries of Health and Education have piloted performance contracts that cover both institutional and program performance, including commitments regarding institutional objectives and goals and those of prioritized public programs. Because the experience of implementing the contracts is very recent, it is difficult to evaluate; and the sustainability and success of these innovative instruments face a number of important challenges. Background Performance contracts often function as a framework to focus the attention of institutions, central agencies, and politicians on First introduced in Europe, “performance contract� arrangements improving performance. Countries pursue different objectives for are now increasingly being used by governments around the world introducing performance contracts—for example, to: as a management tool to improve public sector performance. This • Clarify which objectives managers should aim for (to avoid a interest reflects a broader trend of using new public management multiplicity of objectives). techniques to reform traditional public sector structures and pro- cesses through (a) an increased focus on performance management • Achieve productivity, efficiency, and effectiveness targets (for and the analysis of the efficiency, effectiveness, and quality of public example, case processing durations, waiting times, and levels of services; and (b) a move to more decentralized managerial environ- user and staff satisfaction). ments, in which managers have greater flexibility over inputs. In this context, performance contracts have been introduced to provide greater clarity over what public agencies will achieve. BOX 1 Here we use the term performance contracts to encompass a range of management instruments—contractual and quasi- PERFORMANCE CONTRACTS: BACKGROUND AND TERMS contractual—that define responsibility and expectations between parties to achieve mutually agreed results.1 Countries use slightly Performance contracts first emerged in Europe in the 1960s and ’70s different terminology, such as results agreement, framework agree- in the context of overseeing public enterprises, as a way of embedding ment, or memorandum of understanding for such instruments (see performance targets in contractual agreements with state-owned Box 1), but most use the language of contracting and performance enterprises. They have been used in a number of OECD countries, as standards. These tools may be applied between different levels and entities across the public administration, commonly: well as in Pakistan, Korea, India, and elsewhere. They have evolved into management instruments that are used more broadly across the public • Between a minister and an agency head; administration. Performance contracts vary in the degree to which they • Between a central agency and a budget-funded agency; are legally enforceable contracts. When they are used with private • Individually for agency heads; suppliers, they may be legally enforceable; however, when they are used • Between two independent agencies; between different public sector entities, they generally are not. Among • Between the central government and a subnational govern- OECD countries, a wide variety of quasi-contractual arrangements are ment; and used: framework agreements, organizational performance agreements, • Between a public agency and a private or not-for-profit orga- chief executive performance agreements, funder-provider agreements, nization for the supply of goods and services.2 intergovernmental performance contracts and partnership agreements, and customer service agreements. In Latin America, terms for such arrange- 1 OECD-PUMA “Performance Contracting: Lessons from Performance Contracting Case Studies, A Framework for Public Sector Performance ments include Contrat/Convenio por resultados y desempeño, Contratos de Contracting� (1999). Available from: http://www.oecd.org/officialdocuments/ rendimientos, Contrat du plan, and Compromiso de resultado. publicdisplaydocumentpdf/?cote=PUMA/PAC(99)2&docLanguage=En Source: OECD-PUMA, op. cit. 2 Murray Petrie (2002), “A Framework for Public Sector Performance Contracting,� OECD Journal on Budgeting, Vol. 1/3. 34 Improving the Quality of Public Expenditure in the Dominican Republic • Improve the coordination of planning and implementation of parties, and (b) evaluate the performance of the contracts ex programs. post. • Improve coordination and communication between various • To avoid ambiguity or uncertainty, the meaning of success and government agencies (in particular, to provide better feedback associated measures must be clear from the start; therefore, to central agencies on entity performance). the performance contract document must clearly specify • Provide a way of benchmarking among agencies. indicators of success and their relative priorities. • Elicit a fair and explicit understanding of public agency • Adherence to performance contract commitments should performance. matter, and there should be consequences for “good� and “bad� performance. Thus there must be an explicit system of • Instill accountability and transparency in service delivery and incentives (financial or nonfinancial) to motivate people to the use of public money. take performance contracts seriously while at the same time • Grant increased autonomy to agencies. mitigating the risks of “gaming� and other counterproductive behavior or consequences. • Institutionalize a performance culture. • The method and modality for collecting, reporting, and validat- • Link rewards to measurable performance. ing information should be agreed at the time a performance • Enable agencies to receive the center’s formal validation of contract is signed. their strategic initiatives. • Performance contracts must deal explicitly with unknowns, However, performance contracts cannot in themselves create specifying contingencies ex ante to make ex-post evaluation results. They work mainly because of the formal and informal incen- of performance fair. tive structures surrounding them. Formally, performance contracts • It is important to avoid ambiguity or uncertainty over roles, may distribute monetary incentives to achieve results (either on a clarify agency accountability for the conduct of those roles collective or individual basis). Informally, they create peer pressure or highlight the presence of conflicting roles, and suggest any and learning opportunities during ex-post discussions on an individ- need to reallocate roles among agencies. ual or entity’s performance. At the same time, there are significant risks from the inappropriate use of performance contracting: • When authority has been delegated, it may be necessary to specify the circumstances that would justify intervention by • The risk of inappropriately restricting freedom to manage (for the contract principal in the management and operation of example, over-specification may inappropriately restrict a sup- the agency. plier’s/producer’s ability to manage the process). • The possible loss of or damage to trust, and a general lowering of the quality of the relationship between the actors involved (particularly when authority over inputs is not delegated). Performance Contracts in the Dominican • The risk of counterproductive behavior on the part of agen- Republic cies if outputs or outcomes are hard to specify ex ante and to measure ex post, and if there are significant information In 2006, to strengthen institutional budget management and asymmetries. accountability, and at the same time to introduce performance man- • The more formal the accountability mechanisms or incen- agement techniques in the public sector, the Dominican Republic tives, the more managers are likely to define the performance took the first steps in introducing performance contracting in the expected of them in a narrow manner.3 form of “Contratos por Resultados y Desempeño� (hereafter convenios). These convenios are intended as an instrument for the Finally, although experiences are broad and country and insti- continual improvement of program and institutional performance, tutional contexts vary substantially, international experiences with providing a flexible managerial link between the provision of budget designing and implementing performance contracts have yielded resources and the desired improvements in the social sector’s important lessons that can be useful for other countries.4 performance, as reflected in baselines, indicators, and targets for outputs and outcomes. • Performance contracts should be freely negotiated between From the beginning this initiative has been led by three main relevant parties. Government actors: the Ministry of Finance (Ministerio de Hacienda, • There should be a third party to (a) ensure that performance or MH); the Ministry of Economy, Planning and Development contracts have been negotiated freely and are fair to both (Ministerio de Economía, Planificación y Desarrollo, or MEPyD), which leads the planning, monitoring, and evaluation agenda; and the Ministry of Public Administration (Ministerio de Administración 3 Murray Petrie (2002), op. cit. Pública, or MAP), which is in charge of institutional performance. 4 These lessons are adapted from a PowerPoint presentation by the World The Government established a dedicated unit in MEPyD to support Bank’s Prajapati Trivedi and from Murray Petrie (2002), op. cit. and coordinate the implementation of the convenios and decided to Improving the Quality of Public Expenditure in the Dominican Republic 35 TABLE 1. PHASES IN THE INTRODUCTION, MONITORING, AND EVALUATION OF “CONVENIOS DE DESEMPEÑO� Phase Activities Phase I. Identification of institutions Signing of the agreement to initiate the process by MEPyD, MoF, MPA, and the sector agencies. Phase II. Evaluation of basic preconditions Diagnostic to assess the status of key functions (strategic and operational planning, budget, management, and monitoring). Phase III. Institutional strengthening Signing of technical assistance agreements for capacity building and implementation of capacity-building plan. Phase IV. Establishment of performance Development of performance indicators (outcome, output), baselines, and targets at institutional and program levels, agreements and signing of performance contracts. Phase V. Monitoring, self-evaluation, and Monitoring of progress on the technical assistance and performance contracts, presentation of self-evaluation reports, validation and preparation of a validation report. Phase VI. Dissemination of findings Presentation of self-evaluations and validation report to the Cabinet and the public at large, identification of lessons learned for improving future performance contracts. approach the implementation of the convenios on a pilot basis, des- one or more priority programs, within the broader framework of ignating a limited number of sector ministries to participate in the institutional goals established in the national development strategy. initial stage. In 2011, the Government also approved a regulation in Article 14 of the Organic Budget Law to establish the rules and criteria for the development, negotiation, approval, implementation, and monitoring and evaluation of results for the convenios.5 Content and Implementation Cycle The convenios cover both institutional and program performance. They include commitments regarding (a) institutional objectives Pilot Implementation Phase and goals that are verifiable by performance indicators, involving such managerial and institutional processes and systems as planning, The Ministries of Health and Education were chosen to pilot the first procurement, monitoring, personnel, statistics, and organizational convenios. First, a series of diagnostics of basic conditions were used structure; and (b) objectives and goals of priority public programs, to prepare institutional strengthening plans to help the Ministries involving elements related to the volume and quality of goods and improve their planning and management systems, a prerequisite services delivered by the program. for the implementation of the convenios. These plans also helped For the Ministry of Education, the convenio includes such insti- identify the programs that were better suited for implementing the tutional objectives and targets as the publication of manuals that first convenios. Once a plan was in place for addressing institutional define all functions in the Ministry and guide the classification of weaknesses, work began on developing the performance indicators, each position, and the development of a platform for monitoring baselines, and targets for inclusion in the contracts. Table 1 sum- the sector. In addition, the convenio includes a series of goals in marizes the phases and main achievements in the pilot introduction terms of results—such as the rehabilitation or construction of a of the convenios.6 certain number of classrooms in priority areas or the training of around 3,500 teachers identified through a capacity diagnostic. In the health sector, the main focus of the convenio is on improving the coverage and efficiency of vaccination and strengthening the Key Actors and Roles logistical capacity of health centers to provide vaccinations. The convenios are expected to meet certain standards—they The convenios that were signed with the Ministries of Education and must be simple, yet robust, as well as relevant and sustainable over Health entail an agreement between three central Government time, and prepared in a participatory way and accepted by all key institutions (MH, MEPyD, MAP) on the one hand, and the heads actors; and they must define measurable metrics. In light of man- of ministries/agencies on the other (Table 2 outlines the roles of agers’ low levels of control over financial and human inputs, the the main institutions). Each contract details the performance com- process does not link financial incentives to contract performance; mitments to improve the management of the institution, as well as however, contract performance information will be presented to the President and Council of Ministers, as well as to the public. The convenios will last for one to three years, with the initial set 5 Propuesta de reglamentación del Articulo 14 de la Ley No. 423-06. developed to line up with the annual budget cycle (see Figure 1). 6 For more details, see the November 2009 Government document At the end of the process, after a self-assessment by the sectors “Gestión Orientada a Resultados y Contratos por Resultados y and validation by MEPyD and MAP, findings will be presented to the Desempeño,� technical annex, on http://www.stp.gov.do/. Council of Ministers. 36 Improving the Quality of Public Expenditure in the Dominican Republic TABLE 2. INSTITUTION AND ROLES IN PERFORMANCE CONTRACTING Institution Roles MH • Signs the contracts. • Determines the amount and dates for the transfer of resources and budget for institutions and agencies. • Evaluates the budget execution. • Commits to transfer all budget resources on time. MEPyD • Signs the contracts. • Leads the process for defining and regulating the contracts with MH and MAP. • Carries out management functions to obtain international cooperation in strengthening planning capacities and improving management quality. At the end of the process validates self-evaluation of performance agreements prepared by sector ministries with MAP. MAP • Signs the contracts. • At the end of the process validates self-evaluation of performance agreements prepared by sector ministries with MEPyD, with an emphasis on institutional performance, and prepares a report regarding the degree of accomplishment. Sector ministry • Signs the contracts. • Proposes areas, targets, and indicators for the contracts. • At the end of the process uses self-assessment to report on progress to MEPyD. • Establishes improvement plans. Challenges and Next Steps The multiplicity of central institutions involved in the develop- ment of the convenios presents coordination challenges and All actors involved have assessed the experience of implementing sometimes conflicting perspectives. the convenios throughout the pilot phase as positive, and they see the value of both the process and the instrument. Nonetheless, • Budget predictability. The convenios have a “double-sided� introducing the convenios for broader use in the Dominican Republic accountability mechanism since they explicitly detail sector faces a number of important challenges. targets and objectives, but also put pressure on the MH to provide the necessary inputs to produce those outputs in a • Number of actors. Having all the key actors involved is an timely manner. The Dominican Republic’s traditionally weak asset, but it also adds complexity and delays to the process. budget predictability poses a serious challenge for these instruments. FIGURE 1. THE PERFORMANCE CONTRACTING CYCLE • Incentives. The regulation in Article 14 of the Organic Budget Law contemplates an array of incentives that have not been used in the pilot phase for fear of putting too much initial Sectors execute pressure on the instrument. So far, only the public Cabinet Contract signing programs and MH presentation and the external validation of the sector achieve- (August 2011) releases funds (August 2011 ments are the pressure points to stimulate performance. Going & December 2011) forward, a more sophisticated system needs to be developed to reward/punish good/bad performance. • Timing. After this first pilot phase, all key actors need to agree on aligning the instrument cycle to the budget cycle, taking into consideration other key milestones such as elections. Presentation to the Self-assessment Council of Ministers reports on the contracts • Target calibration. Target setting is an art, and more detailed (December 2012) by Ministries (June 2012) guidance needs to be provided to sector teams to inform the process of defining objectives and targets. It is critical to have Validation of the convenios with targets that are neither unachievable (given the self-assessements resources and timing), nor unambitious (easily achieved by (MAP/MEPyD) institutional inertia alone). Therefore, teams need guidance on July 2012 how to strike the right balance in setting targets. Improving the Quality of Public Expenditure in the Dominican Republic 37 Some critical actions for the future consolidation of the convenios include (a) monitoring and evaluating the convenio com- mitments, their validation, and the presentation of the findings to the Cabinet; (b) developing a plan for the expansion of convenios to new programs and agencies; and (c) institutionalizing the link between the Budget Division in the Ministry of Finance and the Planning Division of MEPyD. This note was prepared by Pedro Arizti, Senior Public Sector Specialist, and Joanna Watkins, Public Sector Specialist, World Bank, and Juan T. Monegro, Director General for Economic and Social Development in the Dominican Republic’s Ministry of Economy, Planning and Development. 38 Improving the Quality of Public Expenditure in the Dominican Republic THE SIUBEN TARGETING SYSTEM The Dominican Republic’s Single Beneficiary Selection System (Sistema Único de Beneficiarios, or SIUBEN) is an information system set up for the transparent and objective targeting of social programs. By using SIUBEN, along with new social protection programs and payment systems, the Government has been able to replace universal programs and subsidies with targeted programs and transfers that can effectively channel resources to poor or vulnerable people. SIUBEN contains information on nearly 60 percent of all households in the country (1.7 million) and uses an objective proxy means test to ensure transparency, equity, and efficiency in the allocation of public resources, while reducing the space for manipulation and clientelism. Because SIUBEN’s targeting mechanism is used by a number of programs, it promotes a more integral approach to poverty reduction that reaches eligible families to define their eligibility across different programs, including the conditional cash transfer program Solidaridad and the National Health Insurance, in a more coordinated and integrated fashion. SIUBEN is a critical element of the country’s system of monitoring and evaluation, and the experience demonstrates the important gains to be made from using smart information systems in identifying and selecting program beneficiaries. The Context from universal, unconditional subsidies to targeted transfers based on investments in human capital (although Solidaridad would begin enforcing the conditionality of transfers only in 2010). The Dominican Republic’s domestic banking crisis of 2003-2004 pushed 1.3 million people into poverty, increasing poverty levels by 15 percentage points. In 2003, social spending was reduced dramatically—by over one-third in both health and education. Since The Single Beneficiary Selection System— then, throughout the initial economic recovery and the more recent global financial crisis, spending levels have increased, although they SIUBEN have not yet returned to pre-crisis levels. One effect of the 2003 crisis was a renewed emphasis on the SIUBEN was created as an institution of the Dominican importance of safety nets to mitigate risks and better target social Government in 2004 within the Social Cabinet under the direct spending to poor and vulnerable people. A key step was taken responsibility of the Vice President of the Republic. SIUBEN’s insti- when the Cabinet for the Coordination of Social Policy (Social tutional responsibilities are to create and administer the database Cabinet) expanded its involvement in the social assistance sector, of poor households in the entire country and the registry of eligible mapping the sector and evaluating all major programs. In 2004, the households to ensure their access to the benefits offered by various Government revamped the sector by introducing a mechanism to social programs and monetary transfers. Its mission is to identify target social programs (SIUBEN), setting up an efficient payment families and beneficiaries on the basis of objective mechanisms that mechanism (ADESS), launching the conditional cash transfer pro- ensure transparency, equity, and efficiency in the allocation of public gram Solidaridad to promote investments in the human capital of transfers. poor households while increasing their consumption, and eliminat- ing a series of ineffective programs. Collecting and updating household data In 2007, the Government launched the Rationalization of Social Assistance Programs and Public Expenditure Management The initial SIUBEN database was created from the First Reforms, which reduced or eliminated social assistance programs Socioeconomic Study, which surveyed 1.2 million households with little distributional impact, including the Price Stabilization comprising 4.4 million individuals (56 percent of the population) Institute and Comedores Económicos, and strengthened others, such in 2004–2005. The survey was implemented principally in selected as the school feeding program. A new law established a unified geographical areas that displayed high levels of poverty (accord- institutional framework under the Social Cabinet for the steward- ing to the National Poverty Map, developed in 2004 with World ship and execution of social assistance and safety net programs, Bank assistance on the basis of the 2002 Census and the 2002 differentiating between targeted and non-targeted programs. Demographic and Health Survey). Geographic targeting was used In 2009, the Government redesigned the Solidaridad program, to reach a greater number of poor households with the available effectively introducing conditionalities in terms of investments in resources. human capital (in particular the health, nutrition, and education of SIUBEN allows for continuous on-demand enrollment for children) and strengthening intersectoral coordination. The coales- households, facilitated through decentralized Regional Technical cence of Solidaridad and SIUBEN represented an important shift Units. In addition to direct requests from households, SIUBEN Improving the Quality of Public Expenditure in the Dominican Republic 39 also works with a network of community organizations that pres- a score from 0 to 100, and the threshold below which households ent requests on behalf of households they serve. When SIUBEN are considered as moderately poor was set at 60.3, while that for receives a request, staff visit the household to administer the survey extreme poverty was set at 47.2, on the basis of the weighted questionnaire, the information is entered into the registry, and a responses to the variables taken from the questionnaire responses. proxy means test (described below) is applied to determine the International evaluations indicate that such a proxy means test is household’s poverty status. This approach is considered best prac- cost-efficient, transparent, and effective in targeting outcomes, tice for ensuring the system’s dynamism, transparency, and accuracy allowing for simplified methodologies, expedited information col- between household surveys. lection and processing, and reduced costs. SIUBEN can also update household characteristics to reclassify household eligibility. Such an updating may result from verification SIUBEN in practice by SIUBEN personnel, investigation of complaints or updates from community organizations or individuals, changes in household status SIUBEN is a consistent targeting mechanism that can be used across such as the death of the household head, or a comparison of the a wide range of social programs in education, health, nutrition, hous- information in SIUBEN with other databases—for instance, when ing, and energy. The database can be used to define different target the social security database or the Comptroller General’s system groups, depending on the program, by using different thresholds reveals that a household member is registered as employed and for eligibility. It currently contains information on 1.7 million house- receiving a salary above the poverty line. As appropriate, house- holds (nearly 60 percent of all households in the country). SIUBEN holds can be reclassified from the poor or vulnerable categories to provides a registry with the list of beneficiaries, with full names, the non-poor category. identification numbers, and addresses for the following programs Figure 1 shows the distribution of households registered in the and transfers: SIUBEN database based on their poverty status according to the • Solidaridad, through its Comer es Primero (Eating Is First) and proxy means test. Incentivo a la Asistencia Escolar (School Attendance Incentive) transfers Determining eligibility using a proxy means test • Consejo Nacional de la Persona Envejeciente (National Council The First Socioeconomic Study classified 14 percent of the house- of Elderly Persons) holds surveyed as extremely poor, and 39 percent as poor. It used • Seguro Nacional de Salud (National Health Insurance) a multidimensional conception of poverty, which resulted in the definition of a quality-of-life index (�ndice de Calidad de Vida, or • Bonogas Hogar subsidy for the domestic use of cooking gas ICV). The ICV combines 17 variables related to household compo- • Bonoluz Hogar subsidy for household electricity sition, housing characteristics, basic services, household assets, and human capital characteristics, which best predict household welfare (with different formulas for urban and rural areas). The ICV yields BOX 1 ARTICULATION BETWEEN SIUBEN AND NATIONAL FIGURE 1. DISTRIBUTION OF HOUSEHOLDS REGISTERED IN THE DOCUMENTATION EFFORTS SIUBEN DATABASE SIUBEN provides critical inputs to the efforts to provide documentation to all undocumented Dominicans. Having an identity document (birth certifi- Extreme cate and/or national identity card, or cedula) is a prerequisite to entry poor in the SIUBEN registry, and lack of documentation prevents thousands of 12% families from qualifying for social programs. Efforts to build and update SIUBEN have been critical in identifying households and individuals in need of identity documents, and in steering them toward programs and Non-poor services that can assist them in securing documentation. The original 49% Moderate SIUBEN study identified 340,000 undocumented individuals. With financing poor and technical assistance from the World Bank, the Government then 39% launched a national campaign to provide legal assistance to the poor undocumented individuals identified by SIUBEN. Collaboration between SIUBEN and the National Civil Registry, through the systematic exchange of information and verification, has advanced both institutions’ abilities to Total number of households in the SIUBEN database: 1,699,073 achieve their objectives: documenting tens of thousands of citizens and improving the accuracy of beneficiary registries. Source: SIUBEN Database, June 2011 40 Improving the Quality of Public Expenditure in the Dominican Republic FIGURES 2 AND 3. TARGETING OF TRANSFER PROGRAMS Share of benefits received by exterme poor, poor and non-poor Number of beneficiaries (in thousands) 800 Number of bene ciaries (in thousands) 12% 17% 700 91 600 59% 56% 57% 500 62% 420 400 326 300 44% 200 28 41% 110 31% 100 231 232 21% 103 86 34 0 Eating Is First Incentive for Gas Bond Power Bond Eating Is First Incentive for Gas Bond Power Bond School Attendance School Attendance Extreme poor Moderate poor Non-poor Extreme poor Moderate poor Non-poor Source: SIUBEN database, 2011. More generally, the socioeconomic information contained many eligible households still do not benefit from some programs in SIUBEN has also been used to analyze the profile of the poor because fiscal constraints have not yet permitted the full expansion population, determine the needs and gaps in terms of public ser- of these programs in all geographic areas and to all eligible families. vices and infrastructure, and identify the dimensions of well-being that are most salient in particular areas to inform the design of Updating the SIUBEN database investments and programs. (Box 1 describes how SIUBEN also sup- ports the effort to document all Dominicans.) In August 2011, SIUBEN launched the Second Socioeconomic Study to update its database and improve the targeting of social programs, The impact on targeting to cover 1.8 million households nationwide. Given the transient nature of poverty and the mobility of poor households, the second An analysis of SIUBEN’s efficiency demonstrates that the programs study aims to update the outdated beneficiary registry to recertify it informs are generally targeted efficiently, and that their targeting household information; it will also include new geographic areas has improved over time. In particular, the beneficiaries of the school with high levels of poverty that were not covered by the original incentive and nutrition transfers all fall in the “moderate poverty� or study. The second study capitalizes on new technologies, particularly “extreme poverty� categories. by the partial use of personal digital assistants to improve the auto- Recent international reviews of targeting systems confirm the matic registration and oversight of the process. It also improves the effectiveness of the approach SIUBEN uses, while noting that local impartiality and independence of the information collection process implementation details lead to significant variation in targeting out- by conducting its uptake through individuals selected, trained, and comes and efficiency. International evaluations of targeting systems overseen by third-party civil society organizations and private enti- have shown that combining multiple types of targeting mechanisms, ties, with important quality control and overarching support from such as SIUBEN’s use of geographic targeting and proxy means SIUBEN. tests, can improve targeting accuracy at generally low cost to both households and the government. (Figures 2 and 3 illustrate SIUBEN’s targeting.) In Figure 2 the gas and electricity subsidies display some errors Next Steps and Conclusions of inclusion, with 12 and 17 percent of beneficiaries belonging to the non-poor category. This is partly explained by the fact that In the short term, the challenge for SIUBEN is to complete the these programs have not fully transitioned from universal subsidy Second Socioeconomic Study in a timely manner, while ensuring the schemes (within some geographic areas, irrespective of the poverty quality of the information collected. Once the study is completed, status of each household) to household-targeted subsidies. The SIUBEN will need to review the variables of the proxy means transition has involved shifting an estimated 600,000 non-poor test and recalibrate the beneficiary registries that define eligible beneficiaries of the old subsidy into regular clients of the electri- households for programs that use SIUBEN. This review will require cal distribution companies. Thus, the SIUBEN differentiation allows convening government and independent experts to determine targeting to meet the specific objectives of the target population what proxy means test and eligibility criteria to use, followed by the of each transfer and program, which include near-poor, vulnerable political decision to actually apply them for core programs, likely fol- households in some cases. The targeting is expected to improve lowing presidential elections in May 2012. These next steps present over the coming years. In addition, it is important to note that both technical and political challenges. Improving the Quality of Public Expenditure in the Dominican Republic 41 Beyond this immediate planning, the Government must define the larger framework for future beneficiary identification and recertification. Having nearly completed a nationwide socioeco- nomic census that covers all high-poverty geographic areas, the Government must determine whether periodic major census-taking is the most cost-effective way to update its registries. Alternatives includes greater reliance on permanent processes of inscription, defining new household graduation strategies, or providing recerti- fication on a rotating basis, with dedicated census-taking teams that pass from one region of the country to another at regular intervals. This decision will have important implications for the design and institutionalization of SIUBEN. Another challenge for SIUBEN is to consolidate its legal foundations beyond the existing Presidential Decree. From this legal base, the challenge will be to ensure effec- tive enforcement of the use of SIUBEN as a unified, singular system for all targeted public programs. SIUBEN is key to strengthening the quality of public expendi- ture in social sectors in the Dominican Republic. It has allowed for the creation of a social assistance system that can transparently and efficiently provide targeted, flexible responses for the protection of its poorest citizens. The benefits of the SIUBEN system extend well beyond their targeting function, as they improve the predictability of the Government’s investments in reaching the poor. SIUBEN’s transparency helps strengthen democracy by reducing the space for manipulation. The system also allows for the judicious plan- ning of investments to address geographic and sectoral disparities in the distribution of social spending. SIUBEN has allowed the rationalization of poorly targeted programs, including the elimina- tion of universal subsidies with weak distributional impacts. Finally, SIUBEN allows for the concentration of a number of interventions to efficiently target the poorest households in an integral manner and reach the necessary “critical mass� to improve human capital outcomes. This note was prepared by Susana Gámez, Technical Director, Cabinet for the Coordination of Social Policies, Dominican Republic, and by Timothy Cheston, Junior Professional Associate, and Aline Coudouel, Lead Economist, World Bank. 42 Improving the Quality of Public Expenditure in the Dominican Republic THE INSTITUTIONAL ARCHITECTURE OF COUNTRY M&E SYSTEMS: Some Perspectives for the Dominican Republic While the Dominican Republic has recorded relatively high levels of economic growth and increased public spending in the last decade, like most countries in Latin America and the Caribbean, it has made less progress in reducing poverty and inequality than might be expected given the pace of growth. A key constraint is the inadequacy of the public management structures and processes that help improve the quality and efficiency of public expenditures. The Government has taken several steps to address this constraint, including initiating public financial management reforms, strengthening public oversight institutions, introducing performance-informed budgeting, and piloting other elements of a Governmentwide monitoring and evaluation (M&E) system. As these efforts move forward, examples from several countries can provide some perspectives on how the roles of the country’s M&E institutions can be developed or strengthened. Introduction and comprehensive set of functions carried out by a well-defined set of organizational arrangements for the overarching purpose of While it has become common to speak about a country’s “M&E� enhancing the quality, efficiency, and effectiveness of public programs. system, discussing “monitoring� and “evaluation� almost as a single The note focuses specifically on the institutional architecture of word, these two functions—monitoring and evaluation—are rarely M&E systems and provides a snapshot of the various organizations organized in ways in which the word “system� would imply. and their roles in different arms of government. It also examines The two functions—monitoring and evaluation—are inter- the role the private/civil society sector plays in supporting M&E. related but distinct. Each can involve a range of objectives and Information is drawn primarily from the Independent Evaluation therefore organizational set-ups and actions. The objectives of Group’s Evaluation Capacity Development series, supplemented monitoring can simply be to collect expenditure data to control with interviews and information from other publications.2 spending, or they can be to collect outcome information and to If an institutional architectural blueprint were to be con- use it in a systematic scheme of incentives and contractual arrange- structed from examples of current practices, an M&E system would ments to drive organizational performance. Similarly, the objectives involve the following: of evaluation range from systematic reviews of performance infor- • Administrative units in the executive arm of the government, mation for improving program design to comprehensive analyses of capable of balanced emphasis on monitoring and evaluation. the impacts of policies and programs for making budget decisions. Monitoring typically involves the routine collection and use of data • Semiautonomous institutions, providing professional support for management purposes, while evaluation comprises a systematic and guidance to the executive. periodic assessment for the purposes of learning (e.g., program • Independent watchdog institutions, providing analyses and design or improving program implementation), accountability guidance for M&E improvement, and serving as a check on (reporting results achieved to stakeholders and funding agencies), executive M&E. or key decisions (e.g., budget allocations, scaling up or terminating programs). • A statistical office, providing expertise on technical data issues. The term “system� implies that the various aspects of the • Research, academic, and civil society institutions, supporting “M� and “E� functions and their objectives have been relatively well the various aspects of M&E implementation and use. thought-through, designed, and implemented. In reality, the func- tions evolve in an incremental and dynamic fashion, with countries In reality, the complexity of government makes it impossible drawing on other countries and on their own experiences and to have a single, unified, and comprehensive M&E system. There political and administrative contexts to learn about institutional are various configurations within this blueprint, each with different and organizational set-ups, technical approaches to M&E, and the strengths and weaknesses in addressing the full range of M&E func- uses of the two functions for various objectives.1 This note uses the tions and objectives. term “M&E system� for the aspirations it embodies: a consolidated 1 Also see notes by Ordonez and Wessal, and by Arizti, Watkins, and 2 A full set of IEG publications is available at http://go.worldbank.org/ Monegro in this publication. L4C5UVSL40 Improving the Quality of Public Expenditure in the Dominican Republic 43 TABLE 1. LOCATION OF COORDINATING UNITS AND LEVEL OF EMPHASIS AND USE OF M&E INFORMATION Primary Coordination Type of Centrally Driven Emphasis Type of Use Monitoring Evaluation Execution of Learning/ Ministry or department framework framework evaluations planning Budgeting Australia Finance Primary Re-emerging Emerging Primary Canada Treasury Board Secretariat Primary Primary Emerging Primary Emerging Chile Budget Office, Finance Primary Primary Primary Primary Colombia National Planning Primary Primary Primary Primary Emerging Mexico Finance Secondary Primary Primary Primary Primary South Africa Performance, M&E, Presidency Primary Emerging Primary Spain Presidency Primary Primary UK HM Treasury Primary Emerging Primary US Office of Management & Budget Primary Emerging Primary Administrative Units within the Executive tions was relatively less. Arm of Government Within these approaches, line ministries conduct their own evaluations, although there may not be an explicit requirement to do so. An example is Spain’s Ministry of Education, which conducts In most countries, a centrally located unit in the executive arm of evaluations through its Evaluation Institute. By contrast, some coor- the government may coordinate both monitoring and evaluation, dinating units—for example, those of Canada and Chile—not only or the two functions (“monitoring� and “evaluation�) may be split set the M&E framework but also undertake some evaluations. between two (or more) agencies. These agencies may play one or In some cases, responsibilities for performance management more roles to varying degrees: setting standards and rules for M&E, are shared. For instance, in South Africa both the Treasury and the conducting evaluations, and directly influencing budget decisions. Department for Performance Management and Evaluation collect The central unit is variously located in the Ministry of Finance performance information. However, the types of information they or Ministry of Planning, or directly under the Presidency or the require are not entirely consistent. In such cases of shared respon- Prime Minister’s office. The unit plays a critical coordination and sibility, coordination becomes key to success. Questions of who is standard-setting role vis-à-vis other government agencies. While responsible for what aspect of the system, who leads what, and how the primary goal of such units is performance management across the information is eventually used become pressing and may need government, there are significant differences in the approaches they resolution in legislation. follow and the specific objectives they pursue. Furthermore, the But whatever the approach and responsibilities of these units, functions of “monitoring� and “evaluation� receive different degrees a key underlying feature of all of them is their foundational work to of emphasis across countries. (Table 1 shows the location of the embed performance systems in government and to shift the focus central M&E units in some countries.) of the public sector to the outcomes of its work. Central M&E units may take a prescriptive approach, or they What are the implications of the location of the coordination may establish an overarching framework and depend on line minis- unit for M&E? The answer depends on the country’s legal and politi- tries’ cooperation for its full implementation and use. One example cal realities. The location should “optimize coordination [of M&E], is the U.S. Office of Management and Budget (OMB), which requires accountability, and learning�3 and link it to both planning and budget- performance information but does not set contractual performance ing, thus steadily improving government performance. It is useful to targets; it allows the line departments to determine their own suite begin with a diagnostic of what elements are essential at the outset of evaluations. It also does not conduct any evaluations itself. Its (e.g., monitoring data? evaluation of major programs? credibility of approach is to facilitate managerial decisions at the level of the current evaluations?). Once the desired role is specified, a systematic line departments, and to collect monitoring and evaluation informa- approach to the particular problem can be taken and the coordi- tion from them to inform budget decisions. The UK formerly used nating unit can be established in a central office that is capable of performance contracts between the Treasury and the spending moving it forward. And if different aspects of the system are already ministries, which relied on contractual agreements, called Public in place, a systematic analysis of opportunities and constraints helps Service Agreements (PSAs), to monitor specific indicators and determine the starting points for additional interventions. achieve specific targets. This approach evolved over time: originally PSAs were developed with specific spending ministries, followed by efforts to look at cross-agency outcomes and to develop shared 3 Feinstein, O., & Zapico-Goni, E. (2010), Evaluation of Government PSAs (considered to be an innovation). The emphasis on evalua- Performance and Public Policies in Spain, IEG, World Bank. 44 Improving the Quality of Public Expenditure in the Dominican Republic The central coordinating unit should not be thought of as a institutions), the National Audit Office (NAO) of the UK, and static body with concrete boundaries. In practice, cross-cutting high- the Australian National Audit Office (ANAO). These institutions’ level committees—such as the Council of Ministers in Colombia or reports often receive high media coverage and, of course, parlia- the Performance Improvement Council in the United States—help mentary attention. While often highlighting the shortfalls of M&E strengthen a virtual network that the central agency coordinates or in government, these institutions nonetheless help to stimulate the leads. Such high-level committees also provide a forum for cross- development of improved M&E approaches. In fact, ANAO regards fertilization of ideas across implementing agencies. the executive government and public sector entities as important clients. In a recent study the GAO found that the monitoring infor- mation it provides permits agencies to make better-informed Semiautonomous Institutions Supporting decisions. However, it also noted data quality issues, such as timeli- ness and meaningfulness of the data. The NAO and the Auditor the Executive General of Canada have also conducted audits of the performance management systems, including audits of data. NAO conducts Some governments have also established semiautonomous institu- rigorous, evidence-based value-for-money studies, looking at actual tions to professionalize the M&E functions in the line ministries performance. In the coming year South Africa’s Auditor General and assist with the uptake of M&E information. These bodies help is expected to begin expressing an opinion on the quality of per- improve the professional profile of the field of evaluation gener- formance information. Another example is South Africa’s Public ally, and they assist in systematizing the M&E functions within the Service Commission, which issues an annual report assessing the government. In addition, they bring a degree of professional inde- quality of service delivery and may direct the Executive to imple- pendence and therefore credibility to the government’s reports on ment its recommendations. M&E information. The International Organization of Supreme Audit Institutions A prime example is Mexico’s CONEVAL, an institution has encouraged its members to conduct performance audits—an that not only sets guidelines, standards, and methodologies for “independent examination of the efficiency and effectiveness of evaluations of social programs, but also coordinates cross-sectoral government undertakings, programs, or organizations, with due evaluations and undertakes some key evaluations itself. It works regard to economy, and the aim of leading to improvements.�4 In closely with the social ministries in setting the evaluation agenda general, though, audit institutions have tended to play a limited role. and in conducting actual evaluations. Another example is Canada’s Nonetheless, this role can evolve and provide both a check on, and Center for Excellence in Evaluations (CEE), located in the Treasury impetus for, reporting on the performance of public programs. Secretariat Board. CEE’s role is to support the implementation of the Government’s evaluation policy, provide technical assistance and capacity-building services to line ministries, and monitor the quality of evaluations. Statistical Institutes A centrally organized coordination role and a centrally defined M&E framework typically mean that the actual conduct of M&E The role of statistical agencies and institutes in the develop- must occur at the level of the line ministries, which tend to vary in ment of M&E systems is relatively less researched and discussed. capacity, resources, and motivations. Thus a relatively independent Nonetheless, given widespread issues of data quality in the collec- and facilitative body has an important role to play in “bringing the tion, construction, and reporting of basic indicators, it is evident troops along.� In addition, it may help mitigate the perception of that institutions specializing in statistical information can play a key M&E as just a tool for higher-level management control. role. For example, CONEVAL has established a partnership with How can such a body be established? The best placement the National Institute of Statistics and Geography in Mexico for depends on several factors—not only on the host agency’s willing- improved information collection through surveys. In South Africa, ness and capacity to play a facilitative role, but also on how the Statistics South Africa has designed a statistical quality assurance placement of such an agency would be perceived by those it would framework to help strengthen the quality of administrative data purport to assist. (although the degree to which it is being used is unclear). Strong statistical institutions with high capacity exist in many countries, but often their formal role in M&E has yet to be defined. Issues of data quality, data repository, and data availability remain, and statistical Independent Institutions agencies may help set standards for these key foundations of a good M&E system.5 M&E structures that are outside the executive arm include inde- pendent offices that report to the legislative branch of government. These bodies serve as a check on the M&E approaches used and performance results reported by the Executive. 4 INTOSAI. Implementation guidelines for performance auditing, p. 11. Examples of such bodies include audit agencies, such as the 5 Roger Edmunds and Tim Marchant (2008), “Official Statistics and Government Accountability Office (GAO) of the United States Monitoring and Evaluation Systems in Developing Countries: Friends or (which plays a wider evaluative role than many other watchdog Foes?� Paris21. Improving the Quality of Public Expenditure in the Dominican Republic 45 Nongovernment Actors: Academia and Private Consulting Firms, Professional Communities of Practice, and Civil Society Research and academic communities, civil society organizations, and professional networks play at least four important roles in an M&E system: • They provide technical services for M&E that might be in short supply within the government (the quality of which can be assured through competitive selection). • They are a source of information regarding government per- formance, once they have access to reliable performance data. • They help professionalize M&E and lend credibility to the vari- ous methods and approaches the systems might use, and they help develop a culture of “evidence.� • They help build capacity through workshops, conferences, sharing of experiences, and so forth. Thus, while they are not a formal architectural feature of an M&E system, they are integral to a well-functioning one. The United States uses academics and the private sector extensively for con- tracting out technical M&E work, and a thriving industry has risen around conducting evaluations. These contractors are specialized and bring deep expertise in conducting technical work, enhancing its credibility. Communities of practice, such as the Spanish Society for Evaluation, the Latin American Monitoring and Evaluation Network, and the Government Social Research Service in the UK, can raise the profile of the profession and help develop expertise, systems, and ideas about M&E. They also serve as fora for the exchange of knowledge and practice between government and practitioners. Governments can help build this integral part of the M&E architecture. For example, the Canadian Evaluation Society offers training to professionals who are engaged in evaluation. Government practitioners and other professionals take these training programs to increase their understanding and knowledge of M&E. Finally, civil society organizations can help close the loop in M&E by disseminating information and using the information for research and dialogue, which the government in turn can use for improvement purposes. Legislation guaranteeing the right to infor- mation, and making information available easily to the public, helps support such civil society engagement. To conclude, a country’s M&E system can involve many actors and institutions, but the overall objective remains the same: to enhance the quality, effectiveness, and efficiency of public programs. The Dominican Republic has made several advances in institution- alizing M&E. As experiences emerge from implementation, other countries’ approaches and how they changed over time will be use- ful to consider in further evolving this important lever for ensuring the quality of public expenditure. This note was prepared by Nidhi Khattri, Lead Evaluation Officer of the Independent Evaluation Group, World Bank. 46 Improving the Quality of Public Expenditure in the Dominican Republic CHANGE MANAGEMENT STRATEGIES TO BUILD A CULTURE OF RESULTS AND INSTITUTIONALIZE M&E SYSTEMS Monitoring and evaluation (M&E) systems provide critical information on the effectiveness and efficiency of policies, programs, and budget allocation that can serve as a foundation for evidence-based decisionmaking. However, institutionalizing governmentwide M&E systems involves much more than good design or the right tools. Clearly, the technical dimensions of the system are very impor- tant—but they are not enough to ensure the adequate production of performance information or its effective use for accountability, management, budgeting, or political purposes. Because the changes that M&E reforms introduce often require new capacities and incentives and can create confusion, frustration, and resistance, a change in the hearts and minds of a variety of actors in the system is required. A change management strategy can help incorporate M&E in the culture and institutionalize the system. The Dominican Republic seems ready to embark on the design and implementation of a more comprehensive M&E system for the country. This note discusses the different dimensions of a change management strategy and anticipates some possible entry points for building one in the Dominican Republic by providing examples from Canada, Chile, Colombia, Mexico, and the United States.1 Change Management, Capacity Building, Capacity building is often not enough to trigger a change in behavior. Appropriate incentives are needed at all three levels to and Incentives truly influence the actions of relevant actors.5 The different types of incentives are often characterized as “carrots,� “sticks,� and This note is organized according to the different steps that the man- “sermons.�6 Carrots provide positive encouragement, rewards, and agement literature suggests are necessary for introducing change: recognition for carrying out M&E and using its findings. Sticks involve (a) building a sense of urgency; (b) forming powerful guiding coali- sanctions and penalties—such as budget cuts—for those who fail tions; (c) creating and communicating the vision; (d) empowering to take performance and M&E seriously. Sermons are high-level others to act on the vision; and (e) creating quick wins, consolidat- statements of endorsement and advocacy about the importance ing improvements, and sustaining change.2 of M&E. Within these steps, there are also different layers and ele- Finally, if high-quality, timely, and adequate performance infor- ments that need to be taken into account. In discussions about mation (PI) is to be produced and used in the decision-making pro- implementing change around M&E systems, what often comes up is cess, capacity-building strategies and incentives need to be designed capacity building. Too often, capacity building is used as a synonym and implemented on both the demand and the supply side of M&E, for “training individuals.�3 However, individuals do not work in a as well as at the institutional, organizational, and individual levels. vacuum, and they need more than training to be able to implement These strategies should engage relevant actors around all stages of their knowledge; therefore, attention to the organizational level is the policy and budget cycle—not just around M&E. key. Moreover, organizations themselves need external support or an “enabling environment� to have the space to implement reforms. Therefore, change management strategies need to target different levels: the societal or institutional level, the organizational level, and Building a Sense of Urgency: The Enabling the individual level.4 Environment A society’s general political context and broader priorities (for 1 The case studies on which this note are based are available at www. example, democratization, accountability, and efficiency) have often worldbank.org/ieg/ecd. been an important institutional-level incentive for the successful 2 There are several models of change management strategies. This note implementation of M&E reforms. Since M&E is basically a political follows an adapted version of the steps proposed in Kotter, J., “Leading Change: Why Transformation Efforts Fail,� Harvard Business Review. 3 Heider, C. 2011. “A Conceptual Framework for Building Evaluation 5 MacKay, K. 2007. How to Build M&E Systems to Support Better Government. Capacities: Building on Good Practice.� In Influencing Change: Building Washington, DC: World Bank. Evaluation Capacity to Strengthen Governance. Ed. Rist, R., et al. Washington, 6 Bemelman-Videc, M., et al. 1998. Carrots, Sticks and Sermons: Policy DC: World Bank. Instruments and Their Evaluation. New Brunswick, New Jersey: Transaction 4 Heider, C. 2011. Op. cit. Publisher. Improving the Quality of Public Expenditure in the Dominican Republic 47 process with technical dimensions,7 the initial level of “demand� for • In 2008, a Ministry of Public Administration was created. the system is key to its long-term sustainability. • In 2010, the Dominican Republic enacted a new constitution M&E systems introduced as a response to political “emer- that lays the foundation for greater transparency and account- gencies� have helped reforms penetrate the institutional culture. ability by the executive branch, and gives rise to the develop- Capitalizing on the sense of urgency has influenced the demand ment of a results-oriented governance, the development of for and use of M&E. Additionally, the level of ownership of the social monitoring, and, therefore, a greater demand for M & E change tends to be higher if the system is perceived as addressing in implementing programs and policies. explicit needs. In this sense, introducing M&E reforms as part of larger public sector reforms can help contextualize the efforts for However, the Dominican Republic still has a long way to go M&E and provide momentum to incorporate M&E in the culture. in implementing these and related public sector reforms.10 It still In Mexico, for example, the development of a robust M&E system suffers from weak oversight, particularly in the areas of financial was a consequence of the end of the single-party system and management and budgetary controls; it has fragmented PI devel- the political transition to democracy. It responded to the public’s opment and M&E implementation and poor coordination across intense mistrust of government management of public funds and to government ministries; it lacks external checks in the form of a the opposition’s suspicions of the use of PI. The legal reforms and strong civil society and critical media;11 and it still has a weak insti- technical process that followed were seen as responding to this tutionalized results culture. However, there seems to be sustained situation, fostering the success of the system. momentum for deepening these efforts, offering an opportunity to Over the past two decades, the Dominican Republic has made design and consolidate a countrywide M&E system. important efforts toward greater transparency and accountability toward citizens, who had been demanding more information on the use of state resources and increased opportunities to participate.8 The country has also invested significantly in transforming its public Forming Powerful Coalitions: Champions, administration, with a special focus on the institutions involved in planning, budgeting, and financial management. Key Actors, and Alliances • In 1996 the Presidency established the Presidential Commission Strong champions also have a central role in institutionalizing M&E for State Modernization and Reform, which in 2001 became systems. Leaders’ attitudes toward M&E can boost the acceptance the National Council for State Reform (Consejo Nacional de of new initiatives and operate as “sermons.� Behaviors in the public Reforma del Estado, or CONARE), which is charged with administration are often modeled after those of leaders and cham- coordinating modernization reforms, promoting democratic pions.12 Therefore, strong actors supporting a results orientation can institutional development, and promoting citizen participation. be key for a change in culture at both the institutional and the orga- • In 2006, the Dominican Republic created the Ministry of nizational levels. For example, in Colombia,13 President Uribe often Economy, Planning and Development, with the mandate praised the importance of the system and used the PI produced to develop results-oriented planning,9 and put in place the by it in his public speeches and also in his “town hall� meetings. He Planning and Public Investment System (SNPIP). The two also used the information to hold his ministers accountable. This most important instruments of the SNPIP, the National high-level validation of the system and its information increased and Development Strategy (END) and the National Multiyear Plan promoted the relevance of M&E among citizens and policymakers, for the Public Sector (PNPSP), contain a system of indicators and gave critical support for deepening M&E reforms. for monitoring and evaluating the implementation of public A central agency—often the ministry or department of plan- policies and programs implemented by the Government insti- ning, finance, or treasury—can also serve as a champion of M&E tutions under the END. reforms, strongly affecting the adoption of a performance orien- tation.14 Central agencies generally have the authority, influence, • In 2009 the Ministry of Finance started incorporating in some power, relationships, and technical capacities to provide positive and budget programs (Health and Education) informative tables negative incentives that can support institutionalizing reforms. They on target volumes of production of goods and services. At the same time, the Ministry of Economy, Planning and Development began formulating multiyear public sector investment plans, 10 Alvarado, N. et al. 2007. Apoyo a la Instrumentación de un Sistema and then linked the National Public Investment System (SNIP) de Gestion Por Resultados. Washington DC: Banco Inter-Americano de with the Integrated Financial Management Information System Desarrollo. (SIGEF) for the transmission of the annual public sector invest- 11 Improving the Quality of Public Expenditure in the Dominican Republic, ment budget. op. cit. 12 Heider, C. 2011. Op. cit. 7 MacKay, K. 2007. Op. cit. 13 Castro, M., et al. 2008. Insider Insights: Building a Results-Based Management 8 Hartlyn, J. The Struggle for Democratic Politics in the Dominican Republic. and Evaluation System in Colombia. ECD Working Paper Series, No. 18. Chapel Hill, London: The University of Chapel Hill, North Carolina Press, 1998. Washington, DC: World Bank. 9 To replace the previous Technical Secretariat of the Presidency of the 14 For further analysis on the structure of M&E systems, please see Nidhi Dominican Republic Khattri’s note in this volume. 48 Improving the Quality of Public Expenditure in the Dominican Republic can coordinate cross-sectoral M&E activities, produce technically sound M&E methodologies, provide technical advice and guidance, Creating and Communicating the Vision: and support the transfer of knowledge to other agencies.Their close Legislation, Policy Frameworks, and dealings with presidents and prime ministers and their relationships to line ministers can be critical in the system’s development and Guidelines can facilitate integrating M&E into planning and budgeting frame- works—a key step toward institutionalization. Depending on the To transform organizational culture around M&E, different players objectives of the system, different central agencies may take charge. in the system need to have a common understanding of it. The In Chile,15 the system is centrally coordinated by the Ministry of changes related to these complex reforms can lead to confusion. Finance (MoF), arguably the strongest agency in the country. The Therefore, it is important to communicate the overarching phi- MoF has been able to provide support for and enforce the collec- losophy of change, the specific objectives and scope of the reform, tion of PI through indicators and evaluations for all Government exactly what will be implemented, who will implement it, who might programs, and to promote the use of PI for resource allocation be affected by it, and what benefits are expected from the reform. decisions by both the Executive and Congress.16 Because the institutionalization of M&E and changes in culture However, some international experiences make a case for not are long-term efforts, codifying the reforms and arrangements relying exclusively on central agencies to help institutionalize the through legislation, policies, or guidelines can be useful in providing system: they have used semiautonomous or independent agencies a longer-term vision at the institutional level. Such instruments also with subject matter expertise and technical credibility to enhance help protect the progress achieved so that the system can endure the commitment of line ministries. For example, in Mexico, the posi- changes in administrations. tive support provided by CONEVAL (the National Council for the In countries with strong legal traditions, M&E arrangements Evaluation of Social Policy) as technical leader, trainer, and standard- are often grounded in laws, permanent regulations, and even the setter in the system is considered key to the success of reforms. In Constitution. In Mexico, legislation provided a strong institutional other countries, specialized internal units within central agencies foundation for the M&E system, allowing for the progressive assimi- take up this role—for example, Canada’s Center for Excellence for lation of results-based practices while delineating responsibilities Evaluation within the Treasury Board Secretariat. among institutions at all levels of the public sector. The legislation In some countries—for example, the United States, Chile, and accompanied the transition from a sectorwide approach to a Mexico—Congress has had a key role in initiating and making use national-level, centrally driven initiative, closely linked to the annual of M&E systems. In a few countries, national audit offices have also budget process. Incorporating the performance-based management played an important part in raising the profile of M&E by producing system into the Constitution has further solidified the system and reports that are used by media, citizens, and civil society organiza- promoted its stability. In other countries, even those that have a tions. As an example, the reports prepared by Canada’s Auditor legal tradition, laws are not implemented and are even bypassed, General receive extensive public attention and provide constructive becoming a futile effort. In any country it is important to evaluate advice to individual departments and to the central agency. whether legislation on M&E would actually strengthen the chances Forming alliances among key actors is also critical to imple- of the system’s being implemented and institutionalized. menting and ensuring the sustainability and use of an M&E system. Countries with a more “managerial� tradition often embed In Mexico, the alliance between the MoF, the Secretariat of Public the requirements for their systems in administrative policies rather Administration, and CONEVAL led to the harmonization and than legislation; such policies have a less permanent status and can unification of evaluation practices across all federal agencies. The provide flexibility. Canada based its system on administrative poli- powerful combination of the MoF’s influence over line ministries cies that provided clarity on the rules of the system and roles of and agencies and CONEVAL’s capacity to accompany and guide the actors, while allowing flexibility to adjust policies and directives evaluation smoothed implementation. to reflect experience. In the Dominican Republic, regardless of which institution/s Many countries have also chosen to issue guidelines to sup- take the lead on the M&E system, it would be important to involve port the adoption of M&E systems. Mexico’s General Guidelines the Presidency (which holds a great deal of power over the bud- for the Evaluation of Federal Programs created a common language get), as well as the Ministry of Finance; the Ministry of Economy, around M&E; enhanced the understanding of tools, methodologies, Planning and Development; CONARE; and to the extent possible, and the responsibilities of the different actors; and fostered the use the Congress.17 of the system. Empowering Others to Act on the Vision: 15 See forthcoming ECD paper at www.worldbank.org/ieg/ecd 16 MacKay, K. 2006. Institutionalization of Monitoring and Evaluation Systems Capacities and Incentives to Improve Public Sector Management. ECD Working Paper Series, No. 15. Washington, DC: World Bank. Additional actions at the institutional, organizational, and individual 17 For more information on the potential role of the Dominican Congress, levels can influence changes in the behavior of different stakehold- please see the note by John Mario González and David Canaán in this ers and ensure that the system will produce credible, high-quality, volume. and timely information in an appropriate format. Improving the Quality of Public Expenditure in the Dominican Republic 49 1. Creating Structures that Provide Incentives and tant for knowledge transfer. In Mexico’s Ministry of Social Affairs (SEDESOL), staff were actively engaged in designing and imple- Promote Change: Evaluation Bodies menting different features of the Ministry’s M&E system and then The design of new incentives—carrots, sticks, and sermons—should served as resources in designing and implementing the countrywide be based on a diagnosis of the current incentives, be commen- system.19 Also, in most countries formal and informal networks of surate with the objectives of the system, and target the system’s government officials and professional associations have encouraged key players. At the organizational level and on the supply side of the transfer of expertise and created critical mass around M&E, M&E, the main bodies in charge of leading the work are often the fostering a culture of results and support for the system.20 ones in charge of putting incentives in place. Public recognition for On the demand side, if a results culture is to be nurtured adopting the system or producing results (Colombia), performance and sustained, it is important to raise awareness of the value of agreements that tie professional success and even compensation performance measurement and to ensure that potential users of to the achievement of results (South Africa), flexibility to manage PI—both inside and outside government—have the capacity to programs and use the budget (Canada), and budget for evaluations analyze, interpret, and make decisions with PI. In Colombia, the or for capacity building (United States) are examples of positive Government has achieved very good results by relying on training, incentives, or carrots, that have proven successful in supporting awareness-raising seminars, and high-level events for Congress, civil changes. Among negative incentives, or sticks, budget and program society, and the media. cuts (Chile) and publicizing negative results (United States) are Building a market for evaluation outside of government is also possibly the most powerful ones. As for sermons, as mentioned key for the institutionalization of M&E, because it allows the system before, superiors’ support for and use of the system (Colombia) to expand as needed, beyond the capacity in government. Many have proven powerful. countries have actively aimed at developing a market for M&E in Additionally, setting up department- or agency-level evaluation research centers, universities, and consulting firms. Colombia and units or divisions that are in charge of the incentive structure has Chile, for example, have encouraged competitive contracting pro- been critical to institutionalizing M&E systems in many countries. cesses that favor technical quality and alliances between national Such units might have different responsibilities.18 In Mexico, they and international experts and evaluators from research centers, coordinate, contract, and supervise evaluations, and they removed universities, and private companies. a “roadblock,� since managers were usually overburdened with However, international experience shows that even several implementation tasks and lacked the capacity and time to supervise decades after an M&E system is launched, the skills of the producers evaluation. In Canada, by contrast, evaluation units are directly in and users of PI continue to need improvement. Capacity building is charge of carrying out evaluations, and they are tasked with engag- an ongoing, long-term process that should accompany changes and ing directly with program managers to help them learn to trust and adaptations in the system and should compensate for turnovers, as use evaluations. the system evolves. 2. Capacity to Produce and Use Performance 3. Performance Information Produced by the System Information The actual use of PI for management, learning, and accountability is To build a results culture, it is critical to also work on the supply the clearest sign that an M&E system has been institutionalized and side to develop human capital capable of supporting the M&E func- that a results orientation has truly taken hold. Too often, however, tion within government—developing or strengthening the technical critical aspects such as the development, management, and quality capacities of key agencies, champions, and their staff on methods, control of data are ignored. survey design, data collection, and so on. Equally important is capac- The M&E system should be designed to produce PI that ity building on less technical aspects, such as communications and responds to different user needs (such as political, managerial, management of evaluations. and accountability needs) at different stages of the policy cycle. Most countries use extensive training and workshops aimed at Dialogues between the supply and demand sides are critical to both technical practitioners and nontechnical managers, particularly ensure that the system produces useful information in a timely around the introduction of new tools. In a successful capacity-building manner and in an appropriate format. However, because the strategy, Canada supports the continued professional development risks of information overload and agency fatigue from increasing of staff in areas related to M&E through the Center for Excellence demands on line ministries and other agencies are high, it is impor- in Evaluation and through the development of a strong supply of tant to collect only the information that is truly necessary. A data services in the private sector, academia, and civil society. development strategy at an organizational or national level should Besides providing training, many countries have also success- be considered part of the long-term plans for building a credible fully relied on on-the-job learning as an efficient and cost-effective system. Some countries develop agreements between information way to transfer skills. In Colombia, for example, SINERGIA’s partici- patory process of designing and managing indicators was impor- 19 Clotteau G. et al, 2011. “Building Capacities for Results-Based National M&E Systems.� In Influencing Change: Building Evaluation Capacity to 18 For further analysis on the structure of M&E systems, see Nidhi Khattri’s Strengthen Governance. Ed. Rist, R., et al. Washington, DC: World Bank. note in this volume. 20 Heider, C. 2011. Op. cit. 50 Improving the Quality of Public Expenditure in the Dominican Republic suppliers and users—for example, the alliance between CONEVAL and the National Institute of Statistics and Geography in Mexico. In Creating Quick Wins, Consolidating the Dominican Republic, the National Statistics Office could play an Improvements, and Sustaining Change important role in this regard. The quality, independence, and credibility of the data are undoubtedly vital for the success of the M&E system. In Chile, Developing and institutionalizing M&E is a long-term and iterative the MoF contracts evaluations to consulting firms and academic process. It is important to avoid overengineering the system at the institutions to ensure the independence and external validity of the beginning to allow space for its development and to ensure flexibility. findings. Gradually phasing in the implementation of initiatives and But even the best data must be accessible if they are to tools can be useful. For example, pilot programs allow a period of be used. Public disclosure laws have played an important role in learning and adjustment before a systemwide rollout. Each step in increasing the accessibility of M&E studies to the general public the implementation of the system should be examined for lessons and the media, and as a result the public has focused increasing on how different components fit in the environment. Consolidating attention on results, performance, and the utility of government the system opportunistically, taking advantage of circumstances and programs. For example, in the United States, the public has access showcasing successes at the program, agency, or political level, can to all evaluations commissioned by Congress and undertaken by provide incentives for use and replication. In Colombia, SINERGIA the Government Accountability Office, as well as the assessments carried out performance budgeting pilots in Medellín and Pasto, conducted by the Program Assessment Rating Tool. Access to infor- whose mayors were later named “best mayor of the country�— mation has permitted civil society organizations and public officials which created incentives for other regions to adopt the system. to use this information to lobby for policy changes.21 Chile introduced the M&E tools in a careful sequence—first indica- In the Dominican Republic, an initial important step was the tors, and then different types of evaluations; slowly incorporated PI 2004 Access to Public Information Law (Ley General de Libre Acceso into decision-making; gradually increased the number of participat- a la Información Pública). Besides encouraging transparency and ing agencies; and gradually expanded the coverage and number of accountability, it also encouraged ministries to establish Offices for evaluations. This process allowed for constant improvements based Access to Information (including the Ministry of Finance, Ministry of on lessons learned and the development of capacities. Economy, Planning and Development, the National Budget Office, Once a culture has started to develop, the change manage- and the National Statistics Office) to respond to citizen requests ment process needs to continue. It may take several iterations and for information on government programs, policies, and the use of deep changes to institutionalize the system; and even well-devel- funds. However, few of these ministries have online portals where oped systems can encounter difficulties and reversals. For example, this information is made available. in the United States, the Program Assessment Rating Tool rated Extensive dissemination can also improve the quality of approximately 130 federal programs (98% of federal spending) on information by exposing it to the scrutiny of the general public. their effectiveness in 2003. However, in 2008 the new administra- Feedback from specialized stakeholders—universities, research tion decided to end the use of the tool and replace it with a focus centers, or government technical staff—can be gathered and incor- on high-priority performance goals and indications of progress porated into the system. For example, Colombia has increased the toward them.Therefore, to build a successful system, countries must use of information by disseminating periodic reports to different continually fine-tune and adapt their change management strategies audiences in appropriate formats. to changes in the M&E system, and must continually strengthen their capacities and incentives to support the achievements made. 4. Incorporating PI in Decision-making This note was prepared by Ximena Fernandez Ordonez, Evaluation Despite these efforts, in most countries the use of PI is still low, or Officer, and Arianne Wessal, consultant of the World Bank’s Independent there is a lack of concrete evidence on how PI is being used to affect Evaluation Group. government decision-making. Mexico, for example, is now evaluat- ing what motivates or hinders the use of evaluation information. But the creation of a structured follow-up mechanism to select and prioritize evaluation recommendations according to their relevance and feasibility of implementation has proven useful in incorporat- ing findings and taking corrective measures, as the experiences in Mexico, Canada, the United States, and Chile illustrate. However, providing for alignment and interaction between M&E planning and budgeting is perhaps the best way to ensure use. When PI is formally incorporated in the budget cycle, as in Chile and Mexico, it is used. Indeed, Chile links monetary incentives to compliance with indicator targets—making the use of PI certain. 21 www.gao.gov, www.expectmore.gov, www.performance.gov Improving the Quality of Public Expenditure in the Dominican Republic 51