I hO/II/L til l -e F THE URBAN A GE Nl71/tq Sr cI'1n'no"cr 1991 U R B A N F I N A N C E I S S U E Good Municipal Financing Practices in IN THIS ISSUE Lat~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~in Amica,Cood Mtinicipat Fi,lanicii... g Latinl America Pra4ct;i;cti?52in America b Aloiosica Rcinmirez Lond/onoz bv Mlonico, RPinfiIc: Loot/itut 7 The Philippinies: Financing Investment in Urban Infrastrnc- taire thirouigh Local Government lAOGo FA. Traditionallv. local economic dc celopinent to Latin have citain cicar advantagcs over Bonds by Robert Keh/en America has heeo xi ex\ ed as a con sequence of1- nationIal econormic niatiolial go romeriiciits in promoting 8 Urban Development and trends and policies introluced by central governments. SuccessfLil sonie kinds of local cconomic develop- Macroeconomic Reform in local economic developmnent was considered to be simply the result of mcnt Thcv hal c a better unider standiin Africa. The Financial Link by chance that a particular region or place ctdcd uip benetiting frorn a of the dvnamics of a local cconomv anid (>ei/h Abs Chr/es gotenmincnt investment, public iifrastrLuctire improxements or- bettei- are also better placed to mobilhze 9 Fiscal Decentralization in facilities. collullunit! olgarlsanorws. Colombia: Advantages and facilities. ~~~~~~~~~~~~~~~~~~~coiotoxunity organitizatiotns. Pitfalls by Ediuardo li essier However. as increased urbanization has taken hold on the contiicit, 'M7utiicipal got riermenits itn the region 10 Boibay. Institutional Gover- with more than 701 percent ot'thc population nos h\litg in tosns and has c tricd to promnote local economic nance and Lrbani Financoe by cities. it is recognized that inational economic des clopiicot is incrcas- des clopment in s sinoL sways Tradi- Aiasser1 Miiyee ingly urban-driv en: it is also recognized that local author ities play a L[onal approaches inc hi(le establishing 12 New Zealand: Reforming cricial role in removing inefficiencies in production that hinder the indtustrial parks, or places swhere Nlunicipal Financial Manage- productslxit of businesses. pris ate enterprises. and famiy eniterpi ses, enlerprises can start up with the rteces- ineit by R.J. IVine swhich tocether account for nearly X() peicenit of thc gross national >arv infrtistruntnre. Some oftthe niost 13 Urban Cadastres: The Para- product (GNP) 1s dcscloping countries. 1important new initiatives, howecver, arc guayan Experience in Small anid Medium-sized Municipalt- deregutlatingp laiod miarkets, miaking ties by Roberto Salina' estmens urban 4 Washington. D.C.: Federal making services mii ore efficicnils. Contriol Reasserted through Alltliee ell stnuiaf~ecoioiiicCreation of the Finaitcial All thee hel stimuate ecnomicControl Board by Jonathan productivity and pris ate enterprise. Forcmaenot An interestinlg case is Tabio, a smTall tosn in Colombia. situated oit the .5 ~~~~outskirts of Bogota. In the early days of Colombia's decentralizationt pime0yrain. DEPARTMENTS _ t t t * - > i I 3 - 3 Tabio's masor juanaged tto get his local ! i. . , I ... - . - coimulitvito make a cominitinent to 2 Letters to the Editor IwF w3$} 2>str5w- iR 1sll i . . reduce the tossi's poxey and de\ clop 3 W'orld View Financing Systems ' I' ^77 ...... L]5 the town. He did this b to Support Deeceitralizatiulon by Geore F Peter Son - ~~~~~~~~yourng people anid hieipsoig cr-eate a sense A_ p 71 7t 1 i '~ * 1 ll - of local piidc aiid identit inl the tosvn 6 Newsline The Latin American For iiistaiiec, an m% - Ulrbani Agriculture Research IP- eillot (1for instatce. sit inveiltors ol the Network [AGUILA] a t _ - ** 7 > | F t W municipalitics botanical resources I Featured Columnist Financing AS 2 /ts riots! iob- 1ui zo ti tt 111 i/si111 -rth l maiIe tlhe tlellt il thcL.Iomunittntt asvarc of the Decentralized Govemment: t' ; stu1nnllondl flel'ti de!tsbui"Ii it threatsl to the natural envronmnent. and Indotiesia. Hutigary. and China it sall dl btt ll motis itedl them to s ork for the conser- A Status Report by AiRcA Devas -fi x w . -~ - Natotoi of these resooirces. The conmmnu- 1 5Roundtable Aspects of Urban '2" ~~~~~~~~~~~~Finance wvith Mar/ene Fernandes nitv also became inv okecd in local und! Pr-olessor Rot' Bob!l Promoting local economic development prtjects to pate streets and spruce up pLihliC places. These endeavors helped Benerment Levy by Hector The iitiportance of local gove-nmncrit in local econotitic development give Tabto the tourist appeal it had oticc Osunaiaoime is also utiderlined in the context of Latin America's recenit econoirnic had, aind broughit ecoInomic astiNviu aid 17 From the Citv Manager's Desk crises anid the macroccononmic or struetural adjustineiit policies thail dsynamism back to the town. Bo were introduced in the region. Local goxernmenrt ssere practically the It another initiasitc. I LA- only lexel of giemnctnt dunrmog the 1480s where economic develop- CELCADEL in the Andean region has 19 The Urban Calendar ment and social policies svere combined. Besides, local governments oniiiii,e a ;IP", 4 t: Danida * I - 'hk,i,,( g*u *lt I,\ , 1, * 4 14 U liZe uel(onte Nvoui connments, thoughts anid souggi stimo oc The Li-ban Age. JL ... c7ice of Editor: now make communicationi possible amiiong all Hougsin As the director of the French-Vietiiamese people, thesc ieCW techniologies are often Managemenit Center in Ho Chi Mljib City, I expotted to developing countries that lack am veiy interestcd in your magazinic The adequatc infrastructtiral networks to stipport Urhan /rban .4ge anid its coverage of issues such as thcir use. Developing countries need to be ManasemenBD urban infrast-ucture, bettcr pr epared in eslicatioit and tritining betore F -i Programme I At presenit. Ho Chi Mintls City is undcrgo- thcsc technologies can be used to solve irban thlis issue of Thie Li h,n A Lc is fuicted by ing OIIe of the most rapid and far-reachintg problems. the Danish Agency for Itteraioatl social atnd ecottomic revolutions found it the Development. the Federation of Canadian developing counitries: thereltore. its uirbaTi E_4.Ait igbede Mutiicipalities (Canadiati Ilternationsal planners and itianagers should be aware in Lecter in Urban Plullniiig Developioient Agencyt, the Fannie Mae p a Office of Housing Research. thc Dutch the coming years of the issLues and solitions Orldo Stote Polxiec hlitnk -tinistrs of Foi eign Affairs, and the World to infrastructuire problems. A nomimal such an isigeria Bank. Developunerital fundirng has beero vyours cati cerfinialy contribtite lo this aimn. provided by the UNDI'-U NCHS (Habitat- Editor W ortd Batik U rhan Minaeement Programme and the World Bank. Laiii etit Scl aho hI order to create an information databasc at thc Cetnoe Fianio- 1ikitnamienr urban level. the asailability of`prccisc demo- de Foni ciiotiooi a la Gestioti graphic data is an essential component for the Ho Clhi .tilh Cite' efficictit funictioning ol'a city and its econiomic Jeb Brugmann Fiietiat devclopment. In the absence of reliable ICI.FI. Toronto. Cana/da deniographic data snch as population statistics Jamcs '1. Carr Editor: and migration and wealth levels. many mis- Or/ice of HoiIslElg RecoaircJ Fani/ clue. cI?ahoilgao. D C.. (.A1 Your editioti of The CUFh7t .gc oll I iforitia- takes in infrastructure planning and project (G. Shabbir Clhceiia tion and Cities included a particularly design will occur. Sustainable urban develop- U'DP, VeXi Yock. C5. itiforitiative piece ott urban information menit cannot be achieved withotit a reliable and Charles C onea Bomialt It i a systemis. In errms of tecnological develop- accessible urban infonration database. ZsLizsa Daiiicl nciit, developed counitries aire better pliiced Reuratc /hitstitlie because these new technologies originaite Dr. .4.i. Thtiitin rthi i Budapiest, H/iccigarr there before being exported to developing Urban St stentis Enigicttecting 'sainadou Diop countries. Although new equipment such as .4 Unt iv ersitetI, Itkcar Metopoltiitn Cc-om itt satel lites and cel lular telephone techiology 'tlWadras, Intliri Nigel Ftaii is Del ectopm nent Planning UL it Unt ci eSi1v Covllege Lundond Englandzt Editor's Nole Thb H. Kolstee Dor/c h ftincr o i foctt/gci F ii.//sic If recent globat urbanization statistics nican siibsequent fomranon of a financial conrol board by the The Haigie, The IVe the-iatlds anything c,ome studies claim that more than 60 perceni u.s. fedctal government to enforce fiscat discipline. Aprodicio Laqaiaui ofthc -notd's poputoaion will live in citiesby 2020) Local governmenits ar khey tnthe thorny political UBC Cenice fur Hmato S. ttlc fcoin then, as Nasser Munjee wI ting homn Bocmbay -atnes the queslion of how to share the burden of transition. Ninnica I cclive t Ca i do C tccvec efrfien-o of the city trill increasingly detemine the Ramiiirez Londluiio develops this theme in her lead: that Jaime Lerner piospcrity of lihe otion. This means that urban finance decentiralization is not sustaiatble withoot the coUre- Cwitiat, Bnml will play a key role as the engine of national cononic sponding transfer of responsibilities froat central to local AkinN Mabogitiije grow-lh goverinmicnts and proportional local fiscal effort. These Mhat/acant N igr tIt this issuie see havc fon-ed on the ways that should also be accompanied by strengtcheneid local Pablo Tm elli developing countnes are experimenting with increasitig finaoccial management. i'rhuct lAfaitaiget dccit Protgruacitmre muaiciptl efficiency particularly in the area of fiscal In this issuc. Cccilia Mo.t Charles from Ghana and aOitc Ectanuador decentralizaetin. Eduardo Wiester froit his long Bob Vine from New Zealand, illustrate the co,,stunt Jaimie X,tlenenela If.L.t1CR1CI4DRI. Qtito ELriador experience in Colombta niaintatts in his article Stat dance between central and local govemments ouer cetiiciteria must he met is under to sustain expenditure vcrsus responsibility, Rohento Sattnas from decentralizationc cfforts. Most crucial for success is the Paraguay describes the nsefulness of a new urban sequencing aspect: governmenits should stats with the cadautme to identify local govemmnent assets. Robert futictiotis lo be transferred and then with the revenues Kehew writes bcon the Philippines about the emergence Aritll I.isan inot rhe other way around. of a fledgling bond ti-ack,t in Naga City and Mayor Ktrachii Pikislatn Decentralization really underlines the questiot of Hector Osuna Jaime tells us about Tituana's bettemment Hilda Herzer how to improve the collection of local revenues and levy; hoth suc.essful cxunples of how local government Cecitro cstidios so5ialet r how cities should gener,ate their ow. resources. One can independently getterate its ownvii e-v -cnes Ainthtitctaleo solution is offered by our guest edtorialisi, George Duning prepirntion of this issue. Mary McNeil has BtenoA Aibes. Argecirititi Petcrso nf The Urban Itstitute: the recognition by been seconded to the Batik's Eitsironnccnt Department to Petcr Swan local govem ents attd by increasintgly-actise help prepare the Bank's annual report on the enviton- .XC.N HS, .V5i.obi. KLetl va community groups, of the reality of budget cotisitaits. oterit. tn her absence. I have been the Acting Editor, As This is a reality that is slarkly underlined by Jonalhan always, we welcoi,c your comnents. suggestions, and I I I I PForeman who writes aboul tie Washcigton DC. feedback on Tlie CI char .tge. govemment's inability to keep within its budget atd the Margaret Bergen Managing Editor Mary McNeil Issire Editor Margaret Bergen Production Michelle LEvnli Zook Distribution Patricia Moran Ia I r1MX~----------------------------- What Kind of Financing Systems Support Decentralization? by George E. P'etersonl George E. Peterson is senior fellowc at thie Urban7 Institute in Washington, D.C., and the author of several books on municipal finance anid fiscal decentralization in the United Staites and the developing world. A wave of decentralization is macroeconomic policy held their constitutions. However, national budget burden or a E passing through developing hostage to local government pressure has emerged to re-write hidden windfall for munici- nations, changing the budgetary policies. And local the constitutions to reduce local palities. This requires careful expectations that citizens officials would rather have the authorities revenues. Brazil's estimates ofthe full costs of the have of government. From Latin right to designate investment central government for example services that are being turned over America to Asia, more responsi- priorities. has argued that its own budgetary to lower levels of government and bility has been turned over to The most common solution to management is crippled by the agreement on the service and local governments for basic financing decentralization has magnitude of revenues it must by revenue mix that ultimately will be service delivery. With this been to increase local govern- law distribute to state and local transferred. befbre the transfers enhanced role has come increased ments' share in nationally authorities. begin. citizen participation in decision- collected taxes through automatic Behind the conflict over Local govemments also need making, either in the form of revenue sharing. This approach revenue sharing is the fact that to acknowledge the reality of their direct elections of local officials allows central governments to most countries chose initially to budget constraints. Whether local or rules requiring that neighbor- retain control of tax rates and tax transfer centrally collected tax spending decisions are made by hood organizations, participate in administration, while ensuring revenues to the local level, mayors, by citizen voters at public setting priorities for local public local authorities a higher flow of without clarifying what service meeting, or by neighborhood works, revenues. Revenue sharing functions municipalities would councils, the revenue side of the However, the type of finanicinig budget needs to be clearly defined systems that can best support "Thte printcipal of moving budget clhoices "closer to thte and decision makers required to decentralization are still being people" is an illusion unless local budgets are balanced and live with the resources available debated. In the theorv of fiscal pexplie,I choices,ar uned. to them. choice. local governments and expenditure choices are defined. There are promising models of citizens should pay for most local the constnuctive use of budget services from their own taxes or arrangements of this kind have have to provide from these constraints in the developing world. user fees. As long as local accompanied decentralization resources. This of course made The city of La Florida in Chile has investments must be financed by efforts in India. the Philippines, decentralization much more developed a formal mechanism for the community itself, priority- Central and Eastem Europe and palatable to local authorities. But making community groups the setting becomes a matter of many countries in Latin America. it has entangled the different linchpin of the municipality's urgency; a community has to Whether revenue sharing levels of govemment in negotia- capital budgeting process. The weigh better service quality and provides a stable basis for financing tions over just which service community groups are given 60 facilities against the costs of decentralization is open to dcbate. responsibilities should be trans- days to consult with the citizenry paying for them. WVhen public If central government retains the ferred to local governments, on project priorities. A final works appear to be provided power to adjust anmually the share whether the cost of these setvices asscmbly is organized in which all "free" by a higher level of of centrally collected revenues that fairly offsets the revenues that of the groups attend where a budget government priority needs go to local governments, then local were transferred, and if the parties consensus is hammered out-their become endless, and communities authorities face a fundamental cannot agree on an equitable real power of course not just being must wait for central governments uncertainty about their revenues sharing of service expenditures, the decision makers but recogniz- to decide which if any of their that make advance budgeting whether the central govemment ing and accepting the budget requests will be met. impossible. can take back some of the constraint. Maybe the most direct way to Throughout Central and revenues it originally allocated to Budget-balancinig exercises of finance decentralization would be Eastern Europe, central govern- the local level. this kind are thus the key to to turn over both service responsi- ments have drastically reduced There is no universal answer as decentralization. The worldwide bilities and revenue-raising the share of personal income taxes to how decentralization should be momcntum of decentralization capacity to local govertnments. In allocated to local governments to financed. But experience does can only be sustained if govern- reality central governments and relieve pressure on the central suggest that revenue and service inents at all levels are able to local authorities halve resisted this budget. These adjustments create transfers should be matched as agree on the financing rules that solution: most central govern- a local dependence on central closcly as possiblc from the underpin the new decentralized ments are reluctant to relinquLish governments' annual revenue outset, so that decentralization system. and if local authorities control over the principal national sharing decisions that is just as involves a fiscally neutral commit themselves to incorporat- taxes, and most local authorities profound as the previous depen- devolution of responsibilities, not ing the budget constraint into their are not eager to assume more dence on central government a disguised slashing of the daily operations. E taxing authority. spending decisions. Brazil and The lack of appeal of tax Colombia for example have The Urban Age aims to stim7ulate lively debate and interaction On various decentralization is easy to sought to remove the uncertaintv topirs inZ developed and developing countrties. The ideas expressed in vmuderstand. To central govern- surrounding revenue sharing by articles appearing in The Urban Age reflect the pers onal comments of each author, and are niot representative of any one agency or ment, it suggests losing control of writing local authorities' enlitle- organization. Indi'idumal articles appear-ing in The Urban Age may be the revenue side of'the national ments to specific shares of reproduced or epr-intedpmavided the aouhor(s) and The Urban Age are cited. budget and having nationally collected taxes into and a courtesy copy is sent to The Urban Age. THE RRbeN R9E Sepiettibet 1995 LATIN AMERICA continuedfrom page I launched a regional program aimed at strengthening municipal capacity Interdependence between local economic development and to promote local development. The project's aim is to create conditions municipal financing in five medium-sized towns in Venezuela, Colombia, Ecuador, Peru, and Bolivia conducive to attracting private companies that generate Although systematic studies have not yet been done on the correla- jobs and attract capital. Through training and technical assistance, tion betwcen local economic development and municipal financing, the project hopes to increase the capacity of municipalities to from the examination of a few cases there seems to be a considerable market projects and form partnerships with private firms, other munici- interdependence between the two. For instance, the more wealth that it palities, other levels of government, nongovernmental organizations, generated locally, the greater the potential for revenue collection, and and community organizations. the greater the demands made by the community for public investment Another innovative approach to promoting local economic develop- in urban infrastructure. At the same time, the better the quality of ment is the case of Piedecuesta in Colombia. The city's growth public investment, the bigger the local economic development effects. quadrupled since the mid-l 980s, and the administration was faced with A study of the prospects of the capital district finances of Bogota the challenge of increased demand for urban services. It solved this carried out b y Mision Bogota Siglo XXI, outlines what the long tenn problem in a creative manner. Through negotiations, local property revenues and expenditures may be with respect to the region's gross developers took on responsibility for maintaining urban infrastructure, product. The study claims that between 1961 and 1990, the consoli- thus reducing responsibility on the fiscally strained muniepality. dated revenues in the district have been rising, in both constant and Improvements in the housing stock were reflected in higher market current value terms as well as in per capita terms. The fact that city prices and since 1989 the city has managed to increase its property tax revenues were increasing during the period at a faster rate than the collection by a factor of five. gross regional product meant that such finances played an increasingly As more systematic, institutionalized efforts emerge throughout important role in regional growth, reflecting the considerable financial Latin America--efforts that are aimed at developing local government effort involved in capital investment in the city and increasing service capacity to promote economic development and that are supported by coverage. central government and/or international donor agencies-improved Most of the growth of such revenues was explained in the study by local financing should continue to occur with complementary improve- changes in the financial situation of the city's utilities, stemming from ments in urban infrastructure. user charges and loans for capital investments. In fact, revenues derive( conitinued on page 5 ' GIossar of Terlms by Robert Viarley We presenthere lan abrde etnetLv-atxto eie Cs eco,vey-~a term emphasizing the cost Of the resources reqiuired to glossa7y of terms that givessome of used to ensureatthetbe eiiarie thatall entities miJust pay their way or produce that good or service. tlhe more arcane terminologI un s6om e ele to I do it for thernm Externalities arise because some in urbanfinancejargon a rersi ( fegree c cost recovery is the byproducts of production and twist. Robert Varley is technifcal pat of the costs. percentageot full costs paid by the consumption are neither owned by directorforfinance andprivate use o beneficiary of the goods or nor the responsibility of any single sectora civit with USAlD's GlCplization-toriinaant servies supplied, party. Air pollutdon imposes costs on Bureau :s EnvironmentalHealth th wag v of a cmay people(dirtylungsd washing) but Project [EsPJ. He has worked, m easuredb dh valueS ofall^ Cs (of Funds (COF)-the coSt a will impose costs on the producer extensively in Indonesia in both the outstandingequi s y stock l m pay on the funds lent out only if there are enforceable regula- banking and irrigation s Ie prices. More recen it has been to borrrs. tions that force that producer to pay: was an HILD advisor and co n sedto esriethepressof compensation. to the senior management ofAthe providing moneycitalto startupa Creditallowingthe useofgoods Bank Rakyat Indonesia [Blt from producive eneisrfiacialmh:u0 i andserviceswihouit iminmediiate Finance-another word with many 1985 to 1993.isunp t Cit mnay take the form of meanings; commonly taken to mean :gcon'suer credit, trade credit, or bank source of money to pay for some- Ability to Pay-a concet that does Cashflow-ytaoedely use redit. thing. More broadly, it is the not correspond in social science ter b understodi cr to provision of money when and where usage to what we would in om acoutigfers suasn sales,and .:Debtan amount ofmonley or some it is required. The fiancing questiOn common sense. Ability to pay isaasset owed by one individual. or is usuallyv posed as "who will pay for subjective judgment predicated on impathe a a l ogani oanother.Adebtor . this?" some assumption as to,what sinus ofnett have cha oe money, whileaacreditor is owed people ought to pay. Thus the hands. , money. Fund other fancy word for low-income clients arie sai ey,ithiscase, money available have a lower ability to pay tht madeon Eteral-ait-sesc ribdv- afor aspecific purpose. middle-income earners, irrespec- thedeistandinthat it he nsedfor ously as externaleffects, exteral tive of whether or not they buy a spe pse decided by te econnmies/diieeonomies, and Fungibility-the quality of money the goodiservice, l spillover effects. Ifthere were no that makes one individual specimen extenaliies,comptitive markets indistinguisalfrmnoh. :: : i : :::: f :0: ::;:09 i : : u::t : fa^fV:i^ :$21:^0::X0; : -Sk ierni ad:liti6se,nlites,3 'mpeitie mrkesaidisingishblefro oanthe.: Asset-something with market or Collatrla a be logn tow a o ud ensure an allocation of Anything used as money (gold, shell exchange value that is part of the: custor that is Y hel brrces wherein the price paid for bank notes) must have this quality. wealth or property of the owner, se Sin the e. e god e or service was the same as The utingibility of money imakes it TIHE URBON RCE September 1995 LATIN AMERUCA Habitat I IJrban Finance Conference, continuiedfi-oni pcage 4 September 10-13, 1995 from service delivery fluctuated much more in terms of income than other financial sources in the city. However. as income derivingz from a As one of the events leading up to the City Summit of Habitat II that will demand for public goods and services also fluctuated considerably, take place in Turkey June 3-4, 1996, an Urban Finance Colloquiuni will be public investment lo expand city services had to rely on borrowing, and hcld Septcmber 10-13, 1995, at the World Bank. 'T'hc colloquium is jointly sponsored by UNCHS (Habitat It), the World Bank, USAID, and the U.S. on the indexing of user charges. in order to recover the capital invest- Department of Housing and Urban Developmcnt. ment costs and service the debt. It has therefore become a matter of The colloquium will gather together 60 participants from developing concern whether the city's finances in future will be able to support countries including policymakers and finance cxperts as well as representa- such a high level of debt and debt service charges. and whether user tives from multilateral and bilateral organizations, non-government charges have been ratsed to the point where they cannot be tncreased. organizations, the private sector, and academisa. The focus of the colloquium vvill be a series of roundtable discussions Meanwhile, with respect to tax revenue sources, the Bogota city developed along three themes: examining some of the emerging, innovative study noted that there was a constant, decreasing trend in tax revenues' ways of accessing credit; clarifying the intergovernmental dimensiou of participation in gross regional product in spite of a relative fluctuation urban finance; and improving local accountability and resources. Following the openinig session, there will be three pleniary sessionis held in income derived from the urban taxes. The reasons for such constraint on the first day. The first two will focus on the overall economic framework in tax collection are the political impossibility of raising taxes and the of urban finance, while the third will show the linkages between the themes difficulties of keeping property censuses up to date. Consequently, tax to be discussed in the roundtable sessions and their broader economic collection in Bogola remains below its potential. implications. The third day's plenary sessions will synthesize the roundtable discussions into recommendations for future follow-up. Regarding the expenditure side of the city's finances, the Bogota study established what it considers will be the most likely impact of the city's economy on the demand for goods and services. In viewv of the Overall, what this study of Bogota shows is how affected municipal opening up of the national economy and the anticipated importance of revenues may be by a city's economic developmenit. At the same time, Bogota, three major public investment priorities are clear. These are the study also shows what type of public investment is needed to communications and city transport infrastructurc. investments in health maintain and increase urban productivity and competitiveness when the and education services, and investments in non-tradable local goods economy is being deregulated and the demand for basic services such as housing. 1It is anticipated that investments in these three areas increases. will increase local productivitv and competitiveness and help slow down inflation by increasing the supply of non-tradable local goods and How decentralization affects local finances services. Anothcr trend has been a vigorous decentralization movement in continued on page 0 6 difficult for lendeis to ensure that Investments-in economic parlance, for expecLed inflationi Lhat will * Subsidy-a payment made by borrowers use the loan funds in the the amount by which the stock of diminish the purchasing power of the someone other than the consumer of way lenders wish. One way they try capital goods of a firm or economy amount of money represented by the a good or service, which is to get around "misuse of funds" is changes during a period of time. In principal. supposed to reduce the price paid by to lend in kind. Often a person will everyday language, it is the purchase the consumer. borrow money for one stated of an asset or utdertaking of a Risk-when a range of uncertaintv purpose, but the effect of the loan is commitment requiring an initial exists about possible outcomes. In Willingness to Pay-the amouit a to finance another activity. sacrifice followed by subsequent modern corporate finance, risk is consumer will pay for a particular benefits. identified with measurable prob- quantity of a good or service. In Hard Budget Constraint-a abilities based on historic data. consumer demand theory, willing- circumstance in which bills have to Lumpy Expenditure-goods or Keynes was among the first to ness to pay automatically implies be paid. The classic example of the services purchased requiring a large distinguish between risk, which is ability to pay. In contemporary contrasting soft bttdget constratnt payment at one time, but whose measttrable, and ttncertainty, which social science writing, "ability to occurs in nationalized industries and benefits are enjoyed over a long is not. pay" is sometimes contrasted with government-owned enterprises period of time. willingness to pay. The implicit where deficits are financed by Savings-in its fundamental assumption here is that even though transfers from a central govenmment Minimalism-an approach to economic sense, a use of income for people are willing to-and actually that cannot afford politically to let providing financial services to poor other than current consumption. In do pay a certain amount, they lack these organizations be declared people that stresses efficiency and primitive societies with poorly the abilitv to pay because they bankmnpt. maximum outreach over other developed financial systems, should have speiit this money on objectives stressed by the poverty- savings may be made in the form of something else. Index-linked-a loan agreement lending approach. Procedures are physical assets such as gold and that allows the valuie of loan simple and costs of enforcing cattle. This glossarv wos excerpted from a repaynients to be iiinked to an itidex requirements for getting a loan (e.g., paper tillei "Applied Studly 2: of prices or a reference interest rate gender, income, place of residence) Solidarity Lending-an approach to Financial Services Environmental such as that on short-term govern- are minimized. lending with many variations. In its Health, ' wvhich is available front ment bills. In this way, short-tenn extreme form a loan is made to a EHP, 1611 North Kent Stoeet, Suite funds (such as liquid savings Principal-the initial amount lent. group, with joint responsibility for 300, Arlington, PA 22209. -I is also accounts) can finance long-term Loan repayments are accounted for in repayment. If one member fails to available as a staff uorking pap er, loans without the problem of two components. a return of principal pay, the others must make up the "JiLotsehold C-edit arid Urbanz liability mismatclh (short-term and interest. In calculating interest difference or the loan goes into Envir-onmizentazl Health, 'fromn RTI, liabilities and long-term assets). rates, an allowance should be made arrears. P.O. Box 12194, NC 27708. THE UR3RN RGE Septlember 1995 LATIN AMERICA 7E7-777 continuedfi-om page 5 XLoein Anri:cdan Uban fRqicuItnre Heseafch: fiscal matters in most Latin American countries. As central government Networhic nI1ura Urbfna InloinRrinnae transfers of funds to local, municipal, and regional entities have e:1a . oves:ig cioess d increased significantly since the 1980s, municipal governments in the noRmeFicf[I I aild-La Paz sefiffir region have become more financially stable. Nonetheless, the ________________________________________________________________: decentralization movement may be at a turning point, and might even be reversed by central governments. A major problem is that The AGUILA netw eated -Market feasibility needs to be if the devolution of responsibilities to local governments does not i La Paz 1 Iwt stressed, as much as production match the central government transfers, the advantages of decentraliza- si onaa ture in -The benefits of having tion-in terms of allocating and using funds more productively and BlvaspnodbykAI,D , complementary production systems efficiently-may simply be undermined. F athetities. Th as part of community-scale By the year 2000, most Latin American countries will have :ouseinceived after an development were also demon- introduced some form of decentralization as part of a series of reforms es nwas m ade of expertse, strated.HoHwever, the links between capaitie, patneships, sulpport urban agriculture and the rest of the of the state sector to ensure sustainable economic growth. The process d itesf in urban agriculture ; urban economy need to be betfter employs systems that are well designed for transferring revenues from a nearly 50 institutions in documented. central to local governments. However, local governments have not meicnineLatAmri uneries. -The efficiency and effective- made manv advances in terms of how to raise revenues locally or in AGULLA is composed of a: ness of several ongoing public terms of how to spend resources responsibly. As a result, questions var:iety of itintutions and organiza-0 programs need to be evaluated to have been raised about the underlying principles of accountability and tinpromotin an enilly d erinit cial s ide. liti eyond efficiency in the Latin American fiscal choice model of decentraliza- viable, ecologically sustainable and training and municipal management tion. socially equiitable use of Uurn are partiicularly needed to ensure the According to the Urban Institute, a Washington D.C.- based think- cagiculture0 AGUILA viewsuan safe production of food fromn tank, a constant feature of decentralization in Latin America has been agticulture as part of a broader wastewater treatment plants. the scale of the revenue sharing with local authorities and govermnents. a to th dev nt o As a up to the April 1995 citis tht i bot moeeconomi11- seminar, in June and July 1995 Indeed, in some cases, central government transfers of funds have ically:vable and asocilly accept- participants identified several consistently exceeded the expenditure responsibilities devolved to local able. It promotspolicies, matters to be negotiated over the governments. As local financial management also increasingly relies on techhnogesand ods that inext months for implementation in central government transfers to meet local demands, increasing ir thepctivity, accessi- 1996-97. These are: research * . t: 01+and su3tainabilitAo:tuPband~bii au 0030 guiding the proni6tion and manage- inefficiency regarding both the allocation and the use of resources for bi an susta ai f urba g the promotion local service delivery occurs. ~~~~~~~~~~proIduction ytm. hog its mneat of uirban agriculture on local service delivery occurs. c macesmAGLA sekto communal land; training and pilot When considering a decentralization model based on fiscal choice, improveseverale tran problems programs for conmmercial hydropon- improvements in efficiency and equity often depend on a local suh ias foodasecuiaty, income let as a source of income for low- government's capacity to administer a variety of taxes and fiscal costs generation, s se of income districts; technical training; relative to a set of services that are aimed at satisfying local demand. so , and c nity infortwithin the region:on the But if local government budgeting relies on central governmment and reuse of municipal These bjectves wll bewasteatersfor food production; transfers and not on local revenue collection, the incentives for efficicnt realizethrutiviesin th Itert-style regional courses funds allocation arc weak. When looking at the expenditure side of arasfin a ndlica-ib on uan agiculture for:selected local government finances, however, there is evidence that community ti earch into inter-institu- audiences. participation, and changes in demand, can lead to greater efficiency tio tcati tnin anAUAe r elected a when linked to local decision-making, local project design, and eduaton; in sti aty DirectetConci, co an project implementation. strengthening; ~~~~~~~policy anid strateg executive secretay Julio Pnudencio, community project implementataon. nrd interchanges X based in La Paz, ( fax: 591-2-432- Consequently, decentralization in Latin America will not realise its woterl t s ur 632), and thiee regional representa- potential if it continues to rely so much on central government transfers orkn ee n up. tives for Central Arnerica and the to increase local government spending. Without a corresponding The d polar hpon- Caribbean (LLuis Carvajal, fax: 809- responsibilitis,. and a proportional effort to raiseincome ics, the productioanof hi:ghvalue: 533-1106); the Andes (Albina Ruis, transfer of responsfss ibtnes, and a proportonal eort to rase come y and Inteet: Albina@alter.org.pe); and locally, a danger exists that governments may try and claw back some orgni sol d sand lu w .lie Souitheiri Conle (Patricio Yanez of the transfers that have already been agreed upon. Indeed there are reuse. Interet: f Ce dal@ldc.cl). The now waming signs in both Colombia and Brazil, two of the Latin Paes commissio re Directive Council meets once a year. American countries that have made most progress in decentralization, sina bed in plenaries or wen needed. Meanwhile, that complementary strategies are increasingly necessary. In these er t the weal o isoyinst plan, evaluate, circumstances, arguments are being made in favor of a strengthening of region C u rc aie local financial management as a condition for fiscal decentralization, to agr ed t w several major ensure that the local allocation and use of resources will satisfy the s locks (AGUILA), uLc efficiency and equity criteria for which they were intended. specia ts of urban agriu- M f ( , Juan Izquierdo re, For irt s' (tanle: c(F) and Heck de Zeeu (TC: Is the structure of local government financing viable? at yonc shoul b aimed Diide:gree: of organization, a,nd only0:S:Q0,:t X: ;i:::: Central governments are claiming that not enough effort is being in cedne there i proven made at a local level in fiscal matters and that this threatens Latin l commitmensure America's decentralization efforts. Local governments, for their part, follow-up continued on page 20 * .- THE URBAN RGE September 1995 ~~' --- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The Philippines: Financing Investment in Urban Infrastructure through Local Government Bonds bv Rober-t Kehew Robert Kehewt is acn employee (f PADCLO. /Inc., and hats recentlY served as C'hief/of-Partv for the I SAID-sponsored Decentrali7ed Slhelter anid Urban Developmenit Project in the Plilippines. MANILA. On August 6. bonds and other instruments [see income-producing" projects. passage by the Naga City Council 1993, an unusual event occurred top of diagram]. However, many Preliminary signs suggest that, of the terms and conditions for the in Naga City in the Philippines. cities in poorer countries try to with time, local govenunents in bus terminal bonds. Some aspects On that day, citizens lined up to obtain credit from publicly funded the Philippines can come to rely of the process and the resulting vote in a public referendum. one MCIs. Many other local govern- on bonds as one source of revenue bond features might raise the of the first of its kind ever held in ments in poorer countries finance for sustainable development. 'Io eyebrows of munibond experts in the archipelago. By the time the projects on a case-by-case basis, date, local governments have only more developed economies. The votes were counted, it was clear if they succeed in finding any used bonds to fund housing range of coupon values planned that Nagenos had endorsed the credit options at all (many only development. Local govermments diverges from common practice construction by the city of a receive grant money). in the Philippines have thus not from a maximum of the equiva- much-needed central bus termi- International donors have yct used this instrument for what lent of USS40.000 down to a nal. What was antiusual was not helped shape the financial options is arguably its core mission- minute US$20 "minibond" the project itself so much as how open to local governments in financing capital improvements targeted for local sale. This wide these citizens decided to pay for developing countries. Recogniz- related to the provision of basic spectrum of coupon values it. Taking advantage of new ing the key role that finance plays urban services such as drinking prompted the city council to dub legislation. city residents en- in providing local services. donors water. sewage and sanitation, the issue the "rainbow" bonds. dorsed financing the capital have promoted the use of publicly energy. and transport. City counselors also approved improvement through the flotation finded MICIs in middle- to low- a five-year maturity period for the of local government bonds. income countries. Called "organi- Introduction of "rainbow" rainbow bonds-more than twice zational hybrids," these institu- bonds for Naga City the period for other munibonds Bond flotation is alternative tions typically attempt to combine issued to date. source of revenue the cormnercial incentives of Impressed by Naga's success- The lUSAID team did identify private lenders with the financial ful referendum and seeking to several constraints to expanding Most Naga City residents backing of ccntral governments encourage the use of bonds to local government bond flotation probably didn't realize it. but a and donors. However, in the in the Philip- successful bond flotation in their search for viable financing Options AvdhIdhIe lo Loca I ovI ernmens pines, inicluding city could challenge prevailing alternatives for local govern- the (apparently) notions about how to sustainably ments, some economists are for Financing Capital Investments taxable status of finance the work of cities in beginning to take a second look at interest earned developing countries. The figure options such as bond flotation. on the invest- at right show s in a simplificd The qoestion remains: How far I ment and the mannler the options that local down the development contiriuutii chronic shortage governments around the world can one successfully extend debt $ of independent currently face when it comes to financing on the open market'? tD W' . iElhj financial bankr-olling capital investments. The Philippines offers a test Deprerztoi p advisors who As the figure illustrates, these case for a new development d ; ,, > U1t±2dvi have experience options generally change as paradigm whereby local govern- , in Makati countries strengthen their econo- ments in countries of even lower- J Manila's Wall mies, develop their capital to middle-income status can < .' Street-and in markets, and decentralize their compete for capital on the open -cno.-dzcap-rtr-dl1ntacit_ the provinces. In governments. Bru:ssels, located market. The Philippines moved a modest way, somewhere toward the top of the toward such a mnodel in 1991 The diagram shows the changing financing . the Philippine continuum, enjoys different when it passed the Local Govern- available to local governments worldwide. experience does, financing options than, say, ment Code (LGC). This ground- however. suggest Bombay down toward the bottom. breaking legislation devolved that expanded Two options prevail in developed major new resources and respon- finance local infrastructure local government access to capital countries. Richer IEuropean cities sibilities to local governments, investment. USAID recently on the open market merits a place generally access f.mnds from including enhanced abilities to organized a team to support bond in a paradigm of sustainable privately funded municipal credit float local government bonds. The flotation in Naga City. The group development in developing institutions (MCls), while LGC authorizes local councils to included a financial advisor, a countries. American cities seek resources on set the terms and conditions of feasibility analyst, and a policy the open market through floating bonds to finance "self-liquidating, analyst. It succeeded in wilning 13 THE URR RGE Septemnber 1995 S ---- Urban Development and Macroeconomic Reform in Africa: The Financial Link :I by Cecilia Mou Charles Cecilia Mou Charles is regional adviser to the Urban Management Programme in the regional office for Africa in Accra, Ghana. ACCRA. Throughout Africa, level, one of the important local government relations are became financially autonomous, towns and cities are burdened by changes that could be brought profoundly affected. Cuts in they would be able to establish inappropriate and outdated about by the economic refoi-ms municipal spending can alter both their financial independence and development policies. Most would be an improvement in the the expenditure and revenue side borrow directly from local African cities are also insolvent, allocation of credit. (For example, of local budgets. Cities overbur- commcrcial institutions. The with unreliable sources of revenue the availability of credit is critical dened by a lack of resources, or availability of long-term loans foi and a management system that is for housing, as well as for provid- lacking the autonomy to make financing infrastructure and embedded in a fragile institutional ing urban infrastructure and their own decisions regarding services would occur as soon as framework. Thus, common services. When interest rate investments, may be forced to towns had the freedom to futnctio problems in urban development policies change, there tends to be establish new priorities for with independence, and central are inadequate and insufficient an immediate demand for housing funding or endure new con- governments would no longer services for the local population; a loans; this in turn has an impact straints. The capacity of cities to need to be deeply involved in lack of incentives to attract on the implementation of housing provide services and infrastruc- municipal finance. As a conse- foreign investment in urban policies.) Such an improvement in ture may also be limited by the quence, expenses incurred by projects; and a reluctance by local credit allocation may occur as a fact that central government borrowing to subsidize invest- investors to participate in local consequence of reforms in the deficit reductions tend to influ- ments in municipal infrastructure development because of the rising financial sector or as a result of a ence criteria for resource alloca- could be reduced. costs of investments, and because reduction in the national budget tions. For example, road mainte- Giving towns financial they generally have to provide a deficit. nance may not be considered as autonomy will not only reduce th; significant proportion of on- and Another important link much of a priority as the provi- central government's presence in off-site infrastructure themselves. between economic reforms and sion of a sewage system. Aggra- the marketplace; it will also To reverse this situation, urban urban development is in the vating the situation, African cities provide towns with an opportu- development needs to be ad- provision of infrastructure and have no concept of revenue- nity to try out new entrepreneuria dressed in the context of current related services. Most local sharing, so municipalities cannot management techniques that may economic reforms. governments in Africa are offset cuts in their budgets by succeed in increasing productivip Most of these economic subsidized by central govern- tapping into potential sources of in various ways. For example, reforms focus on large issues, ments, so any advances made in income that will provide the bulk many large towns and cities have such as improving the efficiencies reducing the central government's of central government receipts. been trying out various public anc of the marketplace, or rationaliz- budget deficit have an impact on Ilardly surpr.isingly, many private sector partnerships, and ing credit policies, or reducing the local governments. A key issue in African cities are going through a this trend may well spread in budget deficit. But whatever the this context is deciding how the period of economic belt-tighten- future. In addition, as towns policies, the way they are imple- budget deficits are going to be ing, and are unable to maintain become more independent and mented will affect the perform- financed. More often than not, facilities or provide adequate accountable, efforts to improve ance of the urban economy. Thus central governments in Africa services. the mobilization of local funds far, the track record throughout tend to borrow from their coun- will be strengthened. Africa has been weak in national tries' central banks. When this Improving municipal finance If cities are to provide the economic management, and happens, the funds available to services needed to sustain worse in urban management commercial banks for lending to Cities have not been able to agriculture and the rest of the practice. local private investors are function well in Africa because economy, economic reforms musl reduced. On the other hand, when their roles have been marginalized be accompanied by urban policy Effects on urban finance deficits are financed by borrowing for so long. T'he current economic reforms. Economic management abroad, there is a likelihood that reforms only make the situation is not only a national concern-it One of the most important national debt servicing will worse. However, in the light of should also be intrinsic to urban ways in which the current macro- become more onerous. decentralization efforts now organization and management. economic reforms and urban underway in Africa, there may be The success of economic reforms development are linked is through Local governments must scope for mobilizing support to can be measured at the level of policies that encourage a realloca- establish priorities accclerate the pace of urban urban development. Current tion of resources. This applies to reform. Amo:ng the most impor- structural adjustment programs both public and private sector However they do it, when tant reforms on the table is the need to be backed by policies that capital, as both are important for central governments set out to need to grant local govemments improve the contribution of urban investments. At the urban reduce the budget deficit, central- financial autonomy. If towns cities to national development. 13 THE HRBHN RGE Septem her 1995 pl,iwl -------------------------------------- Fiscal Decentralization in Colombia: Advantages and Pitfalls bY Eduiar-do Wiesuier Eduardo lViesner is the fa-nner minister offinance anidi direttor of Colombia's National Planning Department. He has also served as execuative diriector of liec Worldi Banik aIndl as directoi- of the Western Hemisphere Department of thel Iternationial Monetary Fund. He teaches econiomics andl writes extensively abouit putblic economics atnd international issues. BOGOTA. After many years democratic local government and the model finally adopted, it sequence is to start with the of successful macroeconomic accountability are, in turn, seems the country's enthusiasm functioTns that are to be trans- management. Colombia's nurtured by fiscal decentraliza- for decentralization exceeded the ferred, and with the local policymakers have decided that tion realities of putting it into practice, government's institutional the next challenge to the country's A basic purpose of decentrali- It is noteworthy that the original capacity to absorb them, not with long-tern development is a zation is to find efficient ways of policy expressed in the 1990-94 the revenues that are to be reform of the public sector in allocating resources. l'iscal development plan, Lai Revolhcion transferred. Colombia's policy local government To implement decentralization and the decen- Pacifica, was well conceived and framework, however, does not such a reform and. respond to the tralization of the public sector consistent. However, for reasons follow this sequencing. Revenue challenge, the government has may therefore be the answer to of political economy, this policy transfers. rather than being started a process of decentraliza- how to provide local inhabitants framework was distorted by decided by the process, are tion in both the political and the with certain public goods in an restrictions and became a highly mandated as a target to be met. fiscal spheres. (Colombia actually efficient way when demand and questionable constitutional and One of the most expensive started decentralizine in the late supply are largely determined by legal mandate when implemented. consequences of this approach is 1970s and mid- 1 980s. but the local circumstances. Decentrali- Specifically, two problems that local governments are recent deepening of the reform zation is thus a search for effi- exist in connectioln with guaranteed revenues almost process is the result of a new ciency in both the provision and Colombia's decentralization unconditionally. As a result, local constitution passed in 1991 and financing of local and national policies. First, national transfers governments tend to make little legislation passed in 1993.) The public goods; it means striking a from central to local governments effort to tax their constituency, new policy can bring benefits, but balance between the levels of are structured to meet revenue especially when the local jurisdic- it also poses problems. If it is taxation, expenditure, transfers targets. Sccond. decentralization tion is small or medium-sized. successful, it could improve the fromn central govemnient, and in the area ol'spending on social Not everything is a source of quality of life of most Colombi- regulations imposed on a particu- services has not led to competi- concern in Colombia's decentrali- ans. If it is a failure, it could lar local government. tion-for example, in the provi- zation drive. Now that mayors are jeopardize the coantry's tradi- Most spending on social tional economic stability and services in Colombia is done at a m N weaken local government. local level. And Colombia'snew Colombnaes National Transfers as a Percentage of On the positive side, the development plan for 1994 to Curuelt Revenues reform could increase the effi- 1998 gives prioritv to social ciency and political advantages of sector spcnding and makes 1990 1995 2002 providing local public goods and decentralization an integral part of services and improve the effi- this social strategy. If the policy Main National 12.2 16.0 22.0 ciency of spending on social framework for the decentraliza- Transfers 13.8 23.5 24.0 services (e.g., health and educa- tion is well designed, decentrali- 'iotal 26.10 39.5 46.0 tion). Against this, risks have zation can improve effectiveness cropped up in thc area of local tax in spending on social services. collection and with respect to Furthermore, if as a result of a psn-ncg ..o hathe (iolomiriao .'aooolf'lon,agDepa-oeot. certain monopo]istic practices in well-designed system of central- the provision of primary and to-local govcrnment transfers, sion of primary and secondary elected and more accountable to secondary education. local spending on social services education. Rather, it is reinforcing their citizens, some big cities are helps relieve the poverty of the monopolistic practices. setting an example in fiscal Opportunities poorest mcmhers of thc popula- reform. During the last fcw years. tion, that alone justifies a decen- Sequencing crucial for success in Bogota, Baranquilla, and The advantages of decentrali- tralization policy. Medellin, mayors have been able zation are well knowi n: in prin- The proper sequencing of to convince their clectoratc to pay ciple, it can make local authorities Challenges and risks fiscal decentralization is a key more in local taxes, and local tax more accountable to the needs and condition for its success. It is income has increased. In these demands of local inhabitants. While the theoretical argu- important to try and ensure that cases, transfers of funds from the Establishing closer links between ments in favor of decentralization revenue transfers from the central central government do not seem the authorities and taxpayers can are strong, converting them into governmenLt do not exceed or to have discouraged local fiscal increase economic efficiency and reality can be very complicated. outpace the expenditure responsi- efforts. It is a development that political participation, and morc In Colombia's case. in the light of hilities at a local level. The right is most encouraging. THE URBHN RGE September 1995 S - ------------------------------------- Bombay: Institutional Governance an-d Urban Finance by Nasser Munjee Nasser Munjee is executive director of the Housing Development Finance Corporation in Bombay, India. _____ BOMBAY. A casual visitor powers to local authorities for provided are determined by the Problems arise for to Bangkok, Manila, Jakarta, or the provision of infrastructure has supplier. The report (not surpris- institutions that have been Bombay cannot fail to notice the not been met by a similar ingly) recommends a different dependent on state finance. They impact of unbridled growth on devolution regarding revenue- type of commercialization using are being forced to move to the city infrastructure, which is raising powers. competitive suppliers. This left in the diagram and re- manifested most visibly by traffic The reluctance of central should create a situation where establish their "connectedness" to congestion, insufficient drainage, govemments to grant local consumers have a direct impact the overall financial environment inadequate health and education government authorities access to on the type, quality, and quantity with only one parameter finally facilities, and water shortages. established sources of funds often of services to be provided; and determining whether they succeed Worse still, with higher rates of stems from a fear that too many where the private sector competes or fail: performance. The economic growth fueled by resources may be accessed at the for or joins as a partner in the economics and the technology of economic reform, cities are likely central government level by local process of delivery. the changes are also gradually to face many pressures for authorities. Central government Whatever one may say about undernining the advantages of expansion, all of which make fears that this could affect its the theoretical issues of commer- specialist knowledge and capabil- major demands on city infrastruc- budgeting process and make cialization and competition, in the ity. Institutions can no longer ture. Therefore, if insufficient economic management more final analysis, the institutional anchor themselves to particular attention is paid to city planning complex. setting will be the critical factor in markets, but have to redefine their and urban development, stimulat- In the World Bank's 1994 terms of increasing efficiency. comparative advantages in a more ing economic growth by means of Development Report, Infrastruc- Thus, the future of our cities holistic manner. Customers are economic liberalization measures lure for Development, it is depends on making institutions also more fickle and may pick and may have only short-term emphasized that there is a need efficient. Buir how is this to be choose in an open market. So advantages. for increased efficiency in achieved? how will the transition be infrastructure delivery that While the issues posed by the maniaged? Financing infrastructure responds to effective demand and relationship of urban governance simultaneously addresses the and urban fin;nce for institutional Bombay First Investments in infrastructure issues of poverty alleviation and structuring are profound and by local governments have been environmental sustainability. complex, a second major factor Bombay has begun an initia- woefully insufficient to meet the Most developing countries have connected with macroeconomic tive to create a nongovemment growth of developing city suffered from a supply-driven adjustment will perhaps be the institution to focus attention on economies. Much of this defi- economic orientation, undertaken major force for change. This city issues. "Bombay First," as it factor is the fairly rapid dismem- is called, will create a core The Dismantling of t Dir ted rei St berment of the state-directed competency to assess the strategic credit system in developing needs of the city. Bombay First, C Finncia 000Sys 0 000 Hf 0000 ,tem f \ -countries. it is hoped, will become a magnet t Financial DSystem; C- ;/ i:5:5+ i++555555#+ 5 i#+i5 0 :t: 00apital Markets 0 j;;0Q:0: ': for many interested groups and The dismantling of the directed create a constituency for change. credit system If the experiment is a success, Guaran E ;S: ;:? 0;;X000;0f;000X;000f;gtfl teed ti: :! X et many other cities may follow suit, Instruments 000f>5f*]}l9 0 0In a state-directed credit thus bringing about a major drive system, major development banks for urban development and city and financial institutions- planning throughout India. Directed Creditincluding parastatals involved in The question of how to govern Sys00 0tem i 00 0 0 < 0 0 Mhousing and urban finance-have is truly a study in political functioned in a protected environ- economy: a study of the political 5jarket-Oriented .;.\< 4 1s. 000tf?ment, with go vernment-guaran- forces present and the formal and Financial Institutions.. +KYeveloPmentKllanks teed funding channeled through informal mechanisms at play in the directed credit system re-engineering institutional ciency reflects the dearth of by bureaucracies, rather than constituting a major resource processes that presently have a financial arrangements that exist emphasizing service delivery and base. Liberalization and the major impact on the urban for investments in the renewal and the development of industry. demise of a planned economic economy. Ultimately, the expansion of infrastructure. How This lack of commcrcial scnse systcm imply the end of this efficiency of the city will increas- to finance urban development is has often led to a situation where directed flow of credit. This ingly determine the prosperity of therefore a key issue. With objectives are confused, customer could well lead to crisis in the nation and the individuals economic liberalization proceed- satisfaction is ignored, and the institutions that have for decades within it. ing rapidly, the decentralization of quality and quantity of services depended on the system. 13 THE URHRN RGE Septemther- 1995 ~~--------------------------------- Financing Decentralized Government: Indonesia, Hungary, and China-A Status Report by Nick Devas 1 Nick Devas is sCeiiit lecturer at the School of Public Policv at the University of Birmingham, England. and has most recently beeti a contribui- tor to A. Coulson (ed.) Local Government in Eastern Europe: Establishing Democracy at the Grassroots, published by Edward Elgar. Aldershot. BIRMINGHAM. Decentrali- of local revenues and for better cost as part of the post-Communist responsibilities to the managers of zation is high on the political recovcry from beneficiaries on reforrn process. As a result, the enterprises, and thcrehy to the agenda in many developing projects such as water supplies 1990 Law on Local Govern- local governments that owned countries. Problems arise, though, through improved pricing policies. ments recognized a large them. because local government revenue So what can be done? Apart number of local govcrnments Paradoxically in such a sources are often inadequate. At from increasing the effective rate of and gave them a high degree of centralized state, economic the same time. central govern- the property tax, three other local autonomy. But this management has become quite mcnts face increasing prcssures avenues could be considered. First, decentralization was not decentralized in practice. Evcn on their national budgets, obliging implemnent some sort of tax or matched by local revenue though local governments canmot them to economize on transfers to license on businesses. The second sources. Currently, local taxes levy significant taxes of their local governments. In this article. is some form of local tax or charge generate only 2 to 3 percent of own, they seem to have consider- I look at the case of Indonesia, on land development. This would local government budgets. The able scope in administering and contrast it with the cases of be levied mainly in the larger urban main local taxes are a property national taxes locally, in ways Hungary and China where- arcas, but could gencrate substan- tax or a communal tax on that benefit their local enterprises despite very different contexts- tial resources from landowners and residential buildings, a tax on and hence their own budgets. there are many parallels. developers to finance the essential businesses based on the number The tax system, both national infrastructure to cope with urban of cmployees, and a tax on and local, has undcrgone a scries Indonesia growth. The third possibility is to businesses based on turnover. of reforms over the last 15 years, generate more from automobile The last of these accounts for 70 aimed mainly at making the Local governmnents in Indone- taxation, both by increasing tax percent of aggregate local tax cconomy more efficient. At the sia receive arouncl three-quarters rates on vehicles and by introduc- revenue. same time, there have becn many of their budgets from central ing a local tax on motor fuel. As in Indonesia, it is often changes in the revenue-sharing government. Local taxes contrib- The other element of the jigsaw suggested that local govern- arrangements between levels of ute less than lI ( percent of local is the grant system. Three-quatters ments should become more self- government. One consequence of budgets on averag e, and there is a of local expenditure comes from sufficient. There certainly is the changes has been that an constant search for new local grants, but this is fragmented into a some scope within the existing increasing proportion of local revenue sources. this search has large number of components. These laws to increase local tax resources have taken the fomn of been given added impetus by the grants have evolved over time, each revenues, but a significant "extra-budgetary" revenues, from government-sponsored Integrated one having its own allocation increase could only come by the which it is more difficult for I Urban Infrastructure Develop- criteria. These issues are coming adoption of a value-based central government to obtain a ment Programme that gives into focus with a new government system of property taxation. share. This has squeezed the Indonesian cities a greater role in initiative to hand over some of the This is already permitted by law resources available to central planning and financing their line responsibilities of central but has not been widely adopted government. resulting in serious urban infrastructLre. miniistries to local govermments in because of the undeveloped budgetary deficits. Consequently. The only substantial local tax some areas. This may be seen as nature of property valuation in the central government has started source is that on motor vehicles, the beginning of a necessarv Hlungary. Tlowever, newly to centralize certain taxing which belongs to the province process of simplifying and clarify- elected mayors and local functiolns. level. In addition, there is a ing responsibilities for particular assemblies have been under- Another consequence of the property tax, Pajak- Bulmi dan functions. But it also necessitates a standably reluctant to increase decentralization process is that Baoogunoa., which is technically a clearer system of funding that local taxes. rich regions have benefited national tax but the revenue is matches responsibilities with disproportionately from economic distributed to local government financial resources. and a grant China liberalization. But in an inereas- mainly according to origin system that takes due account of ingly fragmented situation, it Reforms to the property tax relative expenditure needs and local The pattern of decentraliza- becomes difficult to devise a during the 1980s have increased revenue capacitics in each region. tion in China has occurred system of resource transfers the yields substantially, but it still largely as a byproduct of the between levels of govemment to contributes only a relatively small Hungary economic reform process started restore inter-regional equity, or fraction of local expenditure in the early ] 980s. The failures even to know accurately the needs (around 7 percentt. In contrast to Indonesia. the of the centrally planned system relative financial position of 'There is, of course. plenty of demand for local autoniomy in and the ensuing marketization of each local govemrnent. room for improving the collection Hungary sprang from the grassroots the economy transferred many 13 THE UR2RR RCE Septoember 1995 NUB - - - - - - - - - - - - ------ - - i AUSRAIA New Zealand: Reforming Municipal Financial Management - ,r By R.J. Vine Bob Vine is executive director of lnterlog (New Zealand) Limited, a consulting group that provides information and advisory services on New Zealand local government principles. Mr. Vine was chief executive of the Upper Hutt City Council (1976-85) and the Lower Hutt City Council (1985-89), andfollowing reorganization became chief executive of the Hutt City Council until retiring in 1993. LOWER 1HUTT. Over the last district, and regional council of the accrual-based accounting and their communities to address decade, New Zealand has been a financial management required system. the question, "What business laboratory for radical economic the introduction of accrual-based With the new financial should we be in?" has resulted in and public management reforms accounting as opposed to cash refonns, most New Zealand local a release of funds for core that are presently being admired accounting. Accrual-based authorities now have, or are business-for instance, for worldwide, and that are under accounting measures the fBll cost devising, long-term plans to infrastructure. By dismantling active consideration in countries of producing goods and services, satisfy the inErastructure needs of local government ownership of where reinventing government is and accurately accounts for assets their communities. services using the principle of a priority. and liabilities regardless of timing contestability, it has been possible In 1 984, the New Zealand issues. It leaves no room for the Increase in allocation of re- for local governments to reduce government deregulated financial kind of creative accounting used sources for urban investments debt and reinvest funds. The markets, slashed import tariffs, in the past by local governments, funds have been obtained by and began to reshape the way the which made their results look As a result of the new system, selling off activities that are better public sector was managed. more impressive on their balance many local governments are now carried out by the private sector. The national government sheets. able to allocate more resources for Following the reforms, divest- believed local government was capital investments from revenue ments have included the sale of also in urgent need of reform, and Accrual accounting methods surpluses thai. are planned, and so electricity and gas distribution, much the same principles that had reduce their borrowing require- public passenger transport been used since 1984 in the rest of In terms of local government, ments. This is sound financial operations, infrastructure con- the economy began to be used in accrual accounting means that management. and it gives local struction and maintenance local government. The three infrastructure assets are valued authorities the choice to decide operations, and port operations. underlying principles to these with provision made for some which projects to ftmd with credit Thus, New Zealand local after considering criteria such as governments have eliminated Local Authaoritq Perferman ce Inex 1 9 intergenerational benefits. operating deficits by making Meanwhile, the New Zealand financial management more 3001 parliament is considering intro- focused; reduced debt levels by I s 0: 0;:di000ff:;00:00:00d f$0 0:00 0t000:f;;:0V00X?.0V000ducing new legislation that will selling non-core business activi- >, 250 s 0 0: 00 000: 0 0 2 0 N * 0 \ tt SL 0 000: 0 00 t 0 0 0 0 f 00 00 0 :0 00:0: en courage local authorities to link ties; reduced property tax in- o; 200 ; ______ * .. 0 expenditure to where the benefit creases in line with the nation' s .00 : **: - > t~~0:0t00:00;:000000X;;00:f00;00000::0 ;-XS<0.0;000;0-00:0 lies: the exacerbator (e.g., the reduced level of inflation; and ,, 150 : 0 00 : __ - :000:000000i:20:00;f$:t000 extent to which individuals or have been able to maintain capital l00 ; groups contribute to the need for expenditure levels and -- 50 : : _:_ _i _ _ _0__:t0 00 t00;0000:;00 the expenditure) and the time at infrastructural assets at a reduced 50 - - : - which the benefits are received cost, under a contestable system. 0 : (e.g., the intergenerational Improved financial manage- 89/90 90/91 91V92 9219 93/94 9 4i90 argument). ment has been an essential ingredient in the restructuring of - - Net operating expenses ait & me pjts Performance targets required the national economy in New - Debt are included in net operating : $l 0 for local governments Zealand. Local government is * * * Rates expeses before 990/91. - - Capital & maintenance projects accordingly far better placed to In addition to requiring a meet the infrastructure demands local government reforms are: form of depreciation. A key customer-driven focus with a new of developing cities and regions in accountability, transparency, and benefit of the valuation process is and more rigicl system of account- the long term. Furthermore, contestability. the identification of the assets: ing, New Zealand's local govern- stakeholders have a much better most councils in New Zealand ment reforns are uncompromis- idea of the health of their city and Change in local government had very little knowledge of the ing in their requirements for work its finances now that accountabil- accounting methods standard of their utilities' infra- and output based on performance. ity, transparency. and contest- structure, and this ignorance has Forward thinking, combined ability are guiding principles. Changes in the area of city, been largely overcome as a result with a need for local authorities THE RORRN RGE Septemtber 1995 RLafgg- ------------------r -- Urban Cadastres: The Paraguayan Experience in Small and Mediumn-sized Municipalities bv Roberto Salintas 1K- Roberto Salinas is an expert in UJban and c oonnnitv development i'orkintg for Deutschlec Gesellscha ti lr Techaische Zusanitnenarbeit (GTZ). lie is cul srrenitly the coorclinator of the IDM-GTZ Developoient Project in Paroaguay. ASCtUNSION. A distinctive awvare of what property or land is something that the vast major- the cadastre is now being used to feature of Paraguay's municipal fell within their jurisdiction. ity of Paraguayans now expect. develop other areas of urban governments is that thcy are self- The days when people were planning. Fxperience has shown financing and receive almost no The main features of the new excused fiom paying taxes as a that there is no need to have transfers from the state: income is cadastre political favor are now considered completed the property census or generated almost exclusively from over. cadastre before starting this work. taxes and local contributions, and To overcome these problems, The two endeavors-compiling only to a small degree by public municipalities developed an all- Implementing a cadastre: its the property census, and compil- sector credits. This financial purpose eadastre based on effects on municipal finances ing data for other areas of urban independence makes it expedient simple, clear criteria and infor- plaining-can be done simu]ta- for municipalities to find ways to mation. All that is required is a In many municipalities, the neously. The system is proving so increase revenue collection in the chart with an index, which is mere fact that enquiries into successful that even small community, as well as ways of based on national maps and property ownership were started municipalities now want to have a reinvesting such revenues so that divides an urban area into blocks was an incentive to many owners cadastre because of the simplicity community needs arc met. and includes data on property to bring their property taxes up to of the system and its usefulness. owners. A card containing basic date. As a result, municipalities Any type of urban planning Debate about dec entralization information on each property can became aware of the full extent of that is aimed at regulating Land initiatives then be attached to each block. the properties in their area, and of use, or that involves planning The drafhng of the index ctharts the owners, so tax collection investmelnts, should be based on Following the establishment of generally needs to be done by could begin. Specific taxes were cadastre information, and this a new national constitution in professional land surveyors. also introduced for instance. on informnation ought to be integrated 1992 and the subsequent emer- Ilowever, the sketches of the urban land that was lying idle, on in municipal management. By gence of various deceottalization blocks, the location of the initiatives, a debate was started building. and their approximate about the adequacy of local measurements and data can be govenmment budgets, both at a done by municipal personneL. g- , 4 department (regional) and a With this new system, it A municipal level, and about the should be possible to find out balance between the responsibili- how urban land is really being : ties transferred by the central used and to start planning how N government. Issues such as the property taxes should be devised degree of preparedness and and implemented. The system is ?; qualifications of local government meant to be all-purpose in the X _ The new urban cadtre has personnel, and whether local sense that it will help shape urban - ' helped to increase muuiicipal resources were sufficient for such administrative, fiscal, and revenue. responsibilities, were also raised. planning decisions. At this time the central government introduced another C(adastre system encourages offices, on land that was divided means of such a cadastre system it change: all the real estate taxes transparency between owners, and to mainitaini is possible for mtiicipal govern- levied by local governments were sidewalks and pay for garbage ments to draw up realistic to be kept by them and not The system, designed for collection. As a result of these investment budgets based on transferred to the central govern- small and medium-sized munici- changes, tax revenues are accurate estimates of income from ment. So, property taxes became palities, cross references owners increasing. property and related taxes. an important part of municipal and properties. The cadastre Tax collection in municipali- Finally, a sinie qua non of such income. system in Paraguayan municipali- ties that use cadastres now cadastres is that although However, an early difficulty ties that has been introduced constitutes an important source of municipalities may differ between encountered by municipalities in works with computers. This mtnicipal income. Such revenue countries, the design of the implementing th: new reform was ensures that data arc collected in in some cases represents 15 system everywhere must have a lack of up-to-date infonrmation) a speedy and reliable xway. Tn percent of the total mnunicipal one thing in common: it must on both urbani and rural eadastres addition. the transparency of the budget. guarantee that the cadastres will (property censuses). Often, system is guaranteed. Making tax A great deal still has to be be used in a fair and objective municipalities were simply not collection an impersonal function done. The infonmation obtained in way. El THE ROHRN R6E S,pteneurr 1995 i--------------------------------- Washington, D.C.: Federal Control Reasserted through Creation of the Financial Control Board ;I by Jonathan Foreman Jonathan Foreman is a lawyer andfreelance writer living in New York City. WASHINGTON, D.C. In most managed that the courts appointed cultivate loyai voters. Sustaining United States Treasury, and countries, urban finances tend to a receiver to administer it. A such a group of voters in the face allocates them as it sees fit. It will be artificially boosted by national federal judge was appointed to of, first, the departure of wealthy remain in power until city government contributions. This is take over the city's foster care taxpayers to the suburbs and, officials succeed in balancing the particularly true of capital cities. services. Anid conditions in the then, an exodus of middle-class budget for four consecutive years. Sometimes it is a question of city's jails were considered so bad taxpayers, has-according to this The board also has the power to image: govcrnments arc keen to that the federal government is argument-led big city govern- review major labor contracts with give visitors a favorable impres- now managing these as well. ments to postpone the business of the city and all city legislation. sion. Elsewhere, it may be a maintaining urban infrastructure The chairman of the financial matter of security. In famine- Declining tax base and increased, their borrowing control board is Arthur F. plagued Ethiopia, food aid was requirements. It was this type of Brimmer, the first black to have reportedly diverted away from its Washington's problems are mismanagement that allegedly served as governor on the Federal intended beneficiaries in the similar to those of Chicago and caused New York's financial Reserve Board, America's central countryside, and used instead to Boston. The first problem is that collapse in 1973. banking and monetary authority. keep food prices down in Addis city tax bases are declining. Washington's turn came this Like the Federal Reserve, the Abbaba, the country's capital, American cities generally finance year, when re-elected mayor financial control board is a allegedly to reducc urban discon- themselves with local tax rev- Marion Barry announced a professional institution that is tent. enucs and bond issues. But during projected USS722 million budget deliberately non-partisan in the the last 30 years, their tax bases shortfall. Unlike New York, D.C. interests of financial stability. Decline in the quality of urban have declined as more and more has always been supported by the life inhabitants have moved to the federal government and has Control board will create fiscal suburbs. Many of the new suburbs almost no experience in self- discipline But in the United States, the that have developed lie outside government. Indeed, from 1874 to reverse is happening. There has the political and fiscal jurisdiction 1972 it was run by three commis- The board offers Washington been a gradual shift in the of the cities where their inhabit- sioners appointed by the Presi- some hope of competent, respon- population and in electoral power ants are employed. Under state dent. This was followed by years sible financial policymaking. away from cities. And this has laws, municipal governments can of partial autonomy. The district However, opposition to the board been accompanied by declining sometimes annex incorporated was run by a rnayor and a council, remains high among the city's federal government transfer suburbs, and claw back money who presentecl Congress with a residents. Even those who are payments and by a decline in the from wealthy taxpayers. But some budget. However, the citizens of weary of the poor services and quality of American urban life: cities, such as New York and the district rermained largely inadequate schools resent the re- taxes are high, services are bad, Philadelphia, both of which are disenfranchised in national imposition of federal authority. and infrastructure is in a state of bordered on one side by the state political terms, and even now Suspecting, as they apparently do, disrepair. Much to the federal of New Jersey, can do nothing their only voice in Congress is a that congressional Republicans government's embarrassment, about the flight of wealthier nonvoting representative. and Southern Democrats have Washington, D.C, is a particu- citizens into a lower tax com- long resisted giving Washington larly bad case. muter belt in a neighboring state. Creation of the financial control the representatives and senators Washington, D.C., has one of Washington, D.C., is in the worst board that could more closely represent the highest murder rates of any position of all, because all of its the interests of the city's inhabit- American city. Some of its suburbs lie outside the city's Each year the budget expanded ants, the board looks to them like schools have the reputation of reach in Virginia and Maryland. until it resembled that of a small another ploy aimed at depriving being among the most run-down A second problem appears to nation, but Congress tended to them of a political yoice. The fact in the country. And earlier this be the increased unionization of give Barry and other mayors what that the board has so far refused to year, even before a federal municipal workers that has they requested. This situation no consider a tax on commuters, who financial control board was accompanied the expansion in longer applies. In spring 1995, enjoy the city's benefits without created to oversee and supervise urban welfare programs after the Congress created a financial paying for them, only fuels these the city government, the virtual 1950s. In a style that some say is control board to take ovcr many suspicions. So, while the board collapse of Washington's city reminiscent of New York's of the functions of D.C.'s may bring D.C.'s financial crisis services forced the federal notorious Tammany Hall tactics municipal government. The board under control, it remains an open government to intervene in the in the last century, jobs have holds in trust all funds from the question whether it will win the city's management. Public allegedly been allocated in D.C. annual federal payment, as well as hearts and minds of D.C.'s housing was apparently so badly along etlmic lines in a bid to all funds borrowed from the residents. Il THE URURN RHE September 1995 1M111 -------------------------------------- In the 'Roundtable, "we present several questions to prominent people on the topic being discuissed in each issute. The purpose is to create a forumfJo idrtei-ehenge andel debate among people with opposing points of viewv. OUr1 hope is that readlers will find it a startingpointforgeneratng theit own discwussionns both withiin their, cities anjd in response to The Urban Age. Mlarlene Fernandes is an architect and urban Roy Bahl is professor of economics and planner. She is cur r ently technical assistanrt to the . director of the Policy Research Center at __ executive director of the Brazilian Inistitute ojf Georgia State University. His book with MlunicipalAdministration (IBAM), and is ' Johannes Linn, Urban Public Finance in coordiniator of the Mega Cities Project in Rio de Developing Countries, is one of the few Janiero. 1is. Fernandes is also the coordinator of comnprehensive analyses of this suibject. the Habitat II regional seminar on urban financial Recently, Professor Bahl has been working on strategiesfoor Latin America and the Caribbean. fiscal decentralization in Russia and Chtina. -----_.------------._-------------------------- UA: Urban finance FERNANDES: The improvement in the provision and BAH.: Local government officials must be accountable involves the provision of funding for housing, infrastructure, and urban services to those who consume urban services if the efficiency of importantgoods and requires government incentives that reducc risks. delivering these services is to improve. This requires services; improvements in increase competitiveness and enable markets, formal and that local councils be popularly elected and that local the provision and funding informal, to work. Some of these incentives are: chief officers be appointed by these councils. It is also of these activities requiire keeping a stable regulatory framework, such as tariff important that budgets be formulated by local councils what kind of c1hanges in structures to sustain long term capital investment so that citi7en preference for various government the political incentive recovery; providing subsidies to supply those who services can be reflected. structiure? cannot afford to pay full service costs; and using bidding or contracting-out procedures that reward the suppliers' competitiveness, productivity, and efficiency. UA: What kinid ofc FERNANDES: It is necessary to adopt a fiscal strmcture BAHL: Threc charactcristics of the intergovcrnmental intergovernmental that would reduce the need for intergosernmental fiscal system must hold if true decentralization is to be reventie arrangem;ents transfers, giving each level of government the autonomy achieved. First, there must be some assignment of should accompany fiscal to collect and allocate the fiscal resources necessary to revenues and rate-setting powcr to the local government: dlecentralization? exercise their specific functions. the sharing of central govemment taxes on a derivation Ideally, intergovernmental transfers should be used basis is not decentralization. Second. grants must be only as a compensatory mechanism between regions, distributed in a transparent way so that local govern- municipalities, or cities with different economic ments can plan their fiscal affairs with a reasonable capacities. Part of the transfers could be used to degree of certainity. Third, there must be correspon- stimulatc local govcrnments to improvc their fiscal dence between the expenditure responsibility and the capacity and increase their revenues. fiscal resources that are assigned to local governments. UA: fWhat risks do FERNANDES: Stiubnational governments may force BAHL: If the intergovernmental system assigns intergovernmnenthl upwards interest rates in the financial markets. They significant taxing and spending powers to local govern- finuncing arrangements may also increase living costs, affecting inflation ments, the ability of the central government to use fiscal create for national through their pricing policies that could increase public measures in its macroeconomic stabilization program macroeconomic mranage- deficit and external debt - risks usually associated with will be limited. As fiscal decentralization shifts the ment? national governments. deternination ot investment priorities to local govern- ments, higher income local governments will have a greater taxing capacity. On the other hand, decentraliza- tion should lead to a greater willingness to pay for services and therefore to an increase in the rate of revenue mobilization. UA: How does one FERNANDES: There are three ways to do this. First. BAHL: Local governments will never have an incentive encourage cities to by adopting cnteria to distribute fiscal resources that to be creditworthy unless they have some autonomy in become creditworthy would reward efficiency and effectiveness of service determining their budgets, real access to credit financing white giving themi a provision. Second, by reinforcing local social controls and a hard budget constraint that limits their liability to reasonable but hinding to improve accountability, efficiency, and transparency run up deficits. A key to encouraging strong and constraint to encourage in the use of resources. Third, by adopting enabling responsive local government is to allow the imposition efficient use of revenue strategies such as capacity-building and institutional of a wide range of user charges, limited only by the sources and service development, to improve planning, budgeting and acceptance of these by local voters. There is no inherent provision? management activities inconsistency between fiscal responsibility and budget constraints; legal limits on borrowinu and tax rates can still leave room for discretionaty fiscal actions and for budget planning to meet local demands. THE DURRN R6E September 1995 ------------------------------------ The Urban Activation Plan: Tijuana's Betterment Levy By Hector Osuna Jaime ri Hector Osuna Jaime was elected president of the municipality of Tijuana for thefirst time in December 1992 as a member of the [IJ Partido Accion Nacional (P.A.N.). He is aformer elected state assemblyman for the Eleventh District of Tijuana in the Baja California State Legislature. The municipality of Tijuana has and create improved mechanisms The plan calls for a total The plan will create additional above average annual population for community participation. investment of MexN$500 million, revenue for Tijuana. Additional growth of 4.2 percent, (reflecting Although the Urban Develop- with the central government tax revenues are estimated at the high rate of migration by ment Act of the State of Baja providing 25 percent, the "pro- MexN$ 100 million; the value Mexican nationals from the center California allows govemments to ductive" sector (industry, added tax should also generate and south of the country), and the carry out civil works on their commerce, tourism, and trans- MexN$50 million. For the urban perimeter is spreading by an own, it was decided to put the port) 15 percent, direct beneficia- municipal government the plan average of two heetares per day, Activation Plan up for public ries 20 percent, and the commu- offers an opportunity to partici- which has resulted in increasing debate, consultation, and ap- nity at large the remaining 40 pate in solving real problems for pressure on local government and proval; a principle of the plan is percent. The Consulta Publica or the inhabitants of Tijuana. For infrastructure and led to gaps in that participation of society is referendum which took place in the community, it means an urban services. essential if adequate private and March 1994 was held to decide opportunity to achieve a better There is no doubt then that public resources are to be raised whether the plan should proceed quality of life through participa- urban conditions in the municipal- to finance urban civil works, and and whether the community tion in municipal decision-making ity of Tijuana have been a serious that consultation with the public would pay its share to support the and responsibility for putting the limitation to the city's growth, should be a pennanent tool of the plan; it was passed by a 66 plan into effect. and that Tijuana's infrastructure municipality. percent vote. needs have exceeded its long term investment capability. The budgets available from all three An Inteiview wi[h Hector Osuna Jaime, President of levels of goverment in Tijuana the Municipalitq of Tijuana have not been suifficient to alleviate or reduce the………---- ----- ------ -- municipality's gaps in urban UA: What event occurred percent is covered by the commu- services. And for the long term, that persuaded you to raise a nity at large, 20 percent by direct T1iuana's finances will not be betterment levy? beneficiaries, 15 percent by the solved by the public sector. OuaJieThrwsnone industrial/comimercial sector and So, in 1994, in order to address Osuna me: There was no onemuniipal this situation, the municipality of specific event. The circumstances 25 ercent by the mci pal Tijuana developed an urban of the Mexican political system specifie stb-projects like building development plan known as the are such that the mtnicipal roadways, where the general Urban Activation Plan. It is an government of Tijuana has very mpact of public works schem UA: What other interesting urban infrastructure macroprojet limited possibilities to build new benefits everybody, we tax people taxadon devices have been used that aims to lay the foundations for infrastructurc even though there is based the r e aeterslo recently in Tijuana? the integrated development of the access to financing programs. So, their propertv and proximity to Osuna Jaime: This is not exactly municipality. Based on a series of the alternative was to turn to the a tax but we have a citizen priority public works, the plan is citizens of Tijuana and ask them participation program we call having a significant impact on to pay a special one time tax, in Manos a la Obra or Hands-on Tijuana's economic growth and this case a betterment levy, where UA. Was the raising of the Work where we subsidize 40 to general standard of living. It is the the beneficiaries help fund part of betterment leiy a unique or 60 percent of the cost to pave largest investnent project ever the cost of the plan. unusual taxajion device for the residential streets with concrete. proposed by a municipal govern- municipality of Tijuana? The communities pay for the rest ment in Baja California. UA: Can you explain how the Osuna Jaime: It definitely was. and either hire a contractor or do One of the responsibilities of betterment levy works and how For the first time in Tijuana we the work themselves. This has local governments is to work for successful it has been? managed to organize a more resulted in 800,000 square meters the steady improvement in the Osuna Jaime: It is a very simple democratic, community participa- of paving this year alone through quality of life in their commmui- scheme. You fund your infra- tion in keeping with the principles this mix of resources. The streets ties so in addition to the urban structure project, in this case the of the Urban Aictivation Plan. In were built much more inexpen- transformation it will bring about, Urban Activation Project, with the March 1994, we organized a four sively than if they were paid for the plan is also a social and lowest interest rate credit that you day referendum or Consulta by the government and this political project that will give the can find and assess the cost to the Publica on the plan and it was initiative has created a great municipality greater autonomy beneficiary. For instance, 40 passed by a 66 percent vote. sense of community pride. A3 THE URBRN RGE September 1995 ~~~~------------------------------ We active1v seek ouir developinq country7 readers' inputzfr this sectionl. Ouir intention is to facilitate netivorking amiong developing couni7try city managers and their constituents. INSTITUTE OF SMALL ENTERPRISES & DEVELOPMIENT Contact: Dr. P.AiL Vfatewt Director, ISED, Vennala. Cohin 682 028, Hetter Urban Services: Finding the Hight Incentives Iindia: Tel: 3478(84. fax: 345163. The Internalional Bank for Recooistrucdion and Developmentl The World The Institute of Smlall Enterprises and Development proniotes the Bank, 1818 H StrOeet, NI W Eashington. DC, 20433, USA. First Prinuting development of small and medium-sized enterprises through research, Y training, and consulting services. Development of urban microenterprises One of the reasonls the World Bank decided to revise and puiblish this book is a priority for thc institute, ,vhich regularly organizcs entreprencurship (it wvas originally an internal sector review) was to stimulate debate on a development programs for micro-enterpreneurs and carrtes out studies on key issue in urban reform policy-namely, the growing decentralization of urban microenterprise development. The findings of these studies have responsibilities and resources between central and local, or municipal, governments. Just how significant a phenomenon this has becom-e at thle been translated into training and consulting activities. The director of the end of the 1990s is demonstrated, the book says, by the fact that out of 75 institute received the Asian Productivity Award in 1 994, given by the developing and former Eastern European Comnmunist countries vith Asian Productivity Organization of Tokyo. populations exceeding 5 million, all but 12 have started some sort of devolution of power to local govemments. The development is too big for multilateral and bilateral institutions, or USC'S SCHOOL OF URBAN AND REGIONAL the countries they lend to, to ignore. Moreover, decentralization does not PLANNING just have implications for programs in developing countries that aim to improve key urban services such as clean water, sanitation, waste collection, and transport. It also impinges on other vital public services Contact: Universiwv of Southern Calitbrinia. School of Urban and such as primary education, health, and'environmental protection, which in Regional Planning. 351 Von K/eiASmid Center. Los Alngeles. CA 9)0098, turn affect programs to reduce poverty and to stop environmental USA. Tel: 213- 740-2264; Fax: 213-740-1160. degradation-both pressing issues in urban areas. Indeed, another reason why the trend toward decentralization is The University of Southenm Califomia's School of Urban and Regional curretly so crucial is becausle it ias to towns and rapid urbanrizaton in Planning announc es a new degree, the Master of Planning and Develop- most developing countries. The United Nations predicts that by 2020 more ment Studies, designed for those who expect to succeed in the new than half of the population of the developing world *will be living in towns. global environmenit. Whether located in a small city in rural America or In one respect this urban tide indicates success: despite the deepening pockets of urban poverty practically everywhere, the incomes of town an urban metropolis in a nation on the other side of the world, planners dwellers are higher than those of rural dwellers. Equally, worldwide and developers today work in an international arena. Accordingly, this growth rates in manufacturing and services-both urban-based economic program will be offered in a variety of venues, including Los Angeles, activities-have also been consistently higher than growth rates in Washington, D.C., Hong Kong, and Australia. agriculture for the last decade. The Master of Prlanning and Devel opment Sttudies is desi gned to pOonBut the downside is that the quality of basic services in most towns is The Mater o Planing an Deveopmcn Stiides isdesigcd topoor. In developing countries the deficiencies have particularly dire effects educate mid-career professionals who are ready to be 21st century as failures in urban service dclivery disproportionately affect the poor. In leaders. The curriculum includes core courses covering urban planning the absence of piped water systems, for example. households invariably analysis, research and analytical methods, as well as methods and have to purchase water from vendors, paying several times more than the cost of the piped water systeimi. problemiis of the platining anid developineiit process. Key urban services such as clean water, waste cotlection, sanitation, and transport will have to be expanded very rapidly in future if urban crrrrc(r ATr'flfanl envirotunenital problems in developing countries are to be tackled, or THIE CITItE NEtWlV .RK controlled at all. This expansion, however, will depend on tirban institutions functioning well. Contact: Michel Xigihar hotJhendsCa?gn.upc.orgCVIlNVTERVET But this, in turn, will depend on a change of emphasis in urban institutional reform programs, the authors say. Traditional institutional The Cities Network is a network of grassroots organizations formed to reforts at this level tocused n dpmoinstragton of local government. support and stimulate efforts to achieve the creation of sustainable urban However, the book says, urban service delivery questions now need to be environments. In working toward this end, the network recognizes the viewed from a broader perspective that takes the structure of the entire need to understand the divcrse and complex set of social, ecological, public sector into account, and especially central-local government political, a. d economic relations pronitoing or impeding this goal. In relations. For instance, it is important to find out what the constraints are that local governments facc when trying to deliver services, and what seeking to improve the urban situation. the network stresses the impor- incentives are inappropriate, as both are obstacles to efficient local service tance of local sol] tions to spccific challenges. delivery and often reflect problems in central-local govermment relations. The aims of th.e Cities Network include the facilitation of the flow of In these circumstances, the book says, three elements are crucial to infonrnation and the sharing of experiences betvv-een diverse urban-based reforms. Firstt the functional responsibilities of different levels of government must be clearly defined so that consumers, private contrac- grassroots-oriented organizations working in the field of social and tors, and the public in general can identify a particular urban service with a ecological trattsformation, as well as building alliances and cooperation particular goveniment office. Related to this, the sources of revenue that between these organizations. The network also seeks to organize citv or correspond to the functional responsibilities of services also need to be made explicit. And in this context, one improvement could be reducing the regional and global workshops facilitating communication on common uncertainty and bargaining that now often accompanies intergovenmental agendas, strategies, and the implemiienitation of programs. financial flows. Finally, there needs to be accountability in urban service The network is worldwide, with partners in Africa, Asia, North and delivrery that makes allowansces for both regulations made at a central South America, and Europe. governmcnt level and incentives devised for local constituents. IHE URRRN 85E Septemberi 1995 r----------------------------- Beyond Urban Bias in There is often a mismatch reason for the financial difficul- extortionist, money-lenders. Africa: Urbanization in an between a city government's ties, the experts say, is that ever However, viable self-sustain- Era of Structural ~~~~~~~~respoinsi- since the 1 950s wealthy Ameri- ing financial intermDediaries like ErA of Structural bilities for cans have been moving out of the Grameen Bank in Bangladesh Adjustment providing cities to suburbs, because they and the Unit Desa credit system [ by Charles M. Becker, Andrew g public were no longer finding high- of Bank Rakyat of Indonesia can _ M. Hamer, and Andrew R. services quality services, good schools, be created to service low-income Morrison. Heineman, a and its and safe streets in cities. As a microenterprise clientele. These division of Reed Elsevier, Inc., revenue- result, the tax base of city programs succeeded because they 361 Hanover Street, Portsmouth, raising governments was eroded-a overcame the problem of the NH 03801-9912. ISBN 0-435- authority. development that was com- financial risk to mainstream credii 08091-1. Furthermore, experience shows pounded by the collapse of and financial institutions by that city governments do a better property values in many cities. lending to microenterprises. The urbanization of Africa is job of urban management when According to the authors, the increasing at an alarming pace. It they have greater authority over best thing that could happen Princes and Merchants: is a their own affairs than when they would be reversing the policies of European City Growth develop- must continually coordinate their the 1980s: restoring progressivity Before the Industrial | ment that actions with national or other in the tax system, reinstating Revoluion is aggra- local entities. federal revenue sharing, and vating One area where urban govern- having the national government by J. Bradford de Long and macro- ments in some developing once again assume responsibility Andrei Shleifer. Journal of Law economic countries have bccn found to be for social and cconomic problems and Economics, Vol. XXXVI, The pro ems exceeding themselves, is when that are national in scope and that University of Chicago Press, all over the they try to provide services for all cannot be adequately addressed October 1993. ISBN 0022-2186/ continent. This level of urbaniza- levels of the population that are locally. 93/3602-0001. tion has increased the demand for not affordable. imported goods, added to budget Among the local sources of The New 'World of The authors of this book contend and balance of payments deficits, revenue available for financing Microenterprise Finance: that for 800 years before thc and coincided with a decline in public services, the authors Building Ilealth Industrial Revolution, despotic agricultural production and a recommend property taxes, taxes e iyand disastrous export performance. on business licenses, user charges, Financial Institutions for autocratic But there is a way out of the and taxes on automobile and the Poor rule is mess. Greater emphasis needs to vehicle use and ownership. The bv Maria Otero and Elisabeth associated be placed on the productivity of latter typc of taxes, the authors Rhyne (eds.). Kumarian Press, with food production for urban as well say, have been neglected by urban Inc., 630 Oakwood Avenue, Suite periods of as for national development governments in developing 119, WestHartford, CT06110, slow reasons. There also has to be a countries up to now. However, the 1994. ISBN 1-56549-031-2. economic greater focus on raising national revenue potential of such taxes growth. By savings rates. Industrial policies can no longer be ignored. For increasing numbers of poor contrast, when absolutist rule was also need to be reorganized with people, small businesses and held in check, and merchants or more attention paid to the Urban Finance Under informal economic activities landed magnates were given a creation of labor-intensive Siege constitute the only form of voice through a constitutional industries to relieve urban income and employment. veto, economies and commerce unemployment. by Thomas R. Swartz and Frank The owners of such enterprises flourished. Structural adjustment in J. Bonello (eds.). M. E. Sharpe, are often seriously hampered by a The reasons for the contrast arc Africa must also develop local Inc., 80 Business Park Drive, lack of that during autocratic rule administrative capacity and local Armonk, NY 10504, 1993. ISBN working governments tended to be fiscal authority, and create ground 1-56324-224-9 (cloth). ISBN , capital and centralized, individual rights to rules for the participation of the 1-56324-225-7 (pbk). because own property were precarious, private sector in local develop- they cannot and a rule of fear and insecurity ment and urgently needed urban In this book, experts in the field make the made people who owned (capital) infrastructure. of urban finance examine the root appropriate stock, hide it. On top of this, causes of ivest- absolutist princes tended to tax Urban Public Finance in the fiscal ents to towns ,and cities to increase the Developing Countries problems buy supplies or tools, or make the power of the state or the splendor now needed improvements on their of the court, or to finance wars. by Roy W Bahl and Johannes F. experi- premises. Furthermore, lacking On the other hand, when princes' Linn. Oxford University Press, enced by access to formral financial and powers were limited, ordinary Inc., 200 Madison Avenue, New manv credit services, many informal people were taxed less, cities had York, NY 10016, April 1992. ISBN major U.S. sector workers seek help from riore autonomy, and prospered. 0-19-520805-6. cities. One relatives or resort to costly, often THE URB RGE September 1995 Below is a selection of urhsani events and Iraining cour-ses cu lled fionm The Urban Age 's currentfiles. We are not always able to list events more than once, giien space litoitations. Please re/kr to past issues of'The Urban Age Jbr adclditional e'ents scheduled in 1995. Send yoatr annottacements to: Th2e Editor, The Urbar Age, Room S6-065, Th7e WZorldBank, 1818 H Street., 5YTWashintgton, DC 20433, USA. Fac: 202-522-3232, Internet: mmnen ilWvorldhank. org Conferences Education Programs and Courses Brisbane, Australia September 18-20, 1995. Australian Tropical Istanbul, Turkey-The Med-Campus Housing Network, in conjunc- Health & Nutrition Conference. Contact: ATHN Conference Coordi- tion with Istanbul Technical UIniversity, is currently accepting applica- nator. Wendy Gardiner, Tropical Healtlh Program, ACITHN. The tions hrom graduate students of arclhitecture and urban planning, and University of Queensland Medical School. Herston Road, Herston. professionals of public or private institutions for its second training Queensland 4006, Australia. Tel: 61-7-365-5408: Fax: 61-7-365-5599. course, Housing for L.ow-income Groups. The course, to be offered October 2-20, 1995, will integrate theory with practice through Arlington, Virginia October 1 3. 1995. Urban Economic Develop- lectures, case studies. individual studies. and discussions drawn from ment Summit. Contact: Chris Mead, Conference Director, National the global housing environment for low-income groups. The course Council for Urban Economic Development, 1730 K Street, NW, Suite aims to enable people to understand and solve housing problems, to 915, Washington, DC 20006. USA. Tel: 202-223-4735: Fax: 202-223- train people with different backgrounds in the housing sectors and in 4745. the construction industry, and to equip individuals with different skills to set up groups that contain members with diverse expertise for Rio de .laneiro and Sao Paolo-October 2-12, 1995 EDIEN Re- solving a problem. Contact: Prof Dr. G. Saglamer, Istanbul Technical gional Seminar on Management of the Urban Environment. University, Faculty of Architecture, Med-Campus Network C078. Contact: Ephim Shluger. EDIEN, The World Bank, 1818 H Street. Taskisla Rektorluk Ofisi. Taksim, Istanbul 80191. Turkey. Tel: 0-212- NW, Room M-5066, Washington, DC, 20433, USA. Tel: 202-473- 243-1111: Fax: 0-212-251-4895. 6428; Fax: 202-676-0978/7. Boston, Massachusetts Boston University's School of Public Health Vancouver, British Columbia-October 26-27, 1995. Linking will sponsor the eighth annual Management Methods for Interna- Transportation and Land Use Planning. Contact: Ann Long, tional Health program, to be held February 8-May 3, 1996. The Registrar, Lincoln Institute of Land Policy, 1 13 Brattle Strwct, Cam- intensive 12-week course addresses the practical application of man- bridge, MA 021:38, USA. Tel: 617-661-3016. agemcent principles in the public and privatc health sectors of develop- ing countries. All health personnel who have, or expect to have, Auckland, New Zealand-November 16-18. 1995. The New Local managerial or supervisory responsibilities are welcome to apply. The Government Conference-An International Perspective. Contact: course, which includes site visits to US health care facilities and a two- Massey University, P.O. Box 11, 222 Palmerston North. New Zealand. day academic retreat, offers participants a rigorous and timely educa- Tel: 64-6-350-4.352: Fax: 64-6-350-5689; Internet: tional experience. Contact: William J. Bicknell, Center for International V.E.Forgie(a,massey.ac.nz Hecalth, 53 Bay State Road, Boston, MA 02215, UJSA. Tel: 617-353- 4524; Fax: 617-353-6330. Dubai, United Arab Emirates -November 19-22, 1995. Best Practices International Conference for Habitat Il. Contact: Clhris- Birmingham, England The Universitv of Birmningham's School of tina Engfeldt, Chief of Information and External Relations, Habitat II Public Policy is holding its third Interational Seminar of Senior Secretariat, P.O. Box 3(1030, Nairobi, Kenya Tel: 254-2-623033; Fax: Government Policy Makers, Improving Performance in the Public 254-2-623080. Service, October 30-November 25, 1995. The seminar is concerned with administrative reform and is organized to allow both individual and group exploration of the participant's key issues. Contact: Yvonne Third Anne ul Conlference on Environme n tail i Swain, Course Administrator, Development Administration Group, Sustainable Development, October 4-6, 1995. School of Public Policy, University of Birminghami9, Edgbaston, Birmingham HiS 2TT. England. Tel: 44-121-414-4969; Fax: 44-12 1- Washington, D.C. 414-4989. At a time when nmost countries face significant resource constrainlts, this conference will address the crucial question of how new and innovative Birmingham, England-Improving Financial Performance in financial instruments can he developed and used to meet the financial Local Government is a three-month program being offered by the requirements of advancing environmentally sustainable development. The IJniversitv of Bia ningham beginning in Februarv 1996. The intcnsive application of existing financial resources, fiscal and monetarv policies, - f innovative partnerships for long-term financing, and the creative applica- program-designed for senior officials from local and central govern- tion of technologies will be examined. ment who are concerned with local government finance, as well as This nmultidisciplinary conference-which will emphasize cross-cutting those from training institutions-looks at current practices in Britain issues and sectors, as well as regional differences will include a distin- and internationally, and is designed to address the practical needs for guished group of intemational authorities, including national and local govenrnent officials, private sector leaders. scientists and other scholars, wider knowledge and improved skills of the participants, related to and practitioners from both industrialized and developing countries, their own work situations. Contact: Yvonne Swain, Course Adminis- Contact: Aissatou Seck, The World Bank, Room S4-061, 1818 H Street, trator, Development Administration Group, School of Public Policy, NW, Washington, DC 20433. Tel: 202-473-5546; Fax: 202-522-3244; Universitv of Birmingham, Edgbaston, Birmingham B15 2TT, En- Internet: ASECK2@~~Worldbank.org gland. Tel: 44-121-414-4967, Fax: 44-121-414-7164. THE UORAN RGE Septemuber 1995 LATIN AMERICA continuedfrom page 6 also have their criticisms. Mayors who attended the Inter-American New approaches to local finance management: public-private Conference of Mayors, "Pathways of Development for Municipal partnerships Governance" in Washington, D.C., in November 1994, said any reliance on central government transfers involves a risk as such Some inncvative financial strategies that could improve local ;III transfers can always be withdrawn or altered. As a result, the governance and financing have already been introduced and developed control of local governmcnts over the revenue side of their by municipalities in Latin America, while others have been tested in budgets is strictly limited, other developing countries. Most of these strategies involve the private LaLin America's mayors realize it is important to improve local sector and community participation in the operation and management revenue collection. However, they often feel constrained by the strict of projects. rules imposed by their central governments regarding local taxation and Among the alternatives, there are three main areas where the public the application of local user fees or charges. Indeed, it turned out that and private sectors complement each other. most mayors would rather have the right to levy a variety of taxes and * From an economic point of view, public investment in social (i.e., user fees locally at preferred rates, so they could at least have some health and education), and urban infrastructure helps boost private control over their revenues. sector productivity. The more the public investment is targeted, the Still, it is generally understood by local governments that a lot can bigger the impact it has in terms of economic growth. be done to improve the efficient use and flows of local government * Public and private sector financing is also complementary when financing, that it is important to raise revenues locally, and to link it pays for a project that is a joint venture, or helps to match funds, or is sources of revenue with allocations of expenditure to increase account- involved in privatization programs. In cases like these, public re- ability. However, this balance has not yet been struck by local govern- sources use private capital as leverage and, as a result, often improve ments because of a variety of constraints. For instance: the efficiency and targeting of such investment. * At the same time, local governments have tried to increase their * Latin American communities often participate in small municipal share of national revenue transfers by negotiating with the central projects. The community designs and plans the project, and provides governments. They have opted to do this rather than try to negotiate the labor and/or oversees the use of the public finds. Although the higher local taxes or user fees with their constituents. impact of the public funding on the local economy is small, there is Local revenues have traditionally been raised by local taxes and considerable accountability in the use of such public funds as the user fees or charges for services. Attempts to increase the revenues community is directly involved in, and committed to, the success of the from these sources are generally related to improvements in their project and also controls how the money is used. mianagement and collection, and fee limits are usually legally and/or It seems then that a pattern is emerging that promises a new politically restricted. approach to municipal financial management in Latin America. * Even though decentralization has helped bring the state closer to ordinary people, there are no signs yet that ordinary people trust the authorities, even when they are elected. Monica Ramirez Londono is a Colombian economist. She has worked However, user charges for service delivery are increasingly being in Colombia in several national institutions in charge ofpolicy design used to generate income to pay for the operational and maintenance for decentralization, financing and providing technical assistdance to costs of services. Such income has only a limited use when it comes to municipalities. She is currently a specialist in municipalfinancing with financing capital investments to expand a city's infrastructure, because JULA/CELCADEL with repsonsibility for the municipal training of the increase in marginal costs when such services are expanded, and program for Bolivia, Colombia, Costa Rica, Ecuador, Peru, and the increased costs involved in servicing public debt. Venezuela. Photo credits: p. 13 Roberto Salinas,. Next Issee The fl 95i of The Urban Age will beon Best Practices in Urban Mlaagement. I er Issue, the fcs will be on te New Urban Poor. elok forwa tomments and t s o these …THE-, URURe RGEanAge is intedrby September A1995ated G ic sAeehy The E4itor To recet c UrbagrAge,plsawfill&ftt4t4#orrnatipnbelawand return ~Incc,,oonrrecycledppaperuusingsso The Urb nA $,WptfdtMPkC>gt~~~jI%1& H t NW Washington, DC O4~~~ based inks. NAME..I . The Urban Age is ~~~~~~~~~~~~~~~published four OCCUPATION.Li Et&t . j times a year and is ~~~~~~~~~~~~~~~~~~~availab,le to developng counsy sbscribers I ORGA$IZATIO A ...~~...Exnnch .~~I subscribers are charged US$20.00 APDRESS 7.7? VT SpaniulL. .annually. Editorial ~~~~~~~~~~~~~offices are J,.,~~j located at Room 56-065, Thec ... World Bank Group~~~~~~~~~~~~~~~~1, 1818 H Stret, W, ashngtoni, DC A fee ofJSS2itOpe yearWbn ~ buveiopetur~4s4sciter 0433, UA. Fax:202-522-3232; L ... . . . Interndt rmncneilffiworldbank.org~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Llog THE BARON AGE September 1995