What happens when you give fiscal power to the people? In 1994 and 1995 Bolivia's national legislature decided to find out. It passed two laws that esentially transferred responsibility for setting budget priorities, deciding on infrastructure investments and monitoring public expenditures from the central government to lower units of government, including the country's 311 municipalities.
The effect of the laws was striking and, in the opinion of many local observers, irreversible. After decades of near total dependence on federal handouts and marginal authority over local decisions, municipal leaders suddenly found themselves in charge of 20 percent of national tax revenues and wholly responsible for all infrastructure related to health, education, culture, sports, roads and irrigation.
Although it is still too early to gauge the full impact of this change, Judith A. Moe, an IDB consultant and Canadian policy analyst, presented an overview of the laws' successes and remaining challenges in a recent seminar at IDB headquarters.
One of the most immediate positive impacts of the laws has been to force a more equitable distribution of government revenues. Before the laws were adopted, 91 percent of so-called "coparticipation" funds (national tax revenues destined for local expenditures) went to the politically influential metropolitan zones of La Paz, Cochabamba and Santa Cruz, while 9 percent went to the rest of the country. Today, those percentages stand at 68 and 32, respectively.
In most cases, the new money has come as a relief to municipalities that had long sought funding for specific infrastructure projects. But many smaller municipalities have been overwhelmed by the sudden infusion of funds. Lacking experienced financial managers and well-designed development plans, some communities have spent money on "vanity" investments such as parks and sports facilities, instead of attending to more urgent educational and production needs. The challenge has been to adapt Bolivia's financial control mechanisms to the country's diverse local conditions and to train municipal officials and workers.
Bolivia's government has responded by expanding programs to train municipal officials and help local governments design coherent development plans. More recently the government has instituted "cofinancing" incentive programs that allow municipalities to obtain additional funds if they can show that a local investment project complements regional or national priorities. Officials at all levels are also debating how to improve the effectiveness of local "Comités de Vigilancia," volunteer bodies that represent local community groups charged with making sure that funds are spent properly and that projects reflect local priorities.