Jonas Frank, Sr. Public SEctor Specialist, The World Bank

1. Public Investment in Latin America:
Five Lessons
ICGFM Conference
December 2011
Jonas Frank
Sr. Public Sector Specialist
The World Bank

2. Latin American countries invest below the
world average…

3. … and much less compared to fast-growing
economies like China and India …

4. … and there is significant variation across
countries in the level of investment spending
GDP
Source: CEPAL (2011)
4

5. Lesson 1: Need to overcome isolation of
management systems
(financial management and public investment)
Country Interface IFMIS vs SNIP Single project code in IFMIS
Brazil yes yes
Colombia yes yes
Chile yes yes
Costa Rica no no
Guatemala no no
Honduras yes yes (social investments)
Paraguay no yes (in execution stage but not
at pre-investment level)
Perú no yes
Bolivia no yes
Uruguay no yes
Source: IDB Survey 2009-2010 and World Bank

6. Coverage of information systems is uneven
• Colombia
• 100% of central government investment
• Less for subnationals (no full data)
• Dominican Republic:
• 90% of central government investment;
• Subnationals part of the system only as of 2009
• Peru:
• Central level: 80% (2009)
• Regions: 97%
• Municipalities: 76%
• Mexico:
• 76% of federal investments (2009)
• Guatemala:
• 48% of central government

7. Case of Bolivia: system overlaps and gaps
Level of Information Public Investment Cycle
government System
Formulation Budgeting Execution Monitoring Evaluation
SISIN web
SIGMA
SPI -MOP
Central
Aplicativo MMyA
SAP - FPS/FNDR
Aplicativo - VT
SISIN web
Departa- SIGMA
mental
SGP
SIGMA local
SISIN web (GM)
SIGMA (GM)
Municipal
SGP
SIGMA local
Source: World Bank

8. Improved information flow in Colombia:
systems cover all steps of the investment cycle
Formulation
BPIN
SIGOB
Evaluation Budget
Programming
Monitoring Execution
SPI SIIF Source: SUIFP - DNP
Other countries are trying other solutions:
• Interfaces: Honduras (SIAFI/SIGADE/SISPU/DEI/BANCO CENTRAL)
• System Integration: Costa Rica (ERP)
• Reducing parallelism: Discussions in Bolivia (SISIN-SIGMA)

9. Lesson 2: Decentralization without planning
and coordination can lead to fragmentation
• LAC is the most decentralized region in the developing world
• Expenditure decentralization is particularly deep in public investment

10. Level of decentralization in public investment
(Country samples)
Brazil Uruguay Bolivia
(2008) (2011) (2010)
Central level 17% 47% 40%
Subnational Governments 30% 18% 31%
Public Enterprises 53% 35% 29%
Total (in percent) 100% 100% 100%

11. Responsibilities are often unclear in the take-
off period of decentralization
• Complex concurrent assignment of expenditures in
the social sectors. Example:
• Human resources: national
• Planning: regional
• Infrastructure: municipal
• Network responsibilities often in flux:
– Roads: reassignments
– Water: fragmentation
• Regulatory uncertainty in the network sectors:
– Incentives for cost-shifting
– Obstacles for private investment (Brazil: water)

12. Trend of project fragmentation in the absence
of planning and coordination
National Government
Regional Government
Example of Peru
Municipal Government
19,798 18,891
13,299
7,186
1,332
3,190 2,837 3,072
1,022 2,035 2,816
1,505
2,142 1,885 2,319 2,321 2,409
1,183
2004 2005 2006 2007 2008 2009
Source: SNIP

13. Few countries have effective coordination
mechanisms among levels of government
• Latin America’s backlash to planning
• Does planning occur through public investment?
• Platforms for coordinated subnational planning and budgeting
– Chile: “Programming Agreements” (“Convenios de Programación”) at
the deconcentrated regional level
– OECD countries:
• France: Contrats de Plan Etat-Région
• Germany: joint tasks
• Spain: agreements (“convenios”)
• Coordination within central government:
– Mexico: “Infrastructure Cabinet” led by Presidency

14. Lesson 3: Differentiated approaches to cater to
heterogeneous needs and levels of capacity
Number of local governments has increased significantly: weaker capacities
Often cumbersome national systems:
• Procurement
• HR
• Financial management

15. Resource abundance has challenged execution
rates: uncovers institutional shortcomings
El Salvador: Planned and
executed public investment, Peru case
2006-2010 (in million US$)
Blue: planned budgets
Red: executed budgets
16,000 16,000
Millones
Millones
14,000 14,000
12,000 12,000
10,000 10,000
2.5% PIB
2.9% PIB
2.5% PIB
2.6% PIB
8,000 8,000
2.3% PIB
6,000 6,000
4,000 4,000
2,000 2,000
0 0
2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
Source: Dirección General de Inversión y Crédito Público, Local Governments
PIM Gobiernos Locales Ejecutado Regional Governments
PIM Gobiernos Regionales Ejecutado
Ministerio de Hacienda, El Salvador
Source: SNIP, Peru

16. Catering to different capacities:
emerging approaches
• Pre-investment
• Differentiated by sectors
• Subnational government
• Co-financing as means of institutional strengthening
without micro-management
• Special arrangements for poverty-stricken areas
• FONIPREL mechanism in Peru

17. Lesson 4: Quick-gain strategy can prove effective. Focus
on the low-hanging fruit but with a strategic view.
Procurement can provide high returns on efficiency.
Quick-gains strategy in Mexico: focus on high expenditure areas
400 Hidrocarburos
($228/537)
About 90% of
360
investment is
320 concentrated in three
sectors:
280
61% hidrocarbon, communi
(376 mil millones de pesos)
Monto Asignado en 2009
240 cations/transport and
electricity
200 Medio Ambiente
($11/176)
SCT Salud
160 15% ($64/1,683) ($10/175)
Impartición de Justicia
($7/52)
120 17%
Electricidad Fomento
46% ($40/450) ($6/146)
80 11% Educación
($5/190)
12% Seguridad Nacional
40 ($4/76)
Ejecutivo Federal
($3/161)
0 1,000 2,000 3,000 4,000
Número de Proyectos
(3,652 proyectos)
Fuente: Subsecretaría de Egresos de la SHCP/ Tomo VII PEF 2009 / Análisis Deloitte 17

18. Nicaragua: Procurement Module is critical for
monitoring physical and financial execution
Pre-
investment
system
• Monitors execution in two moments: at
the award stage and during execution of
contracts
“Project • Execution is monitored based on contract
Bank”
programming and milestones
Monitoring Pro-
System gramming
Source: SNIP Nicaragua

19. Lesson 5: Strengthen the demand side…
• Interactive tools open to citizens and
users
• Geo-referencing
• Expenditure tracking
• Benchmarking
Source: MIDEPLAN, Chile

20. …and in parallel also strengthen “gate-keeping”
functions
20