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E-mail: Mfossberg@worldbank.org MANILA, June 14, 2005 – More than ever, the future of East Asian countries depends on the capacity and performance of local and provincial governments, according to a new World Bank report, East Asia Decentralizes–Making Local Government Work, launched today at the EDSA Shangri-La, Mandaluyong City. The book launch took place during a Policy Seminar on Decentralization in East Asia and the Philippines organized by the University of the Philippines-Center for Local and Regional Governance and the World Bank, in partnership with the Department of Interior and Local Government. Over the past two decades, sub-national governments in East Asia have taken on core responsibilities for raising and spending public money and for providing critical services and infrastructure. Decentralization has also unleashed local initiative and energy, with new ways to deliver services to people. With great potential for continued improvement and innovation, the report says, it is essential that decentralization is done right. “Reform is happening rapidly in almost every country,” said Homi Kharas, Chief Economist for the East Asia and Pacific Region. “Demands for government accountability on the local level are on the rise as people look more and more to their local and provincial officials and institutions to improve education, health, and other public services. The key now is to ensure that government delivers for people and for the economy.” The report, which focuses on six countries, notes the differences in the approach to decentralizing government in Cambodia, China, Indonesia, the Philippines, Thailand, and Vietnam. The systems chosen are quite different but with some shared features that the report uses for comparisons. In some cases, like in Indonesia, decentralization was a rapid process or a “Big Bang.” In others, like Vietnam and Cambodia, the process has been much slower. Despite encouraging progress, fundamental problems remain. Across the region, local governments lack the resources and power to fulfill their new responsibilities, and they have few incentives to improve their performance. “Most countries are caught in an ‘institutional limbo’ between the dissolution of old, top-down service-delivery mechanisms and the emergence of still-weak local government structures,” said Roland White, co-author of the report. “A combination of robust political leadership, smart strategic focus, and real technical effort will be required if countries are to make the new decentralized systems effective.” The report suggests that while decentralizing countries need policies and strategies that are appropriate to their specific environments, policy makers can usefully focus on three key challenges. Improving the organization of the intergovernmental system: Subnational governments now have substantial responsibilities, but basic weaknesses in the systems that link the central, regional, and local governments limit their ability to fulfill these responsibilities. In the Philippines and Indonesia, for example, overlaps and conflicts in the roles of various levels of government have diluted accountability for results. To tackle this problem, policymakers can make sure that roles and responsibilities are balanced as well as clearing up rules for functions and finances of different levels of government. Strengthening local and intergovernmental fiscal and financial structures: Progress in this area has been the greatest in increasing the transfers from the central government to the local governments which make up most local government revenue. But these funds are not always distributed fairly, and local governments have few ways of raising money and even less control over funds they do raise. To repair this, policymakers can do a number of things, including making sure that local authorities have incentives to raise revenues and control expenditures. This may spur local government units (LGUs) to capture the 40% of property tax revenue that remain uncollected annually. Developing the functional and accountability systems that make local governments work: Finally, local governments often have flawed functional and financial management systems. Audits are rare, and central control over local staffing, budgets, and pay undermines attempts to devolve authority. Policymakers can work to enhance local accountability through improved monitoring and oversight, both from citizens’ groups and from the top. Improved capacity and stronger systems are also needed. In the Philippines, the Local Government Code of 1991 placed LGUs at the forefront of development and poverty alleviation. “LGUs represent the Philippines’ best hope and potential for the modernization of public institutions and better public services. Effective LGUs create a virtuous cycle of public trust in government service delivery that, in turn, increases public willingness to provide more resources to the government for further improving services,” said Joachim von Amsberg, Country Director for World Bank in the Philippines. “For this to happen at a large scale, however, incentives for performance by local governments should be strengthened. International experiences have shown that the LGU financing system can be used effectively to provide incentives for LGUs to attain better performance. In this area, further reform can bring large payoffs in the Philippines. The regional and international experiences reflected in this report therefore provide valuable lessons for strengthening decentralization in the Philippines.” |
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