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Case Study Central America (Nicaragua and Honduras)

​Local Governance and Public Finances

Capacity Development in local governments

Tegucigalpa, February 2011

Contributors: Rudi von Planta, Mayra Espinoza, Virginia Cordero
Peer-review: Bolivia, Cuba

Video Intro
Have a look at the video intro to get an overview of the case study and its contents

 


 

 

Fact sheet

​Name of project or programmeLocal Governance and Public Finances Program (Regional program in Nicaragua and Honduras)
​Donor agenciesSwiss Agency for Development and Cooperation (SDC)
​SDC project No.​7F-00579.04
​Program/project set-up​Different implementation in Nicaragua and Honduras. (1) NICARAGUA: Contract with government institution to implement capacity building of local governments / with Nica NGO to capacitate local movements and associations. Coordination with Nica municipal association. (2) HONDURAS: Contract with national association of municipalities to implement capacity building of local governments and inter-municipal coalitions / with Hond. NGO to implement social audits.
​Implementing agencyDirect implementation through an SDC management unit
​National partner organisations​Nicaraguan Institute for the Promotion of Municipalities (INIFOM, government), La Cuculmeca(Nica-NGO), Association of Honduran Municipalities (AMHON, non-governmental org.), Honduran Federation of non-governmental organizations (FOPRIDEH, NGO).
​Current phase ​Start: January 2009, End: December 2012

​Budget current phase

(total and main budget lines)

​4.75 Mio. CHF: Main budget lines: (1) Promotion of local governments and municipal associations, (2) Civic participation at local level, (3) Pro-poor-growth (LED): Pilot projects in selected municipalities, (4) Management of program, knowledge management, monitoring & evaluation
​Goal ​The program contributes in Nicaragua and Honduras to the promotion of local development and democratic processes (bottom up).
​Planned outcomes

Outcome 1: Efficient local governments: Improve and promote efficiency in 36 municipalities in (i) tax collection and administration of 15-20%, (ii) quality of expenditure focused on poverty reduction in 90% of the municipalities, (iii) the planning of local investment projects.

Outcome 2: Civic participation: Improve participation of civil society (i) in annual as well as financial planning at local level, (ii) in social audits and (iii) via the strengthening of capacities of local NGOs and movements.

Outcome 3: Pro-poor-growth: Application in selected municipalities of LED-model for sustainable economic growth at local level, focused on poverty reduction.

​Support to: ​
​Local governments’ own revenues ​Yes. Support to tax collection of municipalities. Technical support with hard- and software.
​Intergovernmental Fiscal Transfers ​Transfers from central to local governments are increasing by law in both countries. The program prepares local governments for the absorption of additional revenues.
​Donor grants  Yes. Support of pre-investment to local governments (leverage of 1:10 USD). Starting in 2011: Budget support for local investments
​Borrowing​No
​Capacity Development​Yes. Training of local governments, municipal associations and civil society organizations.
​Geographical coverage​39 municipalities in Nicaragua and Honduras (approx. 800’000 inhabitants), 2 municipal associations (Nicaragua & Honduras).

 

1. Context 

The following study covers two Central American countries, with similar contexts, but yet different at the same time. Although there has been progress made during recent years on State modernization, both countries are still affected by serious democratic structures de-velopment and governance problems, which have affected on the social and economic sphere.
 
These problems have been caused by incomplete democratization processes and continuing social inequality and marginalization models. Besides, high poverty rates  [1] in both countries have a stopping effect on decentralization processes, given the weak institutionalization.
 
The political context has significantly changed in the last few years in both countries. In Nicaragua, Daniel Ortega’s government took office in 2006, introducing new public administra-tion policies with strong emphasis on decision making centralization. This context affects both the decentralization process and the Project developed on the current study. In Honduras, the June 28, 2009 coup d’état left its marks on the destruction of the democratic structure, with a strong society polarization and important delays on nationwide projects implementation.
 
Both countries have relative decentralization processes which began in the early 90’s with the introduction of specific municipal legislations. From that moment, local authorities and mayors could be elected directly. Besides, the municipality  [2] concept was developed, with certain municipal autonomy and the definition of municipal competences (See Annex 1).
 
The mandatory transferring system has been encouraged and reinforced by important finan-cial resources that, along with the legal authority invested on regarding own income raising, it constitutes relevant factors on fiscal decentralization (See Annex 2 and 3). Besides the direct transferring system, municipal resources are complemented with social investments funds (SIF). The transferring funds using is highly sustained on municipal autonomy and oriented to its competences fulfillment, with some basic policies regarding current and capital expenditures, while the SIF are used on municipal-wide investments, with priority on national sectorial objectives.
 
Notwithstanding the lack or no application of effective national decentralization policies stimulated at sectorial level, the lack of coherence on its whole in both countries, or the poor definition of competences, it is clearly stated its important contribution to poverty reduction on rural areas, given the effects that local investment on services delivery produces on rural populations. Nevertheless, the lack of political will at the highest level that may allow the development and implementation of effective policies regarding State de-centralization, and that may translate in an ordered and gradual delivery of competences to the municipality (health, rural water supply, education, tertiary roads, and others) with its corresponding resources allocation, it is still a big challenge in both countries.
 
In this general context, the implementation of the Local Governance Program (LGP) (See Annex Logical Framework) occurs, in an influence geographical area that spans on 20 muni-cipalities located on 2 departments in Nicaragua, and other 20 municipalities on 3 depart-ments in Honduras. The LGP faces different context-derived challenges, such as:

(i) The centralization trend and the existence of new municipal organization and participation structures in Nicaragua;
(ii) Fiscal and politically weak central government in Honduras and possible default on trans-fer increases, due to lack of public liquidity;
(iii) Insufficient institutional capabilities on municipalities in both countries;
(iv) High rotation on clerical staff after municipal elections in both countries, and therefore, the loss of knowledge and experiences, as well as discontinuity on processes and projects. Nevertheless, in the case of Honduras, the Municipal Civil Service Law was approved in 2010, which promotes work stability according to staff development, and its implementation is yet another challenge for the municipal sector;
(v) Unclear financial regulations with low projection from the Ministries of Finances, particu-larly in the case of Honduras;
(vi) Incipient institutional development on different aspects of municipalities’ competences;
(vii) and, not having and professional qualification system, typical of the municipal clerical career.

Nevertheless, the LGP doesn’t pretend to overcome all the context challenges, it aims to mi-nimize its risks and to produce important changes on the directly benefited municipalities, which were selected according to poverty criteria. The program favors the capabilities de-velopment for own and external resources management, improving its efficiency and transparency, as well as the application of citizen participation and fiscal accountability (social auditing / social control) mechanisms.
 
Besides, the program aims to influence on public policies, collaborating with the entities responsible of municipal transfers (Finance Ministries) and decentralization policies (Interior Ministries) as well as those who have an effect on these matters, such as the Honduras Mu-nicipalities Association (AMHON). Last, the program introduces innovative approaches such as “Local Economic Development” and “Budget Support for local investments” in order to promote decentralized structures.
 
The widening of the municipal fiscal effort, along with the investment resources raising in or-der to improve population services in a sustained and participative way, are some of the ac-complishments we wish to present in the current Case Study, and that allow to understand that transferring delivery do not produce fiscal dependence on municipalities, when there is a strategy to raise greater resources in order to meet populations demands.

2. Activities and approaches

The Local Governance Program (2005 – 2008) results show the contribution it made to the municipal financial sustainability, by significantly supporting the own resources generation, the external investment funds leverage and the improvement on services delivery. These produced a positive response on tax payers, improving the municipal participative budget, gender approach, municipal partnership, standing out results detailed as follows:

        • In the case of Nicaragua, when the Program started, taxes and services resources collect-ing was very low, mostly due to, among other factors, to the lack of a land registry database for the application of the real estate taxes, which was installed with Program support. This has resulted in duplicating resources collection, going from C million in 2005 to C.5 million in 2008, and reaching C$ 87 million in 2009, (C$ 20 = US$ 1)
        • Investment funds leverage (in a US$ 1 to 13 ratio) by having a portfolio with over 100 projects with Pre investment Study;
        • Improvement in municipal services coverage and quality: between 12-20% on prioritized services. The program prioritized three and up to four key services:
                • a. Solid waste gathering and treatment.
                • b. Municipal markets and slaughterhouses
                • c. And if the municipality manages the urban water supply system, it also prioritized it.

 
The Program’s starting reflection came around the following points: 

        • Municipalities grew institutionally and expanded its supply capacity with competences, on its powers and functions, as well as its resources  [3], emphasizing on the need to promote a budgetary dynamic based on demand and effective resources allocation.
        • Municipalities now have the methodological tools and mechanisms to know its poorest populations demands, and the services and investment requirements in favor of the local economy.
        • The need to strengthen transparency and social and institutional control over local public resources was acknowledged.
        • An increasing process was begun on the national budget resources delivery to those muni-cipalities which required greater capabilities for operation and quality management.



The Local Governance Program capabilities’ approach:

 
Considering problems not only focused on the lack of resources, even though transferring started to partially solve these deficits, but also on the lack of capabilities, the LGP aim fo-cused on strengthening these with a results-based management.
 
For these, a process was conceptualized which is very similar to the NADEL produced logic (concept paper), focused on institutional processes (inside/municipal management). Never-theless, minimum results were established for municipal management, as well as possible results (outside) which are expressed in the following figure:

 


This local management results logic made the Program focus its efforts on strengthening the staff, organization, processes and systems capabilities in order to reach the following key results:

          • Increase on municipal incomes, particularly on own incomes which forces to widen the mu-nicipal tributary effort;
          • Municipal resources allocation equality, efficiency and effectiveness;
          • Quality and opportunity on goods and services delivery, as well as resources and territory regulation;
          • Widening citizen and communitarian participation on local management;
          • Coordination, agreement and association levels between municipal stakeholders in order to reach local development.

Capabilities were strengthened along with the delivery of resources for:

          • Municipal resources increase, mainly based on the land registry development/record and maintenance, as well as the effective tax management strengthening, including updating financial management systems;
          • Means and resources provision for municipal public resources delivery, as well as its regulation, customer satisfaction and positive answers capabilities;
          • Pre investment and support studies for investments, creating an external resources leve-rage fund.
          • Participation and citizen information promotion mechanisms, strategic planning capacities, municipal budgets fiscal accountability, and public management social auditing/control;
          • The strengthening of municipal collectiveness in Honduras promoting the Common-wealth figure based on a national strategy led by the AMHON in order to favor scale economies and joint solutions to common problems. Likewise, in the case of Nicaragua, work was done with the Municipalities Departmental Associations on territorial manage-ment and ordering topics.

The change hypothesis was based on:

  1. Increasing the capacity to generate and obtain greater internal and external incomes,
  2. Having an investment Project portfolio to leverage external resources and,
  3. Improve municipal services coverage and delivery by promoting citizen participation mechanisms,

-> Positive effect would be produced on services Access and local empowerment which would translate into better quality life conditions on rural populations, local institutional environment and local sustainable development.
 

3. Experience regarding implementation of support strategy

The support strategy was based on providing continuous follow-up on the resources collection, and services delivery and allocation. This was supported by a learning process based on practice and results achievement, for which diverse instruments were used. Among those instruments were:

  1. Introducing municipal strengthening on municipal planning, (PFIM);
  2. Having based-on-results learning instruments duly certified by national systems, which would also be attractive to participants;
  3. Evaluate reached performances with incentive mechanism;
  4. Strengthening municipal collectiveness;
  5. Designing citizen social auditing tools;
  6. And, building strategies for special transversal subjects such as gender and gover-nance, a learning community.

These processes came along with funds provided by the Project for land registries develop-ment and tributary census, pre investment studies, improvements on municipal services, and citizen participation on consensus budgets and social auditing.
 
Next, two fundamental instruments are described:

Linked-to-Results Learning Methodology (LRLM) Implementation
The LRLM is both a strategy and a methodology adopted to improve the program perfor-mance on municipalities. It allows, through knowledge acquiring and technical assistance, to support institutional processes on the obtaining of previously agreed results. It also encou-rages horizontal learning by grouping local institutions managers and staffs, and motivating the local public administration improvement. It was designed by GTZ.
 
The methodology was bases on three areas of municipal management: land registry, tributa-ry management and municipal services. In each municipality, a local-level multidisciplinary team was formed, as well as networks between the above mentioned specialty areas, creat-ing a knowledge management based on mutual learning, horizontal with the achievement of the goals defined on the planning stage.
 
The process was made of seven (7) managerial topics events, of specialized subjects on the areas for results achievement, as well as a technical assistance and processes implementa-tion process. It also measured obtained results on reached media, developed processes and achieved results.
 
Such process was certified by Nicaragua’s National University, as a college short course, achieving a participation of 57 technicians from 22 municipalities across the country, and through it, a good performance against national average was achieved.
 
This experience’s basis was replicated in Honduras for its implementation through the Tribu-tary Management and Administration Course, which is currently in process. Topics such as land registry development, tax payers’ registration and generally, the whole implementation of a financial management system were approached. Besides, this methodology has been used in Nicaragua by the Municipal Development National Institute (INIFOM), as a tool which allows guaranteeing the local governments transfer nationwide. 

The Municipal Performance Acknowledgment System (SIRDEM, Nicaragua) and the Local Governance Indicators Measurement System (Honduras)
SIRDEM was created under GTZ, INIFOM, SDC and AMUNIC (Nicaragua’s Municipalities Association) leadership. This process consisted on the performance measurement of all the areas on municipal management and transversal topics, becoming a positive comparison between different performance categories and municipal responsibilities areas. The system is based on promoting municipalities to reach their highest performance stan-dards encouraged by the acknowledgment desire and the existence of their informed communities, as well as for the established rewards.
 
Honduras’s Local Governance Indicators Measurement System, managed by AMHON, and has been created to promote a positive comparison dynamic between municipal administra-tions in order to encourage reaching higher performance on selected variables which define a “Good Government”.
 
Both system had as purpose to clear municipal management, strengthen the citizen evalua-tion culture of local governments, spread better practices, promote performance and streng-then citizen co-responsibility, mainly.
 
Not all support strategies were defined at the beginning of the Program, some of them, such as training, had a more traditional approach, tools used by all institutions to reach local level, that in practice, have been producing certain saturation.
 
This was mainly due to the fact that until Phase III of the LGP, the direct implementation with municipalities was intensified, and also the region and municipalities’ knowledge deepened. It was imperative to deepen quality management, the context analysis, and the risks and dif-ferentiated capability between municipalities in order to build support strategies for the Pro-gram, considering all these factors. Generally, results are satisfactory, but vary widely be-tween different municipalities, depending on a group of factors.
 
One of the important aspects to consider is the meeting of different logics at local level where, undoubtedly, different interests, reality interpretations, purposes and experiences converge, as well as others, defined by logics such as politics, technical, population’s routine. Also the local / territorial logic which many municipalities and its team act with, many times structured in order to attend multiple functions. Besides, political logics on both levels are also involved in the institutions’ diverse interests. To consider them and complement them for the capabilities strengthening and development is deeply important. 
 

4. Lessons learnt

After the evaluation, a new phase was designed. Widening the program’s support towards other municipal competences such as municipal territory administration with a pro-poor ap-proach was considered key. This improved the program’s focus. The following objective was developed: “Municipalities with an improved capability to drive its economic and social devel-opment effectively, with a pro-poor, participative and gender-equal approach”.
 
The Program’s support, focused on the capabilities development, adds value to the process, in four different ways:
 

  1. Adding quality on expenditures to the incomes increase. It was not about creating more resources but to be more effective on its allocation.
  2. Make citizen and vulnerable groups participation more effective, and increasing it oriented on the Municipal Budget.
  3. Promoting pro-poor growth and economic local development
  4. Strengthening the national institutions’ appropriation.

As well as the effects were better defined:

        • Greater population access to public services (transportation, communication, energy, health, education, water and sewage) is allowed through the support to pre investment and financing mechanisms, as well as the using of focusing tools.
        • Greater citizen participation, incidence and co responsibility on local administrations de-cision making produce improvements on local investment and public services supply;
        • Better dynamic on value and local economy chains is possible under a local government’s effective leadership.

 

Success Factors:

        • Agreement between the Program, partners and municipalities to focus efforts on key subjects. For example, improving own incomes collection; as well as its allocation and usage (quality on expenditure). The aim was to support municipalities to improve its ans-wering capability towards population;
        • The improvement on public goods and services’ offer, through investments on in-frastructure, financed by leverage resources. This allowed certain increase on in-vestments, and strengthened public and private stakeholders’ action on the municipality, and with it, the arrival of additional investment resources;
        • The relationship between local government and organized population created bonds which allowed the establishment of mutual trust, transparency and agreement;
        • The results-based capabilities development approach allowed municipalities and or-ganized population to have adequate knowledge, methodologies and instruments which would allow them to increase efficiency and effectiveness on generated resources.

These municipalities’ successes are the result of their coordination capacity, as well as the convergence of different institutions and organizations, from central government with its investment funds, to the Municipal Development Institute (Nicaragua) and different NGO’s and external cooperation programs. 

In the case of Honduras, it is worth to mention the work that AMHON has been doing nation-wide, in order to strengthen municipal management capacities through the promotion of a municipalities Commonwealth strategy, which offers a favorable environment for the devel-opment of programs and projects like LGP. However it’s also important to notice that a capa-ble and transparent municipal administration on resources management and using is an im-portant factor for the achievement of results as the ones promoted by the LGP.  

 

Critical Factors:

        • The complex political environment and polarization, particularly in Honduras, have affected the dynamics started with the population and local government administrations, affecting tributary management. Obviously, this brought consequences not only to the own resources management, but also to the central government transferring, which are key on the municipal services’ supply.;
        • Electoral processes and transitions between local governments took at least six (6) months to stabilize municipal administration, and on many occasions, changes are made on trained staff, as well as on the continuity of supported projects and processes;
        • The handling of different interests on participative systems, that many times turned out to be inevitable, due to the political exercise of local authorities or because of the in-troduction of new citizen participation systems, as in the case of Nicaragua with the cur-rent administration’s new model;
        • Institutional restrictions on national and local organizations’ capacity, which limit their timely implementation capability of the processes collection generated by local dynamics, as well as its continuity and replication in other municipalities;
        • The risk analysis’ lack of practice, as well as not including a effects-reduction approached management;
        • The lack of effects’ measurement on municipal administration and development indicators which can state out the importance of municipal management.

 

5. Conclusions

        • Partly, the Program’s effect are due to having a offer combination or mix between re-sources to widen own financial resources, a pre investment fund, municipal services supply, support to population to participate in public decisions making through a collection of tools that improve municipalities’ capability. Accomplishments could have not been achieved only with a resources-products approach, without learning or capabilities’ improvement. Or oppositely, only offering knowledge and technical assistance without re-sources delivery to municipalities to allow them to increase their answering capacity.
        • Other result was the effort concentration on key subjects like municipal incomes collec-tion. The own resources increase is highlighted because of the achievement of very tangible results, such as better balance to cover up expenses, local resources leverage, financial markets and / or public investment resources Access. It strengthens not only the managerial but also the political autonomy, and mainly, it creates a new fiscal space, with potential to move forward on the decentralization process.
        • Likewise, having a pre investment fund that provides quality to the investments manage-ment as well as allowing external fund resources leverage and improving negotiation ca-pabilities turned out fundamental on the application for tendered resources and other do-nations with local level interest.
        • The improvement on goods and services supply produced a synergy effect on population, because collecting taxes which are invested on improving services promotes citizen cre-dibility and positive answers towards public administration, if we considered that on the supported municipalities, there is no tax payment culture.

 

 

Footnotes                                                                                                                                                                              


[1] Nicaragua and Honduras belong, after Haiti, to poorest Latin America and the Caribbean countries group. The 2009 GDP per capita was US$ 1,080 in Nicaragua and US$ 1,740 in Honduras. Approximately, poverty rate in Nicaragua was 45.8%, and 50.7% in Honduras. ( back to text )

[2] In both countries, territories are divided in departments and municipalities (Nicaragua has 153 municipalities and Honduras has 298), with the sole difference that Nicaragua has the Autonomous Regions on the Caribbean Coast. ( back to text )

[3] Based on the incremental application of the tributary incomes %, that the pertinent policies established regarding transfers to municipalities (Nic 2005, Hon 2009). ( back to text)