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«Social Funds and Reaching Proceedings from an international workshop organized by the Poor The World Bank and Experiences and AFRICATIP La Red Social de ...»

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Observers also express concern that social fund implementation through private contractors, NGOs, and community groups undermines public sector reform. Privatizing social services, in particular, risks their sustainability unless state responsibilities and roles are clearly spelled out. In cases such as Guatemala and Bolivia, limited integration with national and regional planning lead to the development of parallel bureaucracies. For example, schools were built with no teachers to staff them. Because provisions for operation and maintenance after financing are often inadequate, evaluators also indicate that the useful life of the physical infrastructure created by some social funds may be shortened by inadequate provisions for operation and maintenance.

NGO-Bank Dialogue: Shared Concerns and Differing Perspectives More than 50 social funds have been initiated since the first was approved for Bolivia in 1987.

The wealth of experience represented in these lending operations has been tapped by Bank staff 176 Original Workshop Papers to continue to evolve fund policy and practices through internal reviews, negotiations with borrowing governments, and dialogue with NGOs at the national, regional, and global levels.

An overarching conclusion of experience to date is that it is extraordinarily rich and diverse, reflecting local differences, as well as changes in the original model itself.

Two broad questions underlie the debate concerning social funds:

• To what extent are social funds fulfilling their goals and functioning according to their essential characteristics?

• To what extent are social funds an integral component of national and social development policy?

This element of debate centers on operationalizing social funds more effectively. Targeting the funds better, ensuring sustainability, preventing politicization, and streamlining subproject implementation are high on the agenda of project officers and involved NGOs. Opinions differ on the extent to which funds fulfill their potential as anti-poverty instruments. NGOs critique fund operations on two dimensions. First, they question the fundamental premise that a culturally sound, politically legitimate, or developmentally appropriate social fund can be designed without civil society participation at all stages and levels of decisionmaking. They seek social funds governance structures that are accountable to the interests of affected people. NGO and community participation needs to be incorporated into the social funds’ national decisionmaking bodies. At the local level, strengthening intermediary institutions that can assist the democratic process and the inclusion of underrepresented groups is essential.

Second, NGOs are pressing for more attention to (a) capacity building of local institutions, (b) projects promoting productive economic activity and human capital development over emergency measures, and (c) community-government institutional arrangements capable of sustaining social and economic programs over the long term.

Specific changes in social funds policy and management flow from these perspectives:

• One-third of a social funds board should be nominated by NGOs, popular organizations, and community-based organizations.

• Governments should publish development plans for areas that are receiving social funds funds.

• Open, publicized community meetings should be held to select projects that will become social funds applications.

• Social funds should provide technical assistance and financial resources to help communities to develop proposals for social funds projects. This started taking place in Guatemala after the Center for Democratic Education critique of 1994.

• All contractors should hire local, community workers for a fixed proportion or type of job, and women should share equally in employment opportunities.

• Bidding systems for social funds should include the following aspects: (a) approved projects should be part of a local development strategy, not atomized and unsustainable small projects, (b) priority should be given to projects that seek to modify structural causes of poverty, not only immediate problems, and (c) national publicity of bidding should be assured.

In claiming the right and necessity of civil society participation in determining policy for social funds, as well as in operations, NGOs further assert that there should be dialogue on a second basic question: To what extent are social funds an integral component of national and social development policy? In this arena, NGOs typically question the extent to which social funds are linked to long-term economic policy and the relationship between short-term social fund investments and long-term strategies in the social sectors—health, nutrition, education.

They also raise questions about the nature of policymaking itself.

Social Funds: An Expanded NGO Critique 177 Independent analysts, NGOs and NGO consortia, are making a variety of recommendations

at a higher level, among them, the following:

• Social funds should not be developed independently from public social programs;

complementarity of social targeting and universal coverage should be maintained.

• Definitions of poverty used by social funds should be reviewed, taking into account not only income and satisfaction of basic needs, but also exclusion, gender and ethnic rights, human rights, and legal protection.

• The World Bank should develop a specific participation strategy for social funds that guarantees the participation of NGOs and people’s organizations in all stages of design and implementation of social funds.

World Bank perspectives tend to focus on operations—how to ensure or improve the performance of social funds. Staff are in a steep learning curve in the design and management of decentralized, demand-driven projects that require community-level participation for success;

but the institution’s development paradigm does not yet include social development as a legitimate element. Therefore, social funds are peripheral rather than essential to mainstream Bank lending. A presidential Social Development Task Force established in 1995 to define a broader development paradigm has experienced substantial resistance to the notion that social aspects are essential to the Bank’s model. However, as World Bank staff and national governments define long-term development policy through country assistance strategies, the larger role of social funds in terms of national policy needs to be examined. Growing openness by the Bank and the growing participation of civil society in the policy analysis and dialogue leading up to country assistance strategies may expand opportunities for this debate to unfold.

As a relatively new intervention addressing overwhelming poverty, social funds are engaged in a learning process. Social funds do seem to fill the vacuum left when adjustment mandates have obliterated government social spending, or when the existing bureaucracy lacks the infrastructure, capacity, or credibility to meet the needs of the poorest citizens. Their noted flexibility should serve them well in this regard, but beneath their participatory veneer lie serious questions about their scope and mission and the ultimate contribution social funds can make toward poverty reduction and sustainable development. Hopefully, an informed dialogue between all social funds stakeholders will lead to new innovations and steps that will ensure broader participation in designing social funds and make development more equitable and sustainable.

Such a dialogue might also lead to innovation beyond the social funds themselves. As microcosms of three related issues—popular participation, state reform, and social aspects of the development paradigm—social funds provide an experimental base that can inform broader World Bank reform.

Social Investment Funds, Local Governments, and Communities in Central America by Patricia de Jager, Director, Federation of Municipalities of Central America, Guatemala Introduction The Central American municipality has evolved during the last decade. Today the municipal government is a product of popular elections. The local democracy demands perfection, and in this sense it is necessary to complement the representative democracy with participatory democracy. Thus, citizen participation is indispensable in strengthening the municipal government.

Presently, citizen participation is expanding within the existing legal framework, and, as new legal reforms are introduced, the community can channel its demands and actively participate in its own development. The social investment funds (social funds) can contribute to the strengthening of local democracy by linking local government with the community. In this way they can guarantee a municipality with the capacity to respond to citizen demands and with the willingness to share the costs of social investment. To bring about efficiency, social funds should coordinate actions with institutions of the central government and with municipalities.

They could help municipalities to improve the cadastre, improve their collection capacity, revise tax rates, and improve the efficiency of collection. They could also support and facilitate training for municipalities to enhance their administrative, technical, and managerial skills.

The Federation of Municipalities of Central America (FEMICA) has asserted that modernization of the Central American state requires the integration of municipal government within a comprehensive national framework for development, wherein the municipal government takes responsibility for development of its community.

Central American municipalities are characterized by their economic disparities; the majority are rural with high poverty indices. Development strategies need to recognize that 70 percent of the population of the region is poor. The only partner of the central government that can generate its own resources for investment is the local government. The local tax rates in the region are some of the lowest in relation to gross internal product. The rates in Guatemala and El Salvador are 0.1 percent and 0.2 percent; in Costa Rica, Panama, and Honduras, 0.4 percent,

0.5 percent, and 0.8 percent, respectively. Nicaragua presents an exception with a tax rate of 2.1 percent. This presents another great challenge: to generate new local taxes and to increase local revenues that will strengthen internal savings in order to capitalize social investment.

If tax collection were improved, if the property tax base were strengthened by including all taxable property in its system, and if municipalities were able to revalue and reassess property values and collect more realistic property taxes, their revenue resources would be higher. Local

180 Original Workshop Papers

governments could then contribute significantly to the cofinancing of social funds projects, thereby becoming important players in local development in their jurisdictions. It is important to emphasize that transfers from the central to the local government should be direct, punctual, and automatic. This would allow the local government to include these resources in their planning for investment projects. The poorest municipalities that depend on rapid transfers would benefit the most.

Social Funds and Local Governments The sustainability of projects supported by social funds are at risk because of a lack of resources for operation and maintenance. Communities cannot be held exclusively responsible for this shortcoming. Not all municipalities can be exclusively responsible for local development. Many municipalities do not have a suitable environment for economic development, which leads to low tax revenues. Nor can many communities pay for basic services; they often need to be subsidized.

Any strategy promoted by governments should be directed mainly toward the support of municipalities that have the potential to undertake their own development, so that in time, they can aid weaker municipalities in replicating their success. In the meantime, appropriate creative mechanisms for the redistribution of revenues should be established to aid the weaker municipalities, as is done in Costa Rica, where 8 percent of property tax revenues are redistributed among the poorest municipalities.

Another mechanism that can help to compensate imbalances is for poor and better-off municipalities to cooperate in the provision and sharing of certain services, such as supply systems for drinking water and solid waste collection and disposal, as well as in sharing administrative systems when the poorer municipalities lack management capacity for administration.

It would be useful to examine the viability of involving social funds in the support of productive projects, especially in the poorest countries. The emphasis should be on enabling people to achieve adequate agricultural production at least for their own sustenance if not more, and perhaps also on creating and supporting microenterprises. Social funds could also stimulate the creation of new enterprises that use locally available raw materials and that generate employment for the local people. Finally, incentives are the most important element in achieving participation of the local government and its people in area development processes.

A series of meetings were convened in Central America to discuss the roles and performance of social funds to identify specific actions for the future. One such meeting took place in El Salvador from April 14 to 17, 1997. The general findings of the participants are listed in the following paragraph, after which is a proposal, developed at the El Salvador meeting, for the creation of incentives in partnership with social funds.

Findings of the Meetings in Central America on the Roles and Performance of Social Funds

Following are some common problems related to social funds:

• The relationship of social funds to municipalities and communities is still vertical.

• The emphasis is on the quantity of actions instead of their quality.

• Although citizens participate in the identification stages of a project, there is little participation during the design, implementation, and evaluation stages.

• There is little investment in the training of beneficiaries to operate and maintain the infrastructure that has been financed.

• Municipalities that can govern and bring about consensus in decisions about local development have inadequate resources and technical capacity for such investments.

Social Investment Funds, Local Governments, and Communities in Central America 181 Proposal for Strengthening Community Participation If the management and accounting processes for external financing of projects were simplified,

municipalities could train communities in resource management and could strengthen community participation in the project cycle. Social funds could do the following to help communities and municipalities take ownership of projects:

• Use criteria to allocate resources instead of project menus

• Simplify project manuals

• Give resources to municipal governments and to communities for hiring contractors, purchasing materials, and so on to strengthen their supervision and technical capacities

• Entertain requests for projects that emanate directly from communities supported by municipal governments

• Allocate financial and technical resources for the preinvestment phases of projects to strengthen communities and involve them in project processes

• Decentralize the operations of social funds to autonomous and independent organizations that have the functional authority and the necessary resources to make local decisions.

FEMICA’s Seven-Step Proposal for a Partnership with Social Funds to Strengthen Municipalities In analyzing the performance of social funds in the region and considering the perceptions and views of mayors and specialists, presented here is FEMICA’s seven-step practical proposal to promote a better relationship between municipalities and social funds, with a gradual transfer of responsibility to municipalities. Some elements have been drawn from the experience of the Honduran Social Investment Fund, because it is the only social fund that has been working with the local government.

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