SIAF Guatemala Final
IMPLEMENTING INTEGRATED FINANCIAL MANAGEMENT SYSTEMS
AS INSTITUTIONAL REFORM:
THE CASE OF GUATEMALA´S SIAF
Richard J. Moore
July, 2000
Prepared as part of the World Bank study on Comparative Efforts in the Implementation of Integrated Financial Management Systems in Latin America. Prepared for the Poverty and Economic Management Division, LAC.
Implementing Integrated Financial Management Systems
as Institutional Reform:
The Case of Guatemala´s SIAF
Introduction
As has been noted in numerous sources, Guatemala´s Integrated Financial Management System (SIAF) is a relative success story of both design and implementation. While it is too early to render a definitive judgement on the overall success and sustainability of the effort, it appears clear to this author that SIAF is here to stay, the institutional changes that have already occurred are irreversible, and that the technical sustainability of the major subsystems that have been implemented have transformed financial management in the country permanently. The Bank-funded Integrated Financial Management Projects (I & II) in Guatemala have been recognized as important examples of successful IFMS implementation and were awarded the 1999 World Bank President´s Award for Excellence. The recent Implementation Completion Report for IFMS I (February, 2000) notes that, from a technical standpoint, the establishment of an integrated financial management system has been satisfactory or highly satisfactory in most of the major subsystems that form part of the system:
¨ the institutional structure of public financial management, including both the legal and regulatory structure and the administrative procedures and structures in the target agencies of the central government, have been strengthened and the achievement of these changes would appear to be irrevocable;
¨ the budget system in both formulation and execution has become an effective tool for planning and programming in the central Finance Ministry and in most line ministries;
¨ the accounting system provides a common accounting framework on both a cash and accrual basis for all ministries and has allowed both a real time information base for recorded transactions and an effective means for internal control;
¨ a modern cash management system has resulted in the reduction of untimely payments, provides a means for reducing/eliminating "floating debt" for Treasury to control receipts, and has led to the reduction of the multiplicity of Government cash accounts;
¨ transparency and timeliness in transactions have improved the quality and efficiency of cash programming, and have contributed to a new credibility in Government finance;
¨ significant progress has been made in the modernization of the procurement system and the linking of procurement to other modules or subsystems in the financial management system;
¨ while the development of the debt management system has lagged considerably, initial design of linkages to the basic modules of budget, accounting, and cash management are in process;
¨ less successful has been the development and integration of the auditing system, and the institutional reforms necessary for modernizing the Contraloría General de Cuentas, yet even in this area significant beginnings can be noted;
¨ initial actions to develop and integrate administrative modules (SIAD) for procurement, inventories, and human resource management hold great promise for the extension of the linkages of SIAF to other management information systems;
¨ the parallel development and modernization of the tax system (SAT) and its integration with public expenditures offer Guatemala for the first time an ability to program expenditures on the basis of identifiable revenues;
¨ the number of competent and trained technicians in the management of SIAF, and by extension the financial management of Government, has increased dramatically, with the training of more than 9,500 civil servants in the use of the system;
¨ the success of SIAF´s implementation is more than a story of successful reform of information systems at the central finance ministry as SIAF has allowed the successful decentralization of financial decision-making and management to line ministries;
¨ the implementation of SIAF has contributed significantly to a revolution in the modernization of organizational culture and behavior in significant parts of the central government -evident in Finance but also in key line ministries- a modernization process that is likely to be sustained even in the face of dramatic shifts in the political order with the recent national elections and change in Government; and finally,
¨ the success of implementation is more pronounced given the initial context in which these reforms were introduced and the relatively short time frame for this implementation.
And the list could go on. In the course of this paper we will discuss these and other advances in the implementation of Guatemala´s Integrated Financial Management System. However, the story of SIAF in Guatemala is more than a technical success story. It is a story of an approach to public financial management that aims to introduce institutional reform through the introduction of improved information systems linking the various stages of public financial management from a relatively narrow accounting perspective. It is also the story of the forces and actions that came together to provide the basis for a successful case study in the implementation of reform.
Finally, by examining the record of Guatemala´s implementation of SIAF, we hope to gain insight into those factors that have supported the introduction of significant changes in budgetary and financial management outcomes at three levels. As is noted in the World Bank´s Public Expenditure Management Handbook, theory and practice show that a country’s institutions - both formal and informal - have a decisive influence on budgetary outcomes at three levels. At one level, the introduction of institutional reforms in public financial management aims to improve aggregate fiscal discipline and planning and the traditional control functions of public expenditure management to establish budget parameters. At a second level, these reforms aim to improve the planning function of public expenditure management through improvements in the capacity to allocate resources in accordance with strategic priorities and baseline data from prior expenditures and revenue patterns. While budgeting can be seen as a technical exercise, ultimately it is the expression and platform for political decision-making over the utilization of scarce resources for selected priorities. Finally, in a more narrow sense, reforms aim to improve a management and accounting function, the effective and efficient use and monitoring of resources to achieve strategic priorities.
Thus, a useful purpose of this paper is to respond to the following questions: To what degree has the implementation of SIAF and complementary reforms improved the budgetary outcomes at all three levels? How have overall macroeconomic planning, priority setting, and budget execution and control improved as a result of the implementation of SIAF. What (technical, administrative, economic, political, and social) factors help to explain both the success of implementation and the improvements in outcomes? To understand the sustainability of reforms all three levels of budgetary outcomes need to be considered in the context of the broader political, social, and economic environment.
What explains the successful execution of Guatemala´s SIAF? In accordance with Terms of Reference (TORs), the objectives of this paper are twofold:
1. to assess the extent to which the IFMS projects have contributed to improving broader institutions of Guatemala’s public expenditure management system, in terms of their impact on changes in procedures and behaviors of public officials dealing with public expenditure management, and;
2. to identify factors that have facilitated the successful implementation both in terms of broader political and social factors that generated and sustained the demand for and commitment to the reform and of micro bureaucratic factors that permitted the new system’s implementation.
To answer these questions and to achieve these objectives, the paper is divided into four sections. First, it is imperative to understand the context of reform initiatives: how did the pre-existing public financial management system perform and what were the critical weaknesses in the system? Second, the processes of design and implementation of the particular system adopted in Guatemala proffer insight into the reasons for success. Third, how has public financial management and bureaucratic behavior changed as a result of the implementation of reforms? Finally, what are the prospects for sustainability and what key lessons can be drawn from the Guatemalan experience?
One of the principal arguments of this paper is that while the Bank´s approach to the design of the integrated financial management system in Guatemala and the technical expertise applied both to design and implementation are significant factors in success, they are not the most significant. Rather, the real success of the implementation of SIAF in Guatemala resides in several complementary factors, including the following:
¨ A cohesive and committed political leadership within Guatemala that provided strong support for the program and which continued throughout the life of the implementation of the initial project (1996-1999). Strategic policy making during the period increasingly demanded that public expenditures and reliable monitoring of those expenditures focused on a clear social agenda. Key line Ministries also provided significant support to the agenda of reform, if not always to the specific instruments of public financial management. The legitimation of this Executive and Legislative leadership found significant impetus and stimulation from the need to implement monitorable actions specified in the Peace Accords;
¨ If the political leadership faltered in the course of establishing policy, the backdrop of demands of the social agenda (Peace Accords) served as the forum for linking policy making to establishing strategic priorities and managing the use of resources for the achievement of specific outcomes;
¨ Parallel to the reforms in public financial management, there was a strong and continuous push toward Modernization of the State. Ironically, the push for State Modernization from line ministries, and the relatively narrow focus on administrative reform by the Government´s Presidentaial Commission for Modernization of the State, never interfered with nor created alternative agendas for actions to promote financial management reform. No mixed signals nor alternative focus of resources affected support for implementation of SIAF;
¨ Strong, if not always technically convinced, political leadership within target line ministries: Health, Education, Communications and Transport, Agriculture. The desired devolution of the public financial management system was facilitated (in the first instance) and eventually and aggressively pursued by both the political and technical leadership in these line ministries. The goals of devolving programmatic decisions to line ministries with clear resource bases in the context of an effort to exercise fiscal restraint met the requirements of SIAF and the stated strategy of decentralization and deconcentration of the Government;
¨ The existence of a fresh and continuous technical leadership to carry out the implementation of public financial management reform. This technical leadership emanated from the Bank and key consultants contracted for designing and implementing SIAF, from within the higher levels of the Ministry of Finance, from key second level technical leadership within Finance, and eventually from technical leadership in several line ministries;
¨ The decision to build a cadre of technical expertise within the Ministry of Finance (first) and then to expand the trained human resource base quickly and effectively to line ministries. The emigration of qualified technical personnel from Finance to line ministries in technical leadership and operational positions proceeded rapidly;
¨ A willingness to build small in terms of the scope of public financial management reforms yet with a similar willingness to impose system wide decisions that affected the speed and scope of implementation. The approach to SIAF in Guatemala was to introduce the system in the three basic modules (budgeting, accounting and treasury) with minimal lag time between their introduction, and in all line ministries without parallel systems that often produce confusion and disorder. This was possible because of the growing maturity of IFMS´ and the new information technologies offered by the Internet;
¨ A results-oriented approach that emphasized the need to produce outcomes in a relatively short period of time. The initial and dramatic results of the implementation of SIAF were felt within the first year of full implementation;
¨ The positive and aggressive role of the Bank, and the existence of the Bank as the sole provider of technical assistance throughout the period provided for continuity and singular direction to the implementation of the project and the reforms. While in other IFMS contexts, joint agency participation (IDB, USAID, World Bank) may have served well, in the Guatemalan context the existence of a sole provider of technical assistance seems to have reduce difficulties in project management and offered this continuity and singularity of direction; and finally,
¨ A willingness to assure that the implementation of SIAF was contextual, in line with both the Government´s overall policy agenda and with efforts to modernize the State.
The Context of Reform: Public Financial Management Prior to SIAF
To suggest that a system of public financial management existed in any integrated fashion even at the central Ministry of Finance level prior to 1996 would be an exaggeration. In fact, a more accurate description of the status of public financial management would be "chaos". But in many ways this was deliberative chaos because the "system" provided a feudal array of insulated fiefdoms, each with the capacity to generate its own internal power structure and able to reward and penalize under rules of high discretion at the operational level.[1] The shortcomings and weaknesses of the system read like a "to do" list of public financial management. Prior to 1996, public financial management and the key institutions and agencies involved were characterized by an operating system and organizational culture that encouraged the persistence of centralized, vertical, patrimonial, unconnected and non-transparent fiefdoms incapable of establishing fiscal discipline, priority setting and planning, or effective management and monitoring of action.
¨ Few links existed among policy making, planning and budgeting. At the same time, there existed fewer links between the process of budget formulation and budget execution, and no effective means of evaluating budget outcomes. While line ministries might be involved in the process of bottom-up establishment of sectoral priorities (usually simply in terms of funding last year´s programs) in fiscal terms, limited access to central finance decisions as to the actual budget has always meant "ask for the max and expect the worse." Perhaps worse, the pressure on spending (immediately) by line ministries was high because budget cuts, uncertainty in revenues, and high discretionary power in the Ministry of Finance meant that one could never be sure nor could one plan effectively.