Oxford Analytica's 2006 Report on Fiscal Policy Transparency rates Peru's compliance with this standard as "Enacted." A 2004 International Monetary Fund (IMF) assessment acknowledged that Peru had achieved major progress regarding fiscal transparency. A number of laws, such as the Law on Fiscal Prudence and Transparency (1999) and the Law on Transparency and Access to Public Information (2002) give a solid legal basis for fiscal policy transparency. Public access to budget information is especially good, reflected in the Open Budget Project's rating of Peru's performance at 77%, or "Substantial." Among Peru's shortcomings, which are mainly identified in IMF's 2004 assessment, were inadequate clarity and predictability in fiscal legislation, insufficiently detailed specification of the allocation of functions between the government and the rest of the public sector, inadequate resources available for internal and external audits, and the lack of clear assignments of spending responsibilities and revenue sources across the different levels of government. The government of President Alan Garcia has announced plans for increased fiscal decentralization, devolving 180 functions to sub-national governments by 2009. These plans would include substantive transfers of functions and projects. However, the enforceability of such bold proposals could be difficult, given the often low level of technical capacities at Peru's sub-national level.

General Overview

In 2004, the International Monetary Fund (IMF) published its Report on the Observance of Standards and Codes (ROSC) on Fiscal Transparency in Peru. The report lauded Peru for a number of initiatives that had increased transparency in public finance over the year preceding the ROSC, such as improved budget formulation, the introduction of a medium-term budget framework and the greater autonomy of external audits of fiscal operations. Oxford Analytica's (OA) 2006 Fiscal Policy Transparency Report for Peru maintained its rating of "Enacted" for Peru.

Nonetheless, the 2004 IMF assessment noted substantial room for improvement. In particular, the report found that Peru's fiscal legislation was sometimes unclear and lacked predictability; that functions between the government and the rest of the public sector were not specified clearly, that internal and external audits suffered from insufficient resources, and that there were no clear assignments of spending responsibilities and revenue sources between the different levels of government. The 2004 IMF report recommended the design of a more "transparent mechanism of intergovernmental transfers and limits on internal borrowing" (p. 1). In this context, OA reported in its 2006 assessment that, among President Alan Garcia's announcements upon his inauguration in July 2006, he included a plan for increased fiscal decentralization that would entail devolving 180 functions to sub-national governments by 2009. These plans would include substantive transfers of functions and projects but, as the 2006 OA report noted, many commentators were skeptical that the proposals could be implemented. It may take years for Peru to build up the institutional and technical capacity needed at the sub-national level to realize these proposals.

Tamiko Hasegawa's "Open Budget Index 2006: Peru " rated Peru's performance at 77%, or "Substantial." Peru produces six of the seven key documents tracked by the Open Budget Project (Pre-Budget Statement, Executive Budget Proposal, In-Year Report, Mid-Year Report, Year-End Report, and Auditor's Report), and makes all of them available to the public. The sole exception is the Citizens' Budget. Hasegawa's report noted that improvements could be achieved by including information as to whether the auditor's recommendations have been implemented, by providing better public access to fiscal information, and by encouraging public participation on legislative hearings on the budget.

The 2004 IMF assessment recommended increased and more regular publication of information on contingent liabilities and quasi-fiscal operations. In its 2006 report, OA notes several areas of reform activity in 2006, not all of which will have positive implications for fiscal transparency. According to the OA report, the Ministry of Economy and Finance (MEF) was evaluating a methodological framework to better assess contingent liabilities and analyze public-private partnerships (PPPs), and crucial legislative changes concerning state-owned enterprises (SOEs) and public sector procurement were introduced. The 2004 Law of Government Contracting and Procurement was amended in 2006, affecting the evaluation of consulting and public works contracts among other. In the opinion of OA, procurement processes will become more transparent if these changes are implemented.

The National Fund for the Financing of State Enterprise Activity (FONAFE) regulates and supervises SOEs. According to OA, FONAFE issued a Code of Corporate Governance and Code of Ethics in 2006. However, the July 2006 Law to Strengthen and Modernize Petroperu, the national oil company, implied that it would move out from under FONAFE's supervision. OA judged this to be a significantly negative development, reducing the transparency of Petroperu's operations. Lastly, legislation intended to strengthen the Law on Fiscal Prudence and Transparency is under consideration. The 2006 OA report also states that the proposals include a revision of the fiscal deficit target to 1.0% of GDP and improved compliance and monitoring procedures, as well as the establishment of a Committee for the Coordination of Fiscal Policy. The committee would be responsible for assessing budget execution and ensuring compliance with the fiscal program and the transparency law. The IMF's First Review Under the Stand-By Arrangement of 2007 notes that the Peruvian authorities continue working on the most efficient way to strike the balance between necessary fiscal discipline and effective expenditure rules. The IMF staff report noted that "a supplementary budget approved in May modified the 3% real expenditure limit, which now applies to current spending at the central government level, and removed all transfers, providing much needed room for infrastructure spending and strengthening the chances of compliance with expenditure rules" (p. 10).

The 2007 IMF report noted that, in the first quarter of 2007, the consolidated government posted a preliminary surplus of 4.9% of GDP, exceeding the targets under the Stand-By Agreement between the Fund and Peru. In May 2007, two decrees to accelerate the approval of public investment projects and concessions until end-2007 were issued. This acceleration is to be achieved by simplifying evaluation procedures under the National System of Public Investment (SNIP). Furthermore, sub-national governments have also been entitled to use revenues obtained from mining operations in Peru and then transferred to the regions and municipalities, which are usually earmarked for investment in infrastructure or for hiring temporary teachers. The IMF staff notes that "these measures bring some risks to the level and quality of public spending" (p. 7). However, the IMF cited a World Bank study regarding the use of these special mining resources, which noted that the resources transferred to the local regions under the scheme have increased by 1,208% from 2002 to 2005, due to the surge in metal prices. Because many local governments lack the institutional capacity to optimally invest in development, the money often ends up being invested in plazas and bull-fighting rings.

The Principles

Clarity of roles and responsibilities.

EN

The 2006 OA Report on Fiscal Policy Transparency rated Peru's compliance with this principle as "Enacted." The structure and responsibilities of the government are defined in the Constitution. The 2004 IMF ROSC, notes that the legal and administrative framework for fiscal management is fairly comprehensive and public, but is excessively fragmented across non-harmonized legislation. This causes uncertainty and instability. Fiscal decentralization has been high on the government's agenda in recent years. However, as OA has noted, "fiscal decentralization process is poorly conceived and driven by political interests" (p. 364). The 2003 Law on the General Framework for Decentralization has not introduced sufficient fiscal and management planning procedures.

Overall, the budget process is controlled by the MEF, whose Budget Office coordinates the budget documentation. Regulatory and supervisory agencies such as the Central Bank and the Comptroller General are granted constitutional independence. The 2006 OA report asserts that "current institutional arrangements do not fully guarantee this independence in practice" (p. 365). FONAFE, itself under the MEF jurisdiction, regulates and supervises the 35 SOEs and approves their budgets. All its supervised companies are subject to the Law on Transparency and Access to Public Information of 2002. In 2006, FONAFE issued a Code of Corporate Governance and Code of Ethics. OA judges that this "institutional set-up has permitted Peru to develop levels of SOE transparency and corporate governance that are high even by developed country standards" (p. 366). OA notes however that more performance evaluation of the SOEs is necessary.

Open budget processes

CP

The 2006 OA Report on Fiscal Policy Transparency rated Peru's compliance with this principle as "Compliance in Progress." All budget proposals are collected by the MEF's Budget Office, which also regulates the budget process, reviews the execution of the budget, and evaluates the fiscal management performance of all government agencies. OA reports that the Law on Budget Management of the State requires government agencies to conduct their budget process in the context of a multi-annual strategic plan, but this does not usually occur. Enforcing this requirement is the responsibility of the MEF's Office of Multi-Annual Planning, and the office has attempted to improve compliance by issuing new guidelines. OA has noted that performance-based budgeting is under consideration by the government, but since it would require major legislative changes, this is not likely to happen quickly.

The 2006 OA report also noted that there are "well-established assumptions in the budget statement about growth, inflation, exchange rate levels and interest rates" (p. 371). A new feasibility process is being introduced by the government that requires all public sector projects to include a feasibility study as part of the approval process. OA cautions however, that this process will require the dedication of additional resources to project monitoring, because regional projects tend to suffer from reduced feasibility over time. Finally, the IMF's 2004 ROSC observed that "procedures for hiring and remunerating government personnel are opaque and open to discretion" (p. 22).

While the principles and standards of public sector accounting are generally in line with international accounting standards, the 2004 IMF report found that they are not applied consistently in practice.

Public availability of information.

CP

The 2006 OA Report on Fiscal Policy Transparency rated Peru's compliance with this principle as "Compliance in Progress." According to the IMF's Special Data Dissemination Standard (SDDS) website, Peru is an SDDS subscriber and largely complies with it. OA also reports that access to sufficient information on government activities is a Constitutional right of all citizens in Peru, and this right is fortified by the 2002 Law on Transparency and Access to Public Information. The monthly Fiscal Transparency Bulletin contains fiscal data and occasional reports on special or timely issues. The Bulletin also contains a report by the MEF on the fiscal performance of the government. More detailed information on the execution of the budget can be obtained from the Integrated System of Financial Administration of the Public Sector (SIAF-SP). Municipalities are supposed to apply the SIAF-SP system as well, to improve their fiscal reporting, but OA reports that local implementation is proceeding slowly, due to a lack of technological expertise.

The Law on Fiscal Prudence and Transparency obliges the government to disclose its medium-term economic and fiscal policy objectives in the Multi-Annual Macroeconomic Framework. This is published at the beginning of June and includes a technical opinion by the Central Bank. In its 2004 ROSC, the IMF reported that, the General Directorate of Public Credit maintains a database accessible on its website with historic annual data and current quarterly data distinguishing between external and domestic debt, by creditor, currency and interest rate.

Independent assurances of integrity.

EN

The 2006 OA Report on Fiscal Policy Transparency rated Peru's compliance with this principle as "Enacted." Data is collected by the Central Bank in accordance with IMF SDDS standards. Via the SIAF-SP system, the Central Bank and the MEF check fiscal information for internal consistency. Still, the 2004 IMF report stated that although the information presented in various fiscal reports is internally consistent, there are problems in reconciling budget, accounting, and banking data. Reconciliation between the budget and accounting information is not automatic, and is done manually.

The Office of the Comptroller General (CGR), an autonomous legal entity, provides external control of the public sector. The CGR suffered from a reputation of weak independence during the 1990s. The Organic Law on the Office of the Comptroller General strengthened its auditing powers significantly. Nevertheless, OA reports in 2006 that, "doubts remain about its independence when auditing and monitoring public expenditure, and about the actual follow-up and actions that public sector agencies perform as part of CGR's recommendations" (p. 375). The National Institute of Statistics and Informatics is the central statistics organization in Peru.