Implementing Regulatory Impact Analysis in the Central Government of Peru

Executive summary

Regulations can have a positive or negative impact on the performance of an economic sector or economy. A specific regulation can open or close markets, can promote the elimination or creation of monopolies, can raise entry barriers, or can reduce or boost incentives for innovation or entrepreneurship. It is therefore important to review and improve the process of issuing regulations, to ensure that they are fit-for-purpose, that they will effectively address the policy problems that gave rise to them, and that their goals contribute to social welfare and inclusive growth.

This review looks at how the use of regulatory impact assessment (RIA) can help make the process for issuing regulations in the central government of Peru more efficient and effective. RIA helps improve the decision-making process that defines the rules. It also makes the agency issuing regulations aware both of the problem that needs to be addressed, and of the different ways to solve it. In addition, RIA considers the financial sustainability of implementing a regulation or, in other words, whether its costs will be lower than its benefits. RIA thus provides a method of analysis based on evidence and empirical information that helps improve the quality of rules issued.

This review documents and evaluates the process followed by the following five ministries to issue regulations during the 2014-16 period, and compares it to the most relevant RIA practices in OECD countries:

• Ministry of Economy and Finance

• Ministry of Environment

• Ministry of Production

• Ministry of Transport and Communications

• Ministry of Housing, Construction and Sanitation

It also looks at the legal and institutional framework put in place by Peru to issue regulations and evaluate them ex ante. OECD recommendations regarding RIA form the baseline for the review.

Main findings

• In recent years, the Peruvian government has implemented a series of measures to improve the quality of regulations. However, within the public administration there is no horizontal policy for the adoption of an ex ante evaluation system that assesses impact and regulatory quality.

• An important step is the recent creation of the Regulatory Quality Analysis system, which creates an ex ante evaluation system of the administrative procedures for drafting regulations. Its implementation means the first systematised process in the Government of Peru to evaluate the impacts of new rules. By focusing only on administrative procedures, the scope of the Regulatory Quality Analysis does not match that of an AIR system, in which the regulations are comprehensively evaluated.

• The recent creation of a committee composed of the Ministry of Economy and Finance, the Presidency of the Council of Ministers, and the Ministry of Justice and Human Rights, in charge of a pilot programme of ex ante evaluation through simplified RIA, is promising. The committee, however, has no legal basis, and has not produced any guidance for ministries or government agencies on carrying out RIA.

• Within the five selected ministries, the process for issuing regulations is virtually the same. The most important exception was identified in the Ministry of Environment, which carries out a deeper consultation process that observes good RIA practices.

• The process to issue regulations is not standardised, because it does not have a specific regulatory policy instrument that supports it.

• It is evident that within this process there is no formalised oversight or accountability regarding the way in which a regulation is issued, at least from a whole-of-government approach.

• Initial efforts have been made to carry out a cost-benefit evaluation of regulations, but much remains to be done to systematise and improve the quality of the exercise.

• Public consultation on proposed regulations is used only intermittently. Moreover, there is no legal obligation to reply to public comments, nor to show that the proposal was modified as a result of the consultation.

• The activities carried out by the Ministry of Environment during the consultation are the exception, and include creating a matrix of comments, meetings with the public, and redrafting the regulatory proposal.

Main recommendations

• Establish a binding legal instrument stating the obligation for ministries and government agencies to carry out an ex ante evaluation of regulatory proposals, and make public consultation an essential element. The issuance of Legislative Decree 1448 is an encouraging development in this direction because it establishes as an instrument of regulatory quality the analysis of ex ante and ex post regulatory impact.

• Give legal status to the committee comprised of the Presidency of the Council of Ministers, the Ministry of Economy and Finance and the Ministry of Justice and Human Rights in charge of the simplified RIA pilot programme.

• Define a list and/or criteria for those regulatory proposals that will be exempted from RIA because they do not have any impact on regulated parties.

• Issue guidance on the simplified RIA currently used in the pilot programme.

• Consider establishing an oversight body that concentrates most, if not all, of the regulatory policy activities and tools currently spread across several ministries, agencies, and offices. This oversight body should have legal capability and the necessary resources to carry out an active enforcement of activities, while overseeing overall regulatory policy, including the authority to return draft regulation when the defined criteria are not met.

• Issue an RIA manual, which includes a standardised process for the consultation stage of the regulatory proposal with the following characteristics:

  • The regulatory proposal and the corresponding RIA should be made available for consultation by the public for a minimum of 30 business days.

  • Regulated parties should be able to comment on both the regulatory proposal and the RIA.

  • Ministries and agencies that issue regulations must reply to all the comments and, at the end of the process, issue a document summarising all comments received and the actions that will be taken to address the relevant ones.

• Establish at least two types of RIA, one for high-impact regulatory proposals, for which a thorough and in-depth impact analysis must be carried out; and another, less substantial, analysis for the remaining proposals. In this report, model processes are suggested for the issuance of regulations according to the type of RIA.