OECD Public Governance Reviews: Paraguay

Pursuing National Development through Integrated Public Governance

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OECD Public Governance Reviews

3 July 2018

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Chapter 4. Multi-level Governance in Paraguay: reinforcing the territorial dimension for a more strategic administration

Abstract

This chapter provides an overview of current political, administrative and financial situation of Paraguayan subnational governments and the main multi-level governance mechanisms in Paraguay. The first section presents an overview of subnational capacities in the context of Paraguay’s decentralisation process, highlighting the existence of fiscal and public management challenges, while the second section focuses on the existing mechanisms for multi-level co-ordination. It assesses the National Development Plan as a planning instrument for multi-level governance and territorial development. The chapter formulates recommendations to implement decentralisation and multi-level governance reforms through a comprehensive and integrated approach.

Introduction: A small country where significant regional disparities persist

Paraguay is a heterogeneous country in terms of development, regardless of whether it is analysed from the economic, social or territorial dimension. As explained in Chapter 1, Paraguay is divided into 17 departments and 254 municipalities plus the city of Asunción, the Capital of the country and independent from any Department. Under Paraguay’s constitution, only the central government and Municipalities have administrative decision-making responsibilities.

As in most LAC countries, there is a large population disparity between the capital and the rest of the country (as shown in Figure 4.1) where Asunción and the Central Department concentrate over 37% of the population of the country, while departments such as Alto Paraguay and Boquerón display the country’s lowest population levels with a low density of 0.65 pers./km2 or 0.2 pers./km2 respectively (Figure 4.2).

As described in Figure 4.1 and Figure 4.2, the majority of the population lives in urban areas (56.7 per cent), yet the country displays a low population density overall (general population density averages at 17 pers. /km2); its population is unevenly distributed in the East (the so called Oriental Region), with the urban area of Asunción being the most densely populated department with 4499 pers. /km2. Despite representing 60% of the country’s total surface area, the Western Region (Chaco Paraguayo), only houses 2,6% of the population with 0,5 pers./km2, whereas the Eastern Region concentrates 97,4% of the country’s population with 31,5 pers./km2.

Figure 4.1. Population per departments (2015)

Figure 4.2. Population and density per departments (2015)

Driven by sustained economic growth, Paraguay has significantly reduced income inequality over the past decade. The GINI coefficient has dropped from 0.531 in the year 2006 to 0.478 in 2015 (DGEEC, 2017), which is slightly above the average value in Latin America of 0.469 (ECLAC, 2017) and relatively high compared to the OECD average of 0.317 (OECD, 2017d).

According to 2016 data, rural poverty (39.72%) is almost double that in urban areas (21.94%) (DGEEC, 2017b). This disparity is aggravated in the case of extreme poverty, where in rural areas (12.17%) the figure is almost 7.5 times higher than that of urban areas (1.63%). Poverty rates also differ significantly across Paraguay’s 17 departments. Elevated poverty rates are prevalent in Caazapá (55.78%), followed by Concepción (49.97%) and San Pedro (48.07%), while Asunción exhibits a poverty rate of only 13.35% and the Central Department of 16.45%. The departments of Asunción, Canindeyú and Presidente Hayes display some of the country’s highest inequality levels, with Gini coefficients at 0.530, 0.564 and 0.592 respectively (see Figure 4.3), surpassed only by the department of Boquerón with 0.631.

Figure 4.3. GINI, unemployment and poverty in departments (2016)

To understand these territorial disparities and regional challenges, it is important to analyse the current institutional framework and capacities of the Paraguayan administration at the subnational level, its dynamics as well as the political and administrative relationship between the central government and the subnational governments. In this regard, the first part of this chapter analyses the current political, administrative and financial situation in Paraguay’s subnational governments in the context of the country’s decentralisation process. The second part focuses on the main multi-level governance mechanisms, assessing, inter alia, the National Development Plan as a planning instrument for multi-level governance and territorial development.

Subnational competencies and fiscal framework

An historically centralised country moving toward decentralisation

There is no a universal consensus on decentralisation or an optimal multi-level governance structure. The nature and scope of decentralisation approaches depend on the complex relationship between levels of government in which historical, political and economic factors play a crucial role (OECD, 2017c). Paraguay has been characterised throughout its history as highly centralised, both politically and administratively, a characteristic that was intensified during the 34 years of Alfredo Stroessner's dictatorship (IIG, 2003). Any analysis must take into consideration that, in comparison with other Latin American countries, the Paraguayan decentralisation process is relatively new, since it only began after the return to democracy in 1989.

Since then, Paraguay has made substantive efforts to improve the efficiency of the provision of local services as well as to enhance transparency and accountability by pursuing a strategy to increase political, administrative and fiscal decentralisation.

The first significant step toward political decentralisation, understood as the devolution or transfer of powers to democratically elected local authorities, came with the democratic transition and the reform of the Electoral Code in 1990, which led to municipal elections in 1991. The 1992 Constitution enshrined Paraguay’s form of government as a unitary and decentralised republic, created the entity of the Department Governments (Departamento) as an intermediate tier of government, recognized the political, administrative and legal autonomy of departments and municipalities through the direct election of their governors and majors, and established municipal financial autonomy.

The second great advance was related to the transfer of administrative responsibilities, particularly to municipalities. In this context, Paraguay's multi-level governance system can be described as an "hourglass" (Figure 4.4), meaning that the intermediate tier of government, represented by the departments, has less attributions compared to the highest tier, the central government, and the lowest tier, the municipalities (OECD, 2017).

Figure 4.4. Paraguay’s multi-level governance system

The current political and administrative configuration of Departmental Governments was created by the 1992 Constitution. Their establishment tracks the trend observed in OECD countries over the past decades, the reinforcement of the ‘regional’ or intermediary level, whether through the creation of new administrative regions or planning regions (OECD, 2017c).

Departments have the primary responsibility of co-ordinating policies and services, both between the central government and the municipalities as well as between municipalities. Their tasks range from providing common departmental services that affect more than one municipality, such as public works, drinking water or energy provision, to promoting inter-municipal cooperation. However, in doing so their capacities are quite limited. Departments are not autonomous and cannot collect taxes, as they were created to play a facilitation role in territorial planning and inter-municipal co-ordination. The revenues they receive originate from transfers of taxes collected by the central government and municipalities, as well as from resources obtained through transfers granted from royalties from natural resources, or compensation for the construction of the Itaipu and Yacyretá dams.

The 1992 Constitution establishes that the government of each department shall be headed by a governor and a departmental council (Junta Departmental). They are elected for a five-year mandate by direct vote in elections coinciding with the presidential elections. However, the Constitution also states that the governor represents the central executive branch in the implementation of national policies. This constitutional provision generates practical institutional and policy challenges in Paraguay, since governors are simultaneously accountable to their electors and to the national government. This tension significantly affects the performance of departments, particularly in situations where the governor does not belong to the same political party as the sitting President.

Municipal governments are composed of a mayor and a municipal board elected by direct suffrage for a mandate of 5 years, not coinciding with the mandate of the executive and legislative branches. They have financial autonomy with the power to set local taxes and borrow from credit markets. However, as explained in the next section, the largest share of their revenues is transferred from the central government.

The Municipal Organic Law No. 3966 of 2010, which replaced its 1987 predecessor legislation, introduced important advances in terms of administrative decentralization, giving municipal governments competencies related to:

service delivery such as urban planning, environment, education, culture, sport, tourism, health and social assistance, credit institutions, inspection and police bodies;
the administration and allocation of their resources;
municipal budget setting;
issuing regulations and resolutions;
access to national and international private and public credit;
the regulation and control of transit and public transportation and other matters related to vehicular traffic

By decree 3250/2015, Paraguayan municipalities are divided in four groups according to fiscal capacity. This classification determines the number of councillors to be elected by municipality. In light of their size, larger municipalities, such as Concepción and Ciudad del Este are part of group I. Smaller municipalities, such as Tavapy and Ybypyta belong to group IV.

The fiscal decentralisation challenge

How public services and goods are funded, and how mandates and funding are allocated between levels of government, are central elements of effective multi-level governance (OECD/ECLAC/CIAT/IDB, 2017). However, fiscal reforms are difficult to design and implement and therefore, tend to be the “weak link” of multi-level governance reforms in OECD countries (OECD, 2017c).

In Paraguay, prior to the return to democracy, municipalities were not allowed to receive financial transfers from the central government: their budgetary resources depended entirely on local revenues, which were severely limited and could not be adjusted for inflation (ID, 2015). For this reason, the 1992 constitutional reform was a great advance in terms of fiscal decentralisation, since Article 169 transferred the competence to collect urban and rural property tax to municipalities and allowed them to retain 85% of their revenues. However, the country continues to face serious challenges when it comes to implementing these fiscal prerogatives.

The share of subnational spending in general public expenditures cannot measure fiscal decentralisation as an indicator by itself, as other factors such as subnational government discretion over the budget are also central to measuring fiscal autonomy (Blöchliger, 2013). That said, this indicator give us a hint that the transfer of capacities since 1992, and more particularly since 2010, has not yet led to a significant increase in fiscal decentralisation. As can be seen in Figure 4.5, after a substantial increase on subnational spending between 2010 and 2011, from 4.9% to 8%, probably as the outcome of the Municipal Organic Law, in 2012 the value has dropped and remained relatively low, reaching 6.4% in 2015, well below the OECD average (40.3%), even when compared to OECD unitary states (28.7%) (Figure 4.6).

Figure 4.5. Paraguay Public Expenditure (Million guaranis and percentage of total public expenditure, including Municipalities)

Figure 4.6. Subnational government expenditure as a % of total Public Expenditure in OECD countries and Paraguay (2015)

As in most of LAC countries, the fiscal decentralisation process in Paraguay occurs mainly through public expenditure instead of income (OECD/ECLAC/CIAT/IDB, 2017). In this connection, the way subnational governments finance their spending responsibilities is a key concern for the country. OECD experience shows that this is achieved through three mechanisms:

Generation of own resources, whether taxes or other non-tax revenues (royalties, municipal taxes, rights, etc.);
Intergovernmental transfers; and
Debt

Paraguayan municipalities face important challenges in generating their own resources. This can be explained in part by a lack of capacity on the part of subnational governments to collect tax revenues, a common challenge in most Latin American countries. According to the OECD Revenue Statistics in Latin America and the Caribbean 2017 (OECD et al., 2017), for the 14 LAC unitary countries with available subnational data in 20141, the attribution of municipal tax revenues as a share of total tax revenue was of 2.69%. This low figure shows that subnational governments in LAC unitary countries tend to have responsibility over only a narrow range of taxes compared to OECD unitary countries, where the average is of 11.4%.

As in the rest of LAC, with the exception of Costa Rica, El Salvador and the Dominican Republic, property tax revenues represent the main own-source revenues of Paraguayan municipalities (Nickson, 2016). Other own-source revenues include driver's licenses, transfers fees for real-estate and land transactions, and commercial patents. But these taxes only have a significant impact in the wealthiest municipalities such as Asuncion, Ciudad Del Este and Encarnación.

Paraguayan municipalities are the only tier of government that collects property taxes, which represent 0.3% of the total GDP, way below the OECD average of 1.9% and the LAC average of 0.8% (OECD, 2016). Municipalities retain 70% of the revenues collected from this tax. The remaining 30% is transferred to the Central Government’s Ministry of Finance, which redistributes 15% to the respective department.

According to Rosales (2012), the reasons for this low tax-collection performance in LAC countries at the local level are three-fold:

Limited willingness on the part of national and local governments to expand municipal tax-collecting mandates;
The existence of transfer and distribution mechanisms that discourage local collection, and
Lack of capacity and infrastructure in local administrations to collect and manage tax revenue.

Evidence gathered during the fact-finding mission suggests that Paraguay encounters similar challenges:

According to statements by officials, both at the central and at the municipal levels, many mayors prefer not to engage in tax collection in order to avoid potential conflicts with key stakeholders, notably important landowners;
Government officials also underscored that current policy on fiscal transfers discourages municipal-level tax collection; and
There is a significant skills and technological deficit at the local level to carry out this task, especially in municipalities in groups III and IV.

Two additional country-specific challenges can be highlighted in the case of Paraguay:

First, there are historical challenges concerning land registry and municipal boundary definition, which have constituted a barrier to the collection of municipal taxes. In this regard, the Ministry of Finance is spearheading reforms to assist municipalities in modernising their land registry records, in order to increase local tax collection rates.
Second, an important absence of systematic and on-time information constitutes a barrier for design and effective implementation of municipal revenue-generating capacity. As Gómez Sabaini and Jiménez (2011) argued, Latin American countries have been working with a broad definition of subnational resources, since there is a combination of the three aforementioned sources (generation of own resources, intergovernmental transfers and debt) without having the necessary information in all cases (2011). In the case of Paraguay, as they are autonomous entities, expenditures from municipal governments are not integrated into the central government’s Integrated Financial Administration System. However, municipal governments are legally obliged to send written reports on municipal finances for each budgetary cycle to the Ministry of Finance, but the process of collecting and processing municipal information is not yet automatic and the presentation of this information is usually delayed. Therefore, the Government does not possess comprehensive, systematic and automatic financial data on municipalities which would enable the generation of comparative analyses on, for instance, differences between municipalities own revenues, intergovernmental transfers and other sources of revenues such as debt as a percentage of GDP. In this regard, Paraguay should consider establishing a more dynamic and integrated system to collect and analyse this information in a systematic way, to better understand the financing options available to these jurisdictions beyond the predominance of central government transfers, and to develop and implement policy and fiscal decentralisation strategies based on reliable data-driven evidence.

Royalties and FONACIDE: the key role of inter-governmental transfers

With the exception of major districts, the vast majority of Municipalities is not in a position to carry out its functions autonomously. The large majority of the resources are administered directly by the central government, and in most cases without the need to consult or coordinate with departmental or municipal governments (Government of Paraguay, 2017). In general, municipalities can finance modest tasks, such as street paving, waste collection, bus stations, markets, squares and parks and in some cases social assistance. Most of them spend the lion’s share of their revenues on administrative costs (salaries/wages, etc.). The Government of Paraguay estimates that this figure amounts to a whopping 90% of municipal budgets in many cases (Government of Paraguay, 2017).

Therefore, as in most OECD countries, intergovernmental grants constitute a key tool for the Paraguayan government to finance subnational spending and implement national policies. However, its governance is complex, and practices vary widely across OECD member countries (OECD, 2006)2. In Paraguay, transfers to subnational governments come from the following sources:

Allocations and grants from the National Treasury, which are transferred only to Departments.
15% of the Value Added Tax (VAT) that is collected in each Department, which are transferred only to Departments.
Royalties from the Itaipú dam from the use of the hydraulic potential of the Paraná River, and compensations from the Yacyretá hydroelectric plant, for the flooded territories in the Paraguay River, and
Gambling levies.

Additionally, special transfers are provided to specific subnational governments, such as compensation to Municipalities in the Canindeyú Department for the disappearance of the Saltos del Guairá waterfalls as a consequence of the Itaipú dam’s construction.

Figure 4.7. Evolution of National Transfers to Departments and Municipalities 2013-2016 in millions of Guaraníes

Paraguay does not have a fix revenue-sharing model for municipalities, common in most Latin American countries. Instead, in Paraguay, the central government mostly transfers earmarked grants (grants that can only be used for a specific purpose) for infrastructure projects. These grants originate exclusively from royalties and compensations derived from the binational entities Itaipú and Yacyretá and can be grouped in two categories: Royalties and the “National Fund for Public Investment and Development” (Fondo Nacional de Inversión Pública or FONACIDE for its acronym in Spanish). In the case of Royalties the resources must be used for infrastructure projects, in the case of FONACIDE, for (primary) education infrastructure and school lunches (Box 4.1).

Box 4.1. Paraguay’s National Fund for Public Investment and Development (FONACIDE)

FONACIDE is a development fund created by Law N° 4758/2012 to allocate rationally and efficiently the income that the country receives as compensation for the cession of the energy of the Itaipu Binational Entity to Brazil.

The fund focuses on the areas of education and scientific research, investment in infrastructure, health and credit. It can only be used for investments in infrastructure, technological and human capital and is coordinated by the Ministry of Education and Sciences.

FONACIDE resources are distributed as follows:

28% to the National Treasury.
30% to the Fund for Excellence in Education and Research.
25% to departmental and municipal governments (20% for departments and 80% for municipalities).
7% to the Financial Development Agency (AFD).
10% to the National Fund for Health.

Transfers to Departmental and Municipal Governments

One quarter of FONACIDE’s funds are transferred to departments and municipalities for the following purposes:

50% to infrastructure projects in primary education (construction, remodelling, maintenance and equipping of educational centres).
30% to school lunch projects.
20% to public investment and development projects.

The transfer of these resources is done as follows: 50% are distributed equally between jurisdictions, and 50% are allocated according to the population of the jurisdiction. Within these parameters, the specific projects to be carried out in departments and municipalities are identified and assigned through a micro-planning process. This is a highly relevant practice, involving municipalities, educational establishments and other stakeholders, and consists on a technical assessment process of infrastructure or educational needs. Through micro-planning, each department and municipality proposes which schools should benefit with improvements in infrastructure or with funds for school lunch.

The micro-planning process consists of the following phases:

Phase I: Departmental educational diagnosis.
Phase II: Identification of requirements and reallocation of resources.
Phase III: Allocation of resources.
Phase IV: Evaluation.

For its implementation, the Ministry of Education and Science has specialized personnel to provide technical support (engineers and nutritionists). In addition, the government has issued manuals for microplanning.

The government has also developed the site "Comptroller FONACIDE", (http://fonacide.mec.gov.py/contralorfonacide/), an open government tool that allows citizens to be informed about the programme, and in particular, to control the status of educational establishments prioritized by micro-planning.

Sources: Government of Paraguay (nd) Contralor de FONACIDE, http://fonacide.mec.gov.py/contralorfonacide/ ; Investigación y análisis de FONACIDE en Paraguay (nd) http://analisisfonacide.ceamso.org.py/index.php/acerca-de/

Treasury transfers to subnational governments represent about 4% of total public expenditure. With the exception of transfers from the Treasury to departmental governments, these are distributed as follows: 50% are distributed equitably between jurisdictions, and 50% are allocated according to the population of the jurisdiction3. Such a methodology does not include socio-economic indicators such as tax-collection performance, poverty rates, unemployment or relative service needs/gaps, thereby ultimately benefiting large municipalities, perpetuating and accentuating regional disparities. In this regard, Box 4.2 provides some information concerning the experience of OECD countries in developing vertical equalisation mechanisms that the central government could consider to reduce regional disparities (OECD et al, 2017).

Box 4.2. Overview of fiscal equalisation systems in OECD countries

Equalisation mechanisms are extensively used in OECD countries, introducing either vertical transfers (from the central government to financially weak subnational governments) or horizontal transfers (from wealthy jurisdictions to the poorer ones). Not only federal countries but also unitary countries have put in place equalisation procedures as a key part of their fiscal policy. Across the OECD, fiscal equalisation transfers average around 2.5% of gross domestic product (GDP), 5% of general government spending and 50% of intergovernmental grants. The differences in per capita GDP across jurisdictions results in unequal tax-raising capacities and, thus, differences in public service provision. In addition, the cost of public services is another factor that leads to unequal public service provision: special groups such as children, the elderly, the disabled, etc. will raise the cost of public services and geographical factors (mountains, islands, isolated or low density areas, etc.) will also have an impact on the cost per service unit.

Equalisation arrangements can hence be broken down into revenue versus cost/charges equalisation. While the former aims mainly to reduce differences in tax-raising capacity, the latter reduces the cost of providing public services. Most OECD countries apply various equalisation arrangements, although the combination of vertical and cost equalisation tends to be prevalent.

Across OECD countries, equalisation has a strong redistributive effect: on average it reduces pre-equalisation disparities by more than two-thirds and, in some countries – such as Australia, Germany and Sweden – revenue-raising disparities are virtually eliminated. Equalisation mechanisms should be tailor-made for each country. Fiscal equalisation depends on a set of institutional factors such as size and number of subnational governments, their geographical distribution, spending assignments and fiscal resources allocated to each jurisdiction, among others.

Although equalisation is now recognised as a necessity in a growing number of countries (and in certain countries such as Canada, Germany, Italy, Spain and France where it has constitutional force), it is often the subject of technical and political debate, and is often contested.

This is particularly true for horizontal equalisation, which limits local autonomy. Rules and criteria are constantly being adjusted. Debates have taken on greater importance with the crisis and as territorial inequalities deepen. Many reforms have been implemented recently or are ongoing in the OECD including a component aimed at improving equalisation mechanisms.

In France, the main general purpose grant (Dotation Globale de Fonctionnement - DGF) for Municipalities and inter-municipal co-operation bodies is being reformed. The goals of the DGF reform include greater simplicity, transparency and equity and to adapt the DGF to the territorial reform. In fact, the DGF’s architecture comprises a great number of components and distribution criteria based on charges, resources or specific constraints, which make it particularly complex and opaque. Its redistributive function could also be improved given the marked disparities between Municipalities in per capita DGF that are not justified by objective resources/charges criteria. Finally, the reform aims at encouraging pooling of services. This reform is also a chance to assess and revise other existing equalisation mechanisms, with the aim to make the whole system more coherent and to increase horizontal equalisation. In 2015, the vertical equalisation tools represented almost 80% of the amounts devoted to equalisation. Horizontal equalisation was introduced recently by the 2010 local finance reform, which established new fund mechanisms: the equalisation fund for inter-municipal and municipal resources (or FPIC), which is the most horizontal instrument (it aims at redistributing 2% of tax revenues in 2016), the departmental fund of equalisation of revenue from the transfer tax on property transactions (droits de mutations) and the Equalisation funds of the revenue from tax on businesses’ added value (CVAE) for the Departments and regions.

In Sweden, a new audit of the equalisation system – already revised in 2005 – has been entrusted to a parliamentary committee in 2008 to find out if there were any growth-deterring factors linked to the equalisation system. The review led to several measures adopted in 2012 and 2014 which finally benefited the subnational governments with the highest revenues (reform of the equalisation rate on tax resources and of the cost equalisation grant to simplify the evaluation of cost disparities and increase transparency). Since 2015, new measures are on-going to correct this situation.

Source: OECD (2017b), Making Decentralisation Work in Chile: Towards Stronger Municipalities, OECD Publishing, Paris; OECD (2017), Multi-level Governance Reforms: Overview of OECD Country Experiences; OECD (2016c), Territorial Review of Peru; OECD (2013), Fiscal Federalism 2014: Making Decentralisation Work

Vertical equalisation mechanisms can be integrated into a comprehensive decentralisation strategy, focused on equitable regional development as a key variable in the design and implementation of national territorial development policies. In this regard, the current multi-governance system could be enhanced within the framework of an integrated, strategic decentralisation strategy that is linked to equal and sustainable regional development and that reflects the need for capacity-building at the subnational level, notably with respect to public management.

The management challenge: strengthening skills and management tools at the subnational level

As explained in Chapter 5, one of the main multi-level governance challenges that Paraguay faces, and which was raised during several interviews with Government of Paraguay officials as the main barrier for effective decentralisation, is the lack of public management skills and administrative capacity at the subnational level. Public servants are paid less than their counterparts in the central government. Indeed, the most skilled officials usually move to the central government after some years, aggravating the situation in Municipalities.

The lack of skills at the local level affects subnational capacity to receive fiscal transfers from the Central Government. As mentioned, if Municipalities want to receive funds from FONACIDE in addition to the provisions established in the general budget, in terms of accountability to the Comptroller General of the Republic (CGR) and presentation of financial, patrimonial and management reports to the Ministry of Finance (MH), they need to send a technical form justifying the particular need for the funds (micro-planning process). However, there are Municipalities with few employees that lack the capacity and skills to comply with these technical requirements. Therefore, they are less likely to receive funds from FONACIDE, which simply aggravates regional disparities, as these funds mainly end absorbed by the larger municipalities.

The Ministry of Education, which manages the FONACIDE programme, also has institutional limitations to guarantee an effective and equal transfer of these funds. While the ministry is present in most of the departments through education secretaries; it is ill-equipped from a technical point of view, since less than 30 technical staff (engineers and nutritionists) oversees approximately 9000 local institutions. In addition, according to information gathered during the fact finding mission, several municipalities use FONACIDE funds to pay salaries under the umbrella of technical services (as departments and municipalities can use these funds for the payment of personal services whenever they are related to the project of the education area, for example the hiring of a technical nutritionist).

In sum, the aforementioned political and fiscal decentralisation initiatives were not accompanied by a comprehensive process aiming to improve public administration at the local level. Therefore, the vast majority of departments and municipalities is suffering from inadequate human resources, infrastructure and administrative capacity, which impede the proper execution of their mandates.

Box 4.3. Multi-level governance reform challenges

This overview of past and recent multi-level governance reforms in OECD countries, with a special focus on Finland, France, Italy, Japan, and New Zealand, confirms that public administration reforms are sensitive and difficult to conduct.

First, governance reform processes are highly context-dependent and are framed by structural constraints including countries’ specific features and political conjuncture.
Second, multi-level governance reforms confront policy makers with the problem of “reforming the reformer” since the public administration must indeed design and implement its own reform, often imposing measures which may be contested both at central and local levels. There is an increased administrative, financial and socioeconomic interdependency between levels of government. In that context, multi-level governance reforms refer to reshaping and improving vertical as well as horizontal interactions between public authorities, i.e. between central and subnational governments and also within subnational governments. These reforms are complex as they involve several layers of government, elected politicians and non-elected officials, as well as various other stakeholders with sometimes conflicting interests.
Third, gaining citizen interest and public support is often a challenge: there is usually a lack of social demand. Citizens do not notice an efficient administration but tend to lose confidence in the government and in its capacity for reform when facing inefficiencies. Paradoxically, when citizens express an interest for multi-level governance reforms, public resistance is still often observed. Reforms tend to be perceived as threats to an existing social order and as a risk of loss compared to previous situations, as witnessed by the failure of several municipal mergers or regional reforms. As a result, the development of such reforms, from planning and design to implementation, project management and sustainability, is typically very slow. Reforms do not produce instant results and need adaptation, adjustments, and the introduction of complementary reforms.

Source: OECD (2017c), Multi-level Governance Reforms: Overview of OECD Country Experiences, OECD Publishing, Paris.

Improving this situation requires not only a more coherent, integrated approach to territorial development on the part of the central government, but an ambitious and comprehensive public-sector reform process at the subnational level as well, which according to the lessons learned from the OECD experience (Box 4.3), represents a complex task not only from a public management point of view, but from a political and economic perspective too.

OECD evidence shows that territorial reforms often imply institutional and public management changes, e.g. a reorganisation of responsibilities and human, technical and financial resources across the different levels of government (decentralisation or recentralisation). These changes should be anticipated and considered in advance in order to avoid potential difficulties (OECD, 2017c). In line with the absence of an integrated reform of the public sector at the central government (Chapter 1), state modernisation initiatives at the subnational level, such as the National Council for the Decentralisation of the State (Conade) created in 1997 and the National Secretariat for State Reform (SNRE) created in 1999, were never properly implemented in Paraguay.

Paraguay could therefore consider the development of modernisation objectives at the subnational level, in the framework of a broader national decentralisation strategy and aligned with the state modernisation plan recommended in Chapter 1. For this purpose, the Government could consider a more active role of the departments in providing technical assistance to the municipalities and aiming for the development of skills at the municipal level. Moreover, Paraguay could take into account the experience of other OECD countries in implementing pilot programmes, in particular in those departments willing to improve their management capabilities, as political momentum is a critical factor for the success of territorial governance reforms. Even if pilot programmes can have some limitations4, successful experiences can certainly stimulate the appetite for further reforms (Box 4.4).

Box 4.4. The experimentation of asymmetric and gradual regionalisation in Sweden

Until the late 1990s, the County Administrative Boards (central government agencies) were responsible for regional development in each county. Since 1997/1998, Sweden has launched a rather singular regional reform process. The national government has not imposed a single model on the counties but instead different regionalisation options (OECD 2010c). It has promoted an asymmetric and bottom-up regionalisation as a gradual and experimental process (a laboratory of regionalisation). The underlying idea is that decentralised policy making leads to more innovation in governance. Therefore, from 1997 onwards, Sweden developed various regionalisation options in terms of political representation and responsibilities in different regions and in different phases: directly elected regional councils in the two “pilot regions” of Skåne and Västra Götaland, resulting from the mergers of respectively two and three countries; an indirectly elected regional council for Kalmar; and a municipality with regional functions for Gotland. The second wave (2002-07) started with the Parliamentary Act of 2002. This Act made it possible for counties, if all local municipalities agreed, to form regional co-ordination bodies (indirectly elected bodies i.e. in line with the Kalmar model) to co-ordinate regional development work. The third phase of experimentation, since 2007, corresponds to a renewed bottom-up demand for regionalisation. It started with the publication of the recommendation for the future of the regional level, published by the Committee on Public Sector Responsibilities in February 2007. The Committee argued for the extension of the “pilot region” model, which was assessed positively, the merger of current counties and the creation of six to nine enlarged regions in order address long-term challenges such as ageing. The reform was not applied as such until now but this bottom-up demand for regionalisation persisted, and since 1 January 2015, 10 county councils out of 21 counties are responsible for regional development.

Source: OECD (2017c), Multi-level Governance Reforms: Overview of OECD Country Experiences, OECD Publishing, Paris.

Building a strategic multi-level governance framework

Strengthening co-ordination across levels of government

Given the level of centralization of the Paraguayan public administration, the country has developed a tradition of siloed vertical implementation across the government: most line ministries in charge of public investment, such as public works, health and education, implement their territorial policies without consulting other institutions at the central level, departments or municipalities.

Taking into consideration this historical context, over the past decade, Paraguay has taken some concrete measures to enhance capacity in the centre of government institutions to articulate vertical and horizontal co-ordination across the executive branch. In this context, the following institutions play a key cross-cutting role in the relations to departments and municipalities:

The “Centro de Gobierno”: Created by decree 1294/2014, it is Paraguay's “delivery unit” (see Chapter 2). Headed by the Secretary-General of the Presidency (who is also head of the Civil Cabinet) its mission is to advise the president, ministers and secretaries concerning the government's agenda and to achieve an effective programmatic co-ordination of government actions. To this end, it interacts with departmental and municipal governments, and thereby sometimes uses inter-governmental transfers, such as royalties, as a negotiation tool with to move forward the central government agenda.
The Technical Secretariat for Economic and Social Development Planning (STP): The STP is the central planning body of the government and is responsible for the Paraguayan territorial management process (STP, JICA, 2017). Its mission is to co-ordinate, promote, monitor and evaluate the design and implementation of national development strategies, both at the national level and with subnational jurisdictions. As explained in Chapter 2, it is the body in charge of co-ordinating the drafting and implementation of the National Development Plan Paraguay 2030 (NDP). In that capacity, it is in charge of co-ordinating the development of departmental and municipal development plans and ensuring that they are in line with the NDP, providing technical assistance and guidance material to departments and municipalities and guiding the constitution of local development councils. However, their capacities to perform this territorial work are quite limited, as they only count on the work of 5 senior officials to interact with the 17 Departments and the 254 Municipalities.
The Ministry of Finance is responsible for the national budget cycle and for the financial transfer to departments and municipalities. In that capacity, it counts on a Departments and Municipalities Unit (DMU), created in 2010, which is responsible for integrating, articulating and co-ordinating actions with departmental and municipal Governments, with the goal of strengthening the decentralisation process:
- The Ministry of Finance, through the DMU, works in co-ordination with the STP to establish institutional policy guidelines to implement the NDP at the local level. Moreover, the creation of the DMU signified an important improvement in the methodology of inter-governmental transfers. Since its creation, the DMU developed a one-stop shop for departments and municipalities. Moreover, it optimised the transfer processes, reducing transfer times to departments and municipalities, simplifying procedures and promoting transparency and accountability in the management of these resources (Government of Paraguay, 2017). All information regarding transfers to departments and municipalities is accessible to the public on the Ministry of Finance’s website.
The Ministry of the Interior is the central government body responsible for coordinating the actions with the sub-national governments, and to assist them technically and administratively (Decree No. 21917/2003). However, in practice, it mainly focuses on political matters and on public security co-ordination, as it does not have the capabilities to provide technical and administrative assistance in other governance areas.

Moreover, Paraguay has developed the following instruments to promote horizontal co-ordination at the subnational level:

The Country National Strategy Team (Equipo Nacional de Estrategia País - ENEP), which has already been described in Chapter 2. It is an official space dialogue made up of representatives from the government and key stakeholders from Paraguay’s civil society: entrepreneurs, indigenous people, farmers, industrialists, social activists and academics, among others. Its functions are to advice on issues that are submitted from the executive branch (such as the NDP) and to propose topics that it considers relevant for the construction of public policies, particularly those linked to poverty.
The Paraguayan Organization for Inter-municipal Cooperation (OPACI): Created in 1954 through Law No. 222 it was the main governmental institution for inter-municipal co-ordination until 1996, when it became a NGO. Its main function is to promote co-ordination between municipalities and with state and non-state public institutions. Despite the fact that it is no longer a public entity, it still has certain functions that should be reserved for the public sector: it manages the driving licences data of 198 municipalities. Moreover, it provides technical assistance mainly to municipalities belonging to group II and III on topics such as budgeting, transparency; environment and tourism.
The Governors’ Council is another non-public horizontal co-ordination organisation with the purpose of promoting and consolidating the decentralisation process of the Paraguayan state. Information received during the fact-finding mission indicates that the relevance of this council in multi-level co-ordination is rather low, in line with the lack of political and institutional strength of most departments compared to municipalities.

As explained in Chapter 2, Paraguay has only little experience in the development of co-ordination mechanisms. The strategic co-ordination challenges that the centre of government faces are also reflected in the lack of collaboration of ministries across siloes. Figure 4.8 shows that perceptions of co-ordination among public institutions in Paraguay are rather low in comparison to LAC and OECD averages.

Figure 4.8. Perceptions of co-ordination among public institutions, 2016

This can be partly explained by the fact that beyond the aforementioned instruments, whereof two are private institutions, no spaces nor incentives exist for horizontal co-ordination among departments or municipalities. Hence, most of the co-ordination activities between subnational entities and the central government are carried out on an ad hoc basis, strongly influenced by political alliances rather than regional planning.

Considering the co-ordination challenges that Paraguay is facing, and the absence of a decentralisation/comprehensive regional development strategy, the country could consider strengthening horizontal inter-departmental and inter-municipal co-ordination not only from a technical point of view but from a strategic decentralisation perspective as well.

In addition, departments should play a more central role in vertical co-ordination. Information gathered during the fact finding mission has shown that departments do not have the capacity to articulate inter-municipal co-ordination nor do they play an active role in territorial planning. Yet in most if not all cases the departments actually reflect functional regional economies: this provides an ideal opportunity to enhance the management of economies of scale in service design and delivery in such key strategic service areas as transportation and mobility, health, education, public security and water, waste-water and solid-waste management. As representatives of the executive branch, they could constitute a valuable channel through which the central government implements strategic and integrated territorial development policies that simultaneously contribute to advancing national development objectives, optimising the outcome of line ministries’ spending at the territorial level, which is currently mostly done in a siloed way. Departments could also be a legitimate channel through with several Municipalities can transmit collective requests to the central government.

Box 4.5. Main mechanisms for vertical and horizontal co-ordination in OECD countries

Vertical co-ordination mechanisms

Legal mechanisms (binding laws and legislation) are the strongest method for organising multi-level governance relations. This mechanism is often used with respect to fiscal resources and to allocate competencies.

Standard setting. Many OECD countries establish universal standard setting to ensure a similar level and quality of service provision across the country. In Sweden, for example, Municipalities enjoy a high degree of autonomy in the provision of public services, but need to meet nationally set standards and regulations.

Contracts or agreements between national and subnational governments concerning their mutual obligations, i.e. assignment of powers of decision, distribution of contributions (including financial commitments) and contract enforcement mechanisms. These arrangements offer several advantages: they allow for customized management of interdependencies; they are useful tools for dialogue that can be used for clarifying responsibilities and making mutual commitments explicit; they open possibilities for judicial enforcement; and they can be used as learning mechanisms. In federal and decentralised countries, “contracts” are a particularly important tool for promoting co-operation, coherence and synergies among levels of government. Examples include “arrangements” in Canada, “joint tasks” in Germany, “accordi” in Italy and “convenios” in Spain.

Strategic co-ordinating committees and partnership groups. The interests and inputs of key actors from different levels can be co-ordinated through joint representation on administrative bodies or working groups. These committees can serve as forums for improved communication and dialogue on subjects of common interest. They can also help align interests and timing, and set the basis for signing contracts and agreements among levels of government. Finally, they can help disseminate good practices between different levels of government, or horizontally across regions. In some countries, co-ordination bodies are leading actors in fiscal capacity building by representing the interests of the local or regional level to national level decision makers. In Norway, for example, the Association of Local and Regional Authorities provides a forum to discuss the framework for distributing revenues in relation to the tasks carried out by local governments, the financial situation of local government and efficiency measures. In the Czech Republic, the Union of Municipalities and the Association of Regions have representatives on the national government’s Board of Deputy Ministers for Regulatory Reform and Effective Public Administration, and represent the regions’ interests in the Czech parliament, the Cabinet and in European institutions. In Spain, examples include the sectoral conferences and the Conference of the Presidents of Autonomous Communities.

Horizontal co-ordinating mechanisms (the following two examples reflect federal structures)

Australia: The Council of Australian Governments (COAG) is the main intergovernmental forum for the development and implementation of inter-jurisdictional policy. It is composed of the Australian Prime Minister (chair), Territory Premiers and Chief Ministers and the President of the Australian Local Government Association. The main role of the COAG is to promote policy reforms that need co-ordinated action by all Australian Governments. Its agenda is broad and focuses on reforms that have a direct impact on well-being. Through COAG, the federal and subnational governments have endorsed national guidelines on public-private partnerships, agreed to a national port strategy, and concluded intergovernmental agreements on heavy vehicles, rail and maritime safety. COAG also receives regular reports from Infrastructure Australia, a statutory body established at the federal level to support nationwide infrastructure investment and to advise governments and other investment stakeholders

Germany: The governments of the German Länder (Territorial entities, akin to Provinces or constituent States in other federal states) co-operate through the Council of Prime Ministers and 19 subject specific standing conferences of ministers. The council/standing conferences are not part of the German government and cannot pass legislation. Nevertheless, they play an important role in the federal system. Councils have two primary functions. In policy fields where legislative powers reside with the Länder, they are the main forum for policy co-ordination across the Länder. In policy fields where the Länder have limited powers, council/conference resolutions articulate common interests of the Länder to other actors, such as the federal government or the European Commission. Co-operation in the council/conferences is consensus based and most decisions are made unanimously. Formally, the Council of Prime Ministers and most other permanent conferences require the approval of 13 of the 16 German Länder to pass a resolution. Although resolutions are not legally binding, they have a strong symbolic power, and are almost always enacted by Länder governments.

Some permanent conferences also draft model laws and regulations to support state administrations and to further harmonise laws across states. The Council of Prime Ministers convenes four times a year. After the council meetings, prime ministers meet with the German Chancellor. Subject-specific permanent conferences have their own meeting scheduled and tend to meet between one and four times a year. The federal minister in charge of the respective portfolio typically attends the meeting in an observing role. Several permanent conferences have established additional committees to discuss particular topics in more detail. The administrative structure of permanent conferences varies depending on their responsibilities. Some permanent conferences have their own permanent secretariats with sizable staff numbers while others use the administration of the state that holds the rotating presidency of the permanent conference.

Source: OECD (2016b), OECD Territorial Reviews: Peru 2016, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264262904-en; OECD (2015a), Implementation Toolkit of the Recommendation on Effective Public Investment Across Levels of Government, www.oecd.org/effective-public-investment-toolkit/

Reinforcing multi-level governance and territorial development through planning instruments

Regional development strategies can be a useful tool for vertical co-ordination and multi-level governance (OECD, 2017b). In this connection, one of the main multi-level governance challenges that the Government of Paraguay itself highlighted is its relative incapacity to translate strategic decisions into actual concrete policies at the territorial level. Thus, the creation of the National Development Plan Paraguay 2030 is an important instrument that establishes territorial development as a cross-cutting long term goal, and that aligns national and sub-national policy agendas.

According to the Government of Paraguay, all national decentralisation objectives are implemented through the NDP. In this connection, each one of the NDP objectives contains a territorial dimension:

Goal 1: Poverty reduction and social development. The territorial dimension focuses on participatory local development. It combines poverty reduction, social development and land use planning. Its goals include the strengthening of municipal social capital around public-private councils that lead municipal strategic planning, coordination and monitoring of actions in the territory.
Goal 2: Inclusive economic growth. The territorial dimension focuses on regionalization and productive diversification. It combines inclusive economic growth with land use and territorial development. Its goals include increasing the productivity of family farming and the share of household income in the Departments of San Pedro, Concepción, Canindeyú, Caazapá and Caaguazú, and strengthening productive chains in the Paraguayan Chaco.
Goal 3: Paraguay's integration in the world. The territorial dimension focuses on regional economic integration. It combines the adequate integration of Paraguay in the world with territorial planning. Its goals include having efficient waterway systems in the Paraguay and Paraná rivers, developing efficient energy systems integrated with the region, and increasing the efficiency of the port and road transport systems.

Figure 4.9. National Development Plan Paraguay 2030: strategic axes and transversal lines

In order to implement this territorial vision, the NPD mandated the preparation of Department and Municipal Development Plans. These local development plans aim to synthesise the aspirations of the local population. As highlighted in Chapter 6, they are co-created with representatives of the civil society and therefore constitute an innovative democratic action concerning local participation in policy design in Paraguay.

Each plan must be aligned with the national development plan and must be approved by the STP. For their design, the Government of Paraguay has developed specific guidelines and provided technical assistance in situ. Their preparation is mandatory and a condition for access to national transfers.

In order to ensure the preparation of these plans, and to expand in a coordinated manner the government action in the territory, the NDP requests the creation of Departmental and Municipal Development Councils (DMDCs). DMDCs are consultative bodies, consisting of members of civil society; local governments and the national government (see chapters 3 and 6). They are divided into several areas of work (Figure 4.10) and constitute an important initiative for stakeholder engagement and multi-level coordination, since they allow an articulation and dialogue between civil society and all levels of government.

The OECD fact-finding mission had the opportunity to visit the Paraguayan Municipalities of Carayao, Cecilio Baez, Ciudad del Este, and Minga Guazú in order to assess the work of the departmental and municipal development councils. As highlighted in Chapter 3, these visits of the municipalities showed the engagement of citizens within these councils, given that they represent an unprecedented opportunity to discuss with elected officials.

Figure 4.10. Departmental and Municipal Development Councils (DMDCs)

There was a consensus expressed by local authorities, representatives of civil society and the national government concerning the relevance of these councils, specifically during the preparation of the Departmental and Municipal Development Plans (DMDP). On both levels of governments, a broad range of stakeholders had the opportunity to discuss and define their jurisdiction’s priorities for 2030 and agree upon a development plan.

However, there is a critical barrier that limits the effectiveness of this process and therefore the territorial impact of the NDP: local development plans are not linked to budget considerations. Moreover, as argued in the previous sections, the vast majority of municipalities do not possess financial autonomy and depend on earmarked grants from the central government to perform a limited range of tasks. In addition, the Ministry of Finance is not involved in their design process; therefore it does not have the capacity to assess if the plans are achievable in terms of budget.

Hence, this interesting participatory process has raised expectations both in local governments and the civil society that did not get confirmed through concrete policy outcomes. The capacity of the councils both as a space for dialogue and a co-ordination instrument was therefore negatively affected and in several municipalities they eventually stopped meeting due to the lack of concrete results.

In this regard, there are some institutional features linked to effective multi-level governance that Paraguay could consider improving. According to the councils’ regulations, the Department Development Councils and the Municipal Development Councils are headed by the Governor and Mayor respectively. However, these political leaders usually have day-to-day problems to address, without having time to focus on the council’s functioning. Moreover, as highlighted in chapter 6, most of these councils lack dedicated staff to monitor and follow up the decisions taken. Finally, concerning the department councils, no incentives for the participation of Municipalities exist. Therefore, many Municipalities stopped sending representatives to these meetings, which has significantly undermined the efficiency of the councils for inter-municipal co-operation.

Hence, Paraguay’s central government should explore ways to redefine local development councils and consider plans to link them with national policies at the local level. This would imply improving co-ordination instruments not only with departments and municipal governments, but across administrative siloes in the central administration. The STP could improve the impact of these plans if they were more integrated into the work of the Ministry of Finance and other line ministries, exploring potential links between municipalities’ requests and the national budget within the framework of a comprehensive decentralisation strategy, which takes into consideration from an integrated and holistic approach regional disparities and the aforementioned fiscal and management challenges. In this connection, the OECD Recommendation of the Council on Effective Public Investment across Levels of Government, adopted in 2014, can constitute useful high level guidance on how to strengthen multi-level co-ordination (Box 4.6).

The national government could also accompany the councils more closely to support the development of skills to design, implement and monitor the performance of projects. According to information received during the fact-finding mission, in areas such as health and education some departmental co-ordination and planning with municipalities exists. However, in areas such as water, transport and waste collection, there is no systematic inter-municipal co-ordination; departments do not play an active role, and municipalities lack the skills/capacity for inter-municipal planning.

Box 4.6. Recommendation of the OECD Council on Effective Public Investment Across Levels of Government

The Recommendation groups 12 principles into the 3 pillars representing systemic challenges to public investment: co-ordination, subnational capacity and framework conditions.

The OECD also developed a Toolkit to guide policymakers in implementing the Recommendation. The toolkit provides implementation guidance, showcases good practice and allows users to compare indicators.

Source: OECD (2014b), Recommendation of the Council on Effective Public Investment across Levels of Government,http://acts.oecd.org/Instruments/ShowInstrumentView.aspx?InstrumentID=302&InstrumentPID=319&Lang=en&Book; OECD (2015a), Implementation Toolkit of the Recommendation on Effective Public Investment Across Levels of Government, www.oecd.org/effective-public-investment-toolkit/

Recommendations

OECD experiences show that multi-level governance reforms should be approached holistically, in a multi-dimensional and comprehensive way in order to avoid negative and counterproductive outcomes (OECD, 2017). This does not mean that the initial focus cannot be put on specific areas, such as infrastructure, or that decentralisation cannot be flexible process, allowing different regions to incorporate responsibilities and tasks according to their needs and capacities. But reforms aimed at improving governance across levels of government should be multi-dimensional, and they should take into consideration regional disparities and the need to develop co-ordination instruments, limits on public management capacity at all levels of government, as well as the consolidation of stakeholder engagement mechanisms to ensure the sustainability of reforms aimed at greater decentralisation.

In sum, high levels of inequality persist across regions in Paraguay, as do significant limitations on sub-national administrative and fiscal capacity to deliver services to citizens properly. Department governments face significant capacity challenges to design and pursue local and regional development strategies that build on endogenous strengths and assets in each Department to drive regional economic growth in a way that contributes materially to the country’s development. They also face significant challenges in sustaining effective inter-governmental co-ordination to pursue common regional and national development objectives successfully.

The Government of Paraguay could therefore consider designing and implementing a comprehensive, integrated regional development strategy that is fully aligned with the Government’s National Development Plan. In so doing, the Government could continue forging a broad national consensus on the importance of coherent decentralisation, effective multilevel governance and robust regional and local administrative capacity to pursue regional (and national) development successfully, and on the idea that these can constitute key strategic tools to address the challenges noted above.

To do so, Paraguay could consider the following:

Develop an integrated strategy to define, pursue and consolidate political, fiscal and administrative decentralisation using an integrated, holistic regional and national development perspective.
Engage with national and regional stakeholders within and beyond government at all stages in the development and implementation of the strategy, in order to generate buy-in and consensus on its merits.
For the design and implementation of this integrated regional development strategy, Paraguay could consider the following:
- Clearly define the purpose and objectives of the strategy;
- Integrate the strategy into the National Development Plan;
- Tailor the strategy to reflect and integrate the development priorities across the different departments and municipalities’ development plans, and identify mechanisms to reduce regional disparities;
- In this connection, as part of the strategy, consider developing an equalisation-based distribution formula for royalties’ revenues in order to reduce regional disparities. While developing this formula, Paraguay could consider taking into consideration socio-economic indicators.
- Allow specific arrangements and pilot projects in specific departments/municipalities, recognising that asymmetric decentralisation as a process might be required to take into account differences in departmental and municipal capacities/resources.
- Design the strategy through a broad stakeholder engagement process, including the Department and Municipal Development Councils and the Congress.
- Develop specific decentralisation and regional development objectives/targets, to be monitored and evaluated regularly.
- Actively involve the Centre of Government, including the Presidency, the STP, the Economic Team and the Social Cabinet (or their successor institutional arrangements – see chapter 2) and the Ministry of Finance by ensuring high-level, sustained co-ordination in the elaboration of this strategy, to ensure coherence with the NDP and the national budget.
- Define and adopt, in full dialogue with regional and local stakeholders, a “finance principle”, ensuring that all the tasks transferred to subnational governments are accompanied by the resources (from grants or other revenues) needed to finance and administer the new service, taking into account the effective availability of those resources in the budget. The approach in Sweden could be helpful here.
Strengthen institutional arrangements at the national level to lead and co-ordinate the design, implementation and performance-monitoring of the decentralisation strategy. To do so, Paraguay could build on its existing institutional make-up to maximise efficiencies and synergies across strategy frameworks; in so doing it could consider the following, drawn from OECD practice:
- Provide a clear mandate and proper human and financial resources to an existing institution. This duly-mandated institution should be able to act as the Government of Paraguay's interface with the governor in the department to identify and partner on common decentralisation and regional development objectives, and lead (or set the rules for) co-ordination across administrative silos in the central government and partner with the Ministry of Finance, the Ministry of Interior and relevant line ministries (e.g. Education; Health; Social Services; etc.) in decentralisation/regional development policy and service design and delivery, and in defining and co-ordinating the design and delivery of investment strategies and resources across the central government and between levels of government in the pursuit of regional development goals:
  - Some OECD countries have created a Ministry of Regional Development for this purpose (Hungary, Czech Republic, Poland between 2005 and 2013);
  - In others, this mandate has been assigned to the CoG: in Austria, the Federal Chancellery (the equivalent to the Paraguayan Presidency) is in charge of Spatial Planning and Regional Policy; In Canada, federal regional development policy co-ordination is assigned to the Pricy Council Office (the CoG institution equivalent to Paraguay’s Presidency), while a series of federal Regional Development Agencies (RDA) are charged with operationalising regional development policy be ensuring a sustained interface with the Provinces (and in some cases municipalities) on programme and service design and delivery;
  - In Japan, national spatial planning and regional policy responsibilities fall under the purview of the Ministry of Land, Infrastructure, Transport and Tourism.
  - In Denmark, regional development is a policy shared between the Ministry of Industry, Business and Financial Affairs and the Ministry for Economic Affairs and the Interior, the latter responsible for structural policy; economic forecast; governance of municipalities and regions; economics of municipalities and regions, and elections and referenda.
- Consider creating a national Regional Development Agency. If the selected institution is responsible for both policy and programming, then no need for the RDA; otherwise, if Paraguay wishes to create an operational agency charged with managing regional development programming, an RDA can carry out this mandate as part of the decentralisation/regional development policy framework developed by the institution and approved by the Government. In line with the recommendation to minimise responsibility for transactional activities in the CoG (see Chapter 2), under a scenario where, for instance, the STP is mandated to lead the design of a decentralisation/regional development strategy, creating the RDA would make sense so as not to encumber the CoG with operational responsibilities;
- Create a Decentralisation Committee of the Council of Ministers, mandated to oversee and co-ordinate across administrative silos the design and implementation of a whole-of-government decentralisation strategy and ensure that it is coherent with the NDP and other framework strategies of the government, with the institution mandated to lead the design of the decentralisation strategy also mandated to act as the technical secretariat for this Committee. Chapter 2 recommended that Paraguay consider the creation of an integrated economic and social development committee of the Council of Ministers, akin to Colombia’s CONPES, that would insure that this integrated policy area is fully aligned with the National Development Plan. If this recommendation is implemented, then the Decentralisation Committee recommended here should be a sub-committee of this CONPES-like Economic and Social Policy Committee of the Council of Ministers in Paraguay. This Committee (or sub-committee) could be comprised of the key institutional stakeholders that would be implicated in any decentralisation strategy, including the Presidency, the Ministry of Interior, the Ministry of Finance, the STP, the SFP and key line ministries, to which representatives from departments and municipalities among other stakeholders could be invited.
Strengthen departments’ capacities in regional development and in the articulation of inter-municipal co-ordination. Paraguay could consider enhancing department’s capacities in service design and delivery in such key strategic service areas as transportation and mobility, health, education, public security and water, waste-water or solid-waste management, in particular by:
- Addressing the current tension in the Governor's mandate: Governors are currently simultaneously representatives of the central government and responsible for executing national policy in the Department, and democratically elected officials, having to advance their departments’ interests vis-à-vis the central government. This risks generating tension-filled contradictions in terms of accountability.
- Ensuring that departments constitute an institutional partner with which the central government can pursue strategic, integrated decentralisation and regional development goals, that simultaneously contribute to advancing national development objectives and optimising the outcome of line ministries’ spending at the territorial level, by:
- Giving departments more responsibilities for regional development and capacity-building at the municipal level, in particular through the creation of Regional Development Units in the Gobernación, dedicated to co-ordinate the decentralisation strategy at the department level and to act as the interlocutor with their counterpart institutions at the national level. These units could also contribute to better identifying and communicating the department’s strategic priorities to the national government, as well as to coordinate inter-municipal initiatives in strategic areas.
Encourage the production of data at the sub-national level to inform investment strategies and produce evidence for decision-making. Such data may be collected by the General Directorate of Statistics Surveys and Censuses. This data could include information on municipalities own tax revenues to better understand the financing options available to these jurisdictions beyond the predominance of central government transfers. This could allow the development and implementation of policy and fiscal decentralisation strategies based on reliable data-driven evidence.
Strengthen skills and management capacities at the subnational level, in particular through:
- The identification of state modernisation objectives at the department and municipal level, integrated into the national decentralisation strategy and in line with the state modernisation agenda recommended in Chapter 2. These objectives could be agreed with departments and municipalities and could include commitments to build local capacities in key governance areas such as budgeting (Chapter 3), human resources (Chapter 5), open government (see Chapter 6) and digital government among others. For this purpose, in line with the recommendation above, the Government could promote a more active role for the departments in providing technical assistance to municipalities, including the development of skills at the municipal level. Paraguay could take into account the experience of other OECD countries in implementing pilot programmes, in particular in those departments willing to improve their management capabilities, as political momentum is a critical factor for the success of territorial governance reforms. For example, to institutionalise greater transparency and accountability to citizens at the departmental and municipal level, the government could ensure that financial resources support each department and municipal council having a dedicated staff to monitor and follow up on their decisions.
- The implementation of financial instruments to co-finance technical positions in departments and municipalities, for instance, through the creation of “technical teams”, based in departments to jointly serve specific groups of municipalities. These technical teams should strengthen inter-municipal co-operation as well.
- The identification of effective funding sources while developing these objectives, possibly allowing resources from royalties to be used for this purpose.
Provide financial incentives to projects involving inter-municipal co-operation in order to stimulate horizontal co-ordination. The central government could enhance inter-municipal co-operation (IMC) and the creation of public IMC entities, for instance through the use financial incentives (grants for projects involving IMC), or technical assistance, to be provided through departments.
Foster co-operation with inter-department and inter-municipal co-operation bodies, to facilitate the sharing of good public-governance practices in the departments and municipalities across the country.
Make further efforts to link department and municipal development plans with the national and departmental budgets, fiscal frameworks and investment strategies. Paraguay could ensure that all commitments in the National Development Plan, both at the national and subnational level, include the identification of effective and/or potential sources of funding. That would require restructuring the way in which department and municipal development plans are designed, as they would need a closer engagement of the Ministry of Finance in elaboration process.

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OECD (2015), Implementation Toolkit of the Recommendation on Effective Public Investment Across Levels of Government, www.oecd.org/effective-public-investment-toolkit/.

OECD (2006) Intergovernmental transfers and decentralised public spending, Working paper N. 3. https://www.oecd.org/tax/federalism/37388377.pdf

OECD, UCLG (2016), Subnational Governments around the world. Country profile Paraguay. http://www.oecd.org/regional/regional-policy/profile-Paraguay.pdf

STP, JICA (2017), Sistematización de la experiencia: Conformación de consejos de desarrollo y elaboración de planes de desarrollo sustentable en la República del Paraguay.

Notes

← 1. Belize, Bolivia, Chile, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Panama, Paraguay, Peru, Trinidad and Tobago and Uruguay

← 2. https://www.oecd.org/tax/federalism/37388377.pdf

← 3. https://pefa.org/sites/default/files/PY-Aug16-PFMPR-Public%20with%20PEFA%20Check.pdf

← 4. See OECD (2017c), Multi-level Governance Reforms: Overview of OECD Country Experiences, OECD Publishing, Paris.

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