In several of its reports, issued during the period 2005-2007, the International Monetary Fund (IMF) has repeatedly noted Bolivia's authorities have committed themselves to fiscal and financial sector reforms, many of which the Fund itself has recommended. Among the prospective reforms, first elaborated in the IMF's 2005 Sixth Review under the Stand-By Agreement, were the promulgation of a new Organic Budget Law to address deficiencies in the budget process across all levels of government; reforms to the tax law; and the implementation of a registration program covering public sector workers and pensioners; as well as the creation of a registry of sub-national debt obligations. In 2007, the IMF issued its Article IV Consultations report and a Report on the Observance of Standards and Codes (data module), both of which assert that Bolivia has made some progress toward fiscal reforms that would result in greater transparency, but note that deficiencies remain, and did not elaborate on the previously planned, more comprehensive reforms. Their fate, especially given the political instability in Bolivia, remains unclear. Some reforms, such as reforms to tax legislation, must await the results of the referenda on the new constitution, which as of October 2008 was scheduled for December 2008. Overall, the publicly available information does not address Bolivia's compliance with the IMF's Code of Good Practices on Fiscal Transparency.

General Overview

In November 2005, the International Monetary Fund (IMF) published its Sixth Review under the Stand-By Agreement with Bolivia, in which it reported that the country was committed to enacting fiscal and financial sector structural reforms in accordance to certain benchmarks recommended by the Fund. A key recommendation was the overhaul of the budget process across all government levels. Reforms were needed to strengthen the budget preparation process, enhance fiscal reporting, and clarifying budget-related rules and sanctions. Further reforms were suggested in the areas of taxation and the national debt. In the year of the report's publication, in an attachment to the 2005 IMF report (Attachment II), the Bolivian government reported that a number of previously suggested fiscal reforms were under way. For instance, budget legislation was being drafted; the registration of public employees and pensioners was under way; and a register of sub-national debt was being implemented. The Bolivian government demurred on broad tax reform at the time, citing upcoming elections and the perceived need that "such a reform [needed] to be fully owned by the next government" (p. 46). However, a draft bill for tax reform was being prepared for presentation to the incoming government (elections were held in December 2005, bringing in the current government of Evo Morales). The 2007 IMF Article IV consultations report did not elaborate on the previously mentioned comprehensive fiscal reforms. It did, however, note that room for improvement in the budget process remained, specifically citing the need to reduce dependence on hydrocarbon subsidies and to improve the tax system (currently deemed distortionary) and intergovernmental relations (to improve control over sub-national spending). The authorities agreed with the thrust of the reforms discussed but felt that action on this front would have to await the outcome of the constitutional assembly, which closed in December 2007. The text of the constitution will have to pass two national referenda.

According to Javier Gomez Aguilar, compiler of the 2006 Open Budget Index (OBI) for the International Budget Project's Open Budget Initiative, Bolivia scores only 20%, which indicates that it provides "scant or none" by way of budget documentation. The OBI tracks the public availability of seven key budget documents: pre-budget statement, executive's budget proposal, citizen's budget, in-year reports, mid-year review, year-end report, and auditor's report. Bolivian budget authorities produce only five of these, omitting the citizen's budget and mid-year review. Of the five that are produced, neither the pre-budget statement nor the in-year reports are available for public scrutiny. The executive's budget proposal is deemed to contain only 22% of the information needed to enable the public to gain an adequate understanding of the government's financial activity. The failure to make public (or produce at all) interim reports such as the mid-year or in-year reviews renders public accountability difficult at best. Although an auditor's report is published, it does not adequately disclose whether or not the auditor's recommendations have been or are being addressed. Finally, Aguilar notes that although the government does hold public hearings on the budget, it does not permit citizen participation in these hearings.

The Government of Bolivia's 2005 Letter of Intent to the IMF, reported that Fund technical assistance was then being employed to develop an Organic Budget Law aimed at addressing deficiencies in the budget process and improving transparency. This was the draft law that was set to be presented to the new government following the December 2005 elections. Among its features, the draft legislation was expected to improve control over public debt and spending. Further reforms were announced relating to tax reform, including enhanced enforcement capabilities.

In 2006, the IMF issued a "Selected Issues" report that addressed, among other things, the then-current state of Bolivian budgetary reforms. According to the report, the national-level budget framework remained weak, causing problems for the process at the sub-national administrative level and leaving budget constraints insufficiently well-defined. Citing a review conducted by the World Bank, the IMF described several budget-process deficiencies, including unrealistic budget figures; cumbersome procedures inhibiting budget modification by parliament during the approval process; and excessive executive spending authority without parliamentary approval. According to the IMF, these weaknesses have resulted in a significant lack of correspondence between budget expectations and outcomes following budget execution, particularly at the sub-national level. The 2006 IMF report adds that transparency, clarity, and data quality is compromised by the failure to use appropriate budgetary and accounting procedures. Spending is difficult to track, there is no application of a medium-term budget perspective, and the incompletely developed system of budget classification "undermines the integrity, timeliness, and accuracy of data reporting" (p. 48). These problems with the national budget process are duplicated at the sub-national level. The report found that Bolivia's "internal audit procedures are weak" (p. 48). This is attributed to high staff turnover and low wages, as well as to limited and at times unreliable budget execution data. The report also expressed a concern that the central government's frequent resort to bailouts for sub-national governments to resolve debt issues has led to moral hazard issues and has compromised efforts at sub-national debt control.

The 2006 IMF report identified a number of areas of possible fiscal reform. First, it suggested that Bolivia institute a comprehensive reform of intergovernmental fiscal relations. This should include a clear definition of spending responsibilities and greater clarity regarding revenue-sharing and financing as they apply across government levels. The practice of revenue ear-marking should be reduced. Inter-governmental transfers should be reduced and accountability should be enhanced. The sub-national governments could be permitted limited tax rate-setting authority, but only if this is linked to new spending responsibilities. The system of transfers from the central government to sub-national administrations needs to be equalized, particularly in order to redress imbalances between hydrocarbon-producing and nonproducing regions. The payment-transfer system for municipalities needs to be simplified and made more transparent. Rules for sub-national borrowing should be strengthened, and "a political commitment to a 'no bailouts policy'" (p. 50) is called for. Once again, the IMF reiterated its call for a new budget framework law, calling it "a key precondition, regardless of the degree of decentralization" (p. 51) to which Bolivia ultimately commits. The IMF argues that any such new law must incorporate strong, enforceable sanctions in the event of noncompliance. This would also necessitate the implementation of an enhanced fiscal data reporting system, which would help alleviate the current "lack of comprehensive and reliable data that continues to prevent the effective monitoring of sub-national debt" (p. 51).

The 2007 IMF Article IV Consultations report applauded recent sharp improvements in Bolivia's fiscal position and the marked decline in public debt, achieved through Bolivia's participation in the Multilateral Debt Relief Initiative. According to the IMF, "over the five-year period 2002-06, the overall fiscal position shifted from a deficit of about 9 percent of GDP to a surplus of about 41/2 percent of GDP" (p. 4). The IMF attributed this improvement, in part, to a boom in the hydrocarbon sector, but also noted increases from other revenue sources and a greater control over expenditures. However, the IMF noted that inflation has begun to rise. This is attributed to a combination of rapid monetary expansion and negative supply shocks. To protect macroeconomic stability, the IMF argued for the adoption of a more prudent fiscal stance that would include the maintenance of the fiscal surplus (p. 9) that windfall gains in the hydrocarbon sector have made possible. This would necessitate spending restraint not only at the level of the central government but also at the sub-national level. Tax reforms were again the subject of discussion between the IMF and Bolivian authorities, both to improve equity and to enhance efficiency. In addition, the Fund staff proposed a gradual reduction in Bolivia's reliance on explicit and implicit hydrocarbon subsidies, freeing up funds for use in financing carefully targeted public spending initiatives to help the poor. However, although Bolivian authorities agreed with the Fund's findings in general, reforms would have to await the resolution of the then ongoing constitutional assembly, and in the specific case of hydrocarbon subsidies, "the authorities felt that the reduction in fuel subsidies should wait until envisaged increases in natural gas production allowed for some shift in domestic consumption away from petroleum and into gas products" (p. 10).

A recent IMF Data Module Report on the Observance of Standards and Codes (ROSC), published in August 2007, found that "the quality of Bolivia's macroeconomic statistics has improved over recent years and the statistics have been broadly adequate for macroeconomic analysis and policy design and monitoring" (p. 4), adding that the statistical authorities enjoy a good reputation for implementing IMF technical recommendations in the past. However, several deficiencies were identified in Bolivia's current statistical practices that negatively affect its ability to produce certain required and encouraged datasets in a timely manner. Bolivia is not yet a subscriber to the IMF's Special Data Dissemination Standard (SDDS), although it has participated in the less rigorous General Data Dissemination System (GDDS) since the year 2000 and the 2007 IMF ROSC notes that Bolivia intends to subscribe to the SDDS in the future.

The Principles

Clarity of roles and responsibilities.

II

In 2006, the IMF issued a "Selected Issues" report that addressed, among other things, the then-current state of Bolivian budgetary reforms. According to the report, the national-level budget framework remained weak, causing problems for the process at the sub-national administrative level and leaving budget constraints insufficiently well-defined. Citing a review conducted by the World Bank, the IMF described several budget-process deficiencies, including unrealistic budget figures; cumbersome procedures inhibiting budget modification by parliament during the approval process; and excessive executive spending authority without parliamentary approval. According to the IMF, these weaknesses have resulted in a significant lack of correspondence between budget expectations and outcomes following budget execution, particularly at the sub-national level. The 2006 IMF report adds that transparency, clarity, and data quality are compromised by the failure to use appropriate budgetary and accounting procedures. Spending is difficult to track, there is no application of a medium-term budget perspective, and the incompletely developed system of budget classification "undermines the integrity, timeliness, and accuracy of data reporting" (p. 48). These problems with the national budget process are duplicated at the sub-national level. The report found that Bolivia's "internal audit procedures are weak" (p. 48). This is attributed to high staff turnover and low wages, as well as to limited and at times unreliable budget execution data. The report also expressed a concern that the central government's frequent resort to bailouts for sub-national governments to resolve debt issues has led to moral hazard issues and has compromised efforts at sub-national debt control.

The 2006 IMF report identified a number of areas of possible fiscal reform. First, it suggested that Bolivia institute a comprehensive reform of intergovernmental fiscal relations. This should include a clear definition of spending responsibilities and greater clarity regarding revenue-sharing and financing as they apply across government levels. The practice of revenue ear-marking should be reduced. Inter-governmental transfers should be reduced and accountability should be enhanced. The sub-national governments could be permitted limited tax rate-setting authority, but only if this is linked to new spending responsibilities. The system of transfers from the central government to sub-national administrations needs to be equalized, particularly in order to redress imbalances between hydrocarbon-producing and nonproducing regions. The payment-transfer system for municipalities needs to be simplified and made more transparent. Rules for sub-national borrowing should be strengthened, and "a political commitment to a 'no bailouts policy'" (p. 50) is called for. Once again, the IMF reiterated its call for a new budget framework law, calling it "a key precondition, regardless of the degree of decentralization" (p. 51) to which Bolivia ultimately commits. The IMF argued that any such new law must incorporate strong, enforceable sanctions in the event of noncompliance. This would also necessitate the implementation of an enhanced fiscal data reporting system, which would help alleviate the current "lack of comprehensive and reliable data that continues to prevent the effective monitoring of sub-national debt" (p. 51). According to the 2007 IMF report, Bolivian authorities agreed with Fund recommendations, generally speaking, but noted that their implementation must, in many cases, await the resolution of the then-ongoing constitutional assembly. Overall, the available information does not directly address Bolivia's compliance with this principle.

Open budget processes

II

According to Javier Gomez Aguilar, compiler of the 2006 Open Budget Index (OBI) for the International Budget Project's Open Budget Initiative, Bolivia scores only 20%, which indicates that it provides "scant or none" by way of budget documentation. The OBI tracks the public availability of seven key budget documents: pre-budget statement, executive's budget proposal, citizen's budget, in-year reports, mid-year review, year-end report, and auditor's report. Bolivian budget authorities produce only five of these, omitting the citizen's budget and mid-year review. Of the five that are produced, neither the pre-budget statement nor the in-year reports are available for public scrutiny. The executive's budget proposal is deemed to contain only 22% of the information needed to enable the public to gain an adequate understanding of the government's financial activity. The failure to make public (or produce at all) interim reports such as the mid-year or in-year reviews renders public accountability difficult at best. Although an auditor's report is published, it does not adequately disclose whether or not the auditor's recommendations have been or are being addressed. Finally, Aguilar notes that although the government does hold public hearings on the budget, it does not permit citizen participation in these hearings. Overall, the available information does not directly address Bolivia's compliance with this principle.

Public availability of information.

II

A recent IMF Data Module ROSC, published in August 2007, found that "the quality of Bolivia's macroeconomic statistics has improved over recent years and the statistics have been broadly adequate for macroeconomic analysis and policy design and monitoring" (p. 4), adding that the statistical authorities enjoy a good reputation for implementing IMF technical recommendations in the past. However, several deficiencies were identified in Bolivia's current statistical practices that negatively affect its ability to produce certain required and encouraged datasets in a timely manner. Bolivia is not yet a subscriber to the IMF's SDDS, although it has participated in the less rigorous GDDS since the year 2000 and the 2007 IMF ROSC notes that Bolivia intends to subscribe to the SDDS in the future. Overall, the available information does not directly address Bolivia's compliance with this principle.

Independent assurances of integrity.

NC

The IMF's 2006 report, citing a review conducted by the World Bank, described several budget-process deficiencies, including unrealistic budget figures; cumbersome procedures inhibiting budget modification by parliament during the approval process; and excessive executive spending authority without parliamentary approval. According to the IMF, these weaknesses have resulted in a significant lack of correspondence between budget expectations and outcomes following budget execution, particularly at the sub-national level. The 2006 IMF report adds that transparency, clarity, and data quality are compromised by the failure to use appropriate budgetary and accounting procedures. Spending is difficult to track, there is no application of a medium-term budget perspective, and the incompletely developed system of budget classification "undermines the integrity, timeliness, and accuracy of data reporting" (p. 48). These problems with the national budget process are duplicated at the sub-national level. The report found that Bolivia's "internal audit procedures are weak" (p. 48). This is attributed to high staff turnover and low wages, as well as to limited and at times unreliable budget execution data. The report also expressed a concern that the central government's frequent resort to bailouts for sub-national governments to resolve debt issues has led to moral hazard issues and has compromised efforts at sub-national debt control. Bolivia is not yet a subscriber to the IMF's SDDS, although it has participated in the less rigorous GDDS since the year 2000 and the 2007 IMF ROSC notes that Bolivia intends to subscribe to the SDDS in the future.