- Mario Pessoa, and Carlos Pimenta
- Published Date:
- January 2016
Public Financial Management in Latin America
The Key to Efficiency and Transparency
Carlos Pimenta and Mario Pessoa
Cataloging-in-Publication data provided by the Inter-American Development Bank
Felipe Herrera Library
Public financial management in Latin America: the key to efficiency and transparency / Carlos Pimenta, Mario Pessoa, editors.
Includes bibliographic references.
1. Finance, Public—Latin America. 2. Transparency in government—Latin America. 3. Public administration—Latin America. I. Pimenta, Carlos, editor. II. Pessoa, Mario, editor. III. Inter-American Development Bank. Fiscal and Municipal Management Division. IV. Title
HJ799.53.G47 2015 eng.ed.
Publication Code: IDB-BK-148
JEL Codes: H21, H50, H57, H60, H61, H63, H69, H72, H83
Keywords: cost accounting, government accounting, treasury single account, efficiency, cash management, debt management, public expenditure management, public resource management, public financial management, treasury management, procurement, budget, financial management integration system.
Copyright © 2015 Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed.
Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB’s name for any purpose other than for attribution, and the use of IDB’s logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.
Note that the link provided above includes additional terms and conditions of the license
The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of either the Inter-American Development Bank or the International Monetary Fund (IMF), their Boards of Directors, or the countries they represent.
The Inter-American Development Bank does not guarantee the accuracy of the data included in this work.
Inter-American Development Bank
1300 New York Avenue, N.W.
Washington, D.C. 20577
The Institutions for Development Sector of the Inter-American Development Bank was responsible for the production of this publication.
Production Editor: Sarah Schineller (A&S Information Specialists, LLC)
Editor: Margie Peters-Fawcett
Design: Word Express, Inc.
Proofreaders: Audrey Esquivel and Steven Nelson (TriLexica Editorial)
Over the last two decades, in an effort to promote fiscal stability and sustainable development, countries in Latin America have implemented substantive reforms to strengthen public financial management (PFM) systems and generate reliable financial information. These reforms have enhanced the quality of macro-fiscal management in the region and contributed to the improved economic performance observed throughout the 2000s. As the recent economic crisis demonstrated, however, there is room for further improvement, as well as a need to increase the resilience of PFM systems.
The Inter-American Development Bank (IDB) and the International Monetary Fund (IMF) have provided substantial technical assistance to many Latin American countries with regard to PFM issues, particularly in the last two decades—including project finance, training, and capacity-building—and have helped countries to implement PFM reforms. This book documents part of their experience in terms of such reforms, including their accomplishments, setbacks, and pending challenges. The areas covered include treasury single accounts, PFM performance indicators, integrated financial management information systems, government accounting, treasury and debt management, public procurement, and cost accounting. These areas have been selected not only to bridge the gap in corresponding literature but also, given that most countries have developed initiatives to improve these areas, because they are essential to second-generation reforms.
Each chapter reflects the perspective of IDB and IMF experts in terms of the design and implementation of PFM reforms in the region. This book also benefits from the lessons drawn from effective practices, extensive research, and the sharing of cross-country experiences through multiple modalities, in particular, the Latin American Treasury Forum (Foro de Tesorerías Gubernamentales de América Latina (FOTEGAL)) and the Latin American Government Accounting Forum (Foro de Contadurías Gubernamentales de América Latina (FOCAL)), both of which the IDB and IMF helped to establish and continue to support. This publication is a valuable information source and an inspiration for researchers and policymakers who seek to understand or wish to implement similar reforms.
At present, macro-fiscal policy faces significant regional challenges. Fiscal risks associated with contingent liabilities related to social security; public pensions; public-private partnerships; natural disasters; subnational government finances; volatile revenues, particularly in natural resource rich countries; and modest growth in developed countries must be made transparent through the sharing of PFM information. While there may be considerable heterogeneity across Latin American countries, there are widespread efforts toward fiscal discipline and sustainable levels of public debt, as well as concern regarding these risks in the medium and long term.
In response to this scenario, most countries in the region have embarked on reforms to improve their financial management performance indicators; better integrate cash and debt management; further improve liquidity management through more efficient treasury single accounts; apply international public sector accounting standards; implement public sector cost management; further integrate financial management information systems; and incorporate more transparent and efficient public procurement. The objectives of these reforms are to allocate and use public financial resources more efficiently, effectively, and transparently; measure and manage fiscal risks; and improve the formulation of fiscal and public management policies, based on reliable, comprehensive, and timely financial information.
Together, the IDB and the IMF remain committed to assist the countries of Latin America with the design and implementation of efficient PFM systems to strengthen their institutions. We hope that this book will contribute to this endeavor.
|Santiago Levy||Vitor Gaspar|
|Vice President, Sectors and Knowledge Inter-American Development Bank||Director, Fiscal Affairs Department International Monetary Fund|
Public financial management (PFM) in Latin America has undergone a significant transformation over the past years, driven in part by a need for fiscal sustainability and transparency. Efforts to modernize include strengthening institutions by upgrading regulatory frameworks; streamlining procedures; and implementing more sophisticated models, as well as information and communications technology (ICT). As the chapters in this book highlight, modernizing the various areas of PFM has produced varying results across countries in the region relating to cash and debt management, treasury single accounts (TSA), public sector accounting standards, integrated financial management information systems (IFMIS), and public procurement.
To increase operational efficiency and ensure a consistent policy stance, countries have begun to improve the coordination of their cash and debt management functions. In the cases of Brazil, Colombia, and Peru, for example, these functions have been integrated into a single unit. Furthermore, nearly all countries in the region established a TSA to integrate and manage their respective public financial resources more efficiently. Countries are also implementing second-generation reforms, such as the adoption of international public sector accounting standards to increase the credibility of financial information. To improve the availability and quality of budgetary, treasury, and accounting data, all governments implemented IFMIS. Lastly, to increase competition, generate value for money and achieve greater transparency, governments have developed electronic procurement systems and have strengthened procurement agencies, as in the cases of Chile, Brazil, Ecuador, Mexico, and Paraguay.
While these advances are considered remarkable, countries in Latin America remain conscious of the fact that there are important challenges yet to overcome with regard to modernizing their PFM. In some cases, reforms have been ill-designed, lacked traction, or have stalled due to unfavorable institutional and political economy circumstances. Furthermore, the region still lacks quantitative indicators to measure and monitor the efficiency of cash management, and effective public service cost systems remain in their infancy.
Despite international success in creating integrated cash and debt management units, the region has room to increase coordination or unify these functions under a single command. Limited coverage and political resistance have imposed obstacles in the face of a more comprehensive TSA, thus limiting efficient management of government cash liquidity. The need to further upgrade ICT systems and capacitate government accountants explains in part why countries, to date, have only implemented a subset of international accounting standards. Furthermore, budgeting for results, cost systems and accrual accounting reforms pose challenges to the design and integration of IFMIS in the region. Lastly, excessive procedural formality, as opposed to an emphasis on economy and efficiency, has posed a challenge to the increased development of procurement systems.
These reforms and associated challenges matter, in any event, since they are part of the comprehensive effort of governments to meet the demands of citizens for better public services and more solid and transparent fiscal institutions. Governments must allocate and use public resources more efficiently if they wish to succeed in tackling the increasingly complex and uncertain global environment. PFM is the key to achieving these goals.
The work of the IDB’s Institutions for Development Department focuses on assisting governments to strengthen public sector institutions so that they can achieve these goals. The Department’s specialists have provided valuable advice and technical assistance to many Latin American countries over the past few decades with a goal to modernizing their PFM.
The IDB’s Fiscal and Municipal Management Division, in close collaboration with the IMF’s Fiscal Affairs Department, has produced this book as a key contribution to countries in their efforts to promote greater efficiency, effectiveness, and transparency in public spending. I am confident that this publication, based on good practices and empirical evidence, will help significantly to overcome the challenges that countries in the region still face in their efforts to implement PFM systems that will promote a sound use of public resources and efficient macroeconomic management.
Ana Maria Rodriguez-Ortiz
Manager, Institutions for Development Department Inter-American Development Bank
The Fiscal and Municipal Management Division of the Institutions for Development Sector at the Inter-American Development Bank (IDB), together with the Public Financial Management II Division of the Fiscal Affairs Department at the International Monetary Fund (IMF), were responsible for the preparation of this book. Carlos Pimenta and Mario Pessoa coordinated the project and also edited the book.
The contributing authors are as follows:
Chapter 1: Carlos Pimenta and Mario Pessoa
Chapter 2: Marco Varea and Adriana Arosteguiberry
Chapter 3: Mario Pessoa, Israel Fainboim, and Mike Williams
Chapter 4: Israel Fainboim, Claudiano de Albuquerque, and José Adrián Vargas
Chapter 5: Joseph Cavanagh and Almudena Fernández Benito
Chapter 6: James L. Chan and Mario Pessoa
Chapter 7: Carlos Pimenta and Gerardo Uña
Chapter 8: Carlos Pimenta and Natalia Rezai
The IDB and IMF are grateful for the collaboration, input, and time provided by the Treasurers of the 16 Member Countries of the Latin American Treasury Forum (Foro de Tesorerías Gubernamentales de América Latina (FOTEGAL)), especially the organization’s President, Adriana Arosteguiberry. The annual surveys that relate to treasury management—which track the improvements made to treasury administration across the region—have been an important source of information for this book.
The authors would like to thank colleagues from the IDB and IMF for their insight and valuable comments during the preparation of this publication. Their appreciation goes to Teresa Ter-Minassian; Natalia Alonzo (Chapter 2); Greg Horman and Ramon Hurtado (Chapter 3); Delphine Moretti and Suzanne Flynn (Chapter 5); Jose Alejandro Pigatto (Chapter 6); and Leslie Harper, Ana Cristina Calderón, Félix Prieto, Javier Dávila, and Daniel Sánchez (Chapter 8).
In addition, recognition is especially given to those involved in the design and editorial production of the book. These are Natalia Rezai, Sarah Schineller, Margie Peters-Fawcett, Richard Torrington, and Word Express, Inc.
Finally, the authors are thankful for the guidance, ideas, and support received from Vicente Fretes Cibils and Gustavo Garcia (IDB) and Marco Cangiano (IMF). Without their contributions, this book would not have been possible.
Claudiano de Albuquerque holds a postgraduate degree in finance from the Brazilian School of Public and Business Administration at the Getulio Vargas Foundation. He is a former official of the Central Bank of Brazil and National Treasury Secretariat, and was formerly a deputy secretary of the Federal Budget Secretariat. As an expert in public financial management and independent consultant, he provides expertise to the International Monetary Fund (IMF), focusing on issues relating to treasury management.
Adriana Arosteguiberry graduated with a degree in accountancy from the Faculty of Economic Sciences and Administration at the University of the Republic of Uruguay. Currently, she is the national treasurer of Uruguay and president of the Latin American Treasury Forum (FOTEGAL), 2014-15.
Joseph Cavanagh was, for many years, director of the UK National Audit Office. He now works as an independent consultant and expert on public financial management. Joseph holds a degree in economics from the University of Cambridge and is a qualified public accountant.
James L. Chan holds a PhD in accountancy from the University of Illinois at Urbana-Champaign. He is professor emeritus of accounting at the University of Illinois at Chicago, distinguished overseas professor at Peking University and Shandong University of Finance and Economics, and professor by special appointment at the Research Institute of Fiscal Science in China’s Ministry of Finance. As an independent consultant to the IMF, specializing in public financial management, James works on issues relating to cost and accrual accounting, as well as budget law.
Israel Fainboim holds a master’s degree in economics from the University of Pennsylvania. He is a senior economist in the Fiscal Affairs Department of the IMF and has previously been an independent consultant to the Inter-American Development Bank (IDB) and World Bank. He was a member of the Council on Fiscal Policy at Colombia’s Ministry of Finance, secretary of finance in Bogota, a former official of the Central Bank, research associate at Fedesarrollo, and professor of public finance at both the University of the Andes and Pontifical Xavierian University in Colombia.
Almudena Fernández Benito has bachelor’s degrees in law and in economics and business administration from the Complutense University in Madrid, Spain. She is a senior controller and certified public auditor of the Spanish Government. Almudena also worked as a senior advisor in Spain’s Budget Directorate. In 2012, Almudena joined the IMF as an advisor on public financial management within the Fiscal Affairs Department.
Mario Pessoa graduated with a master’s degree in economics and social science from the University of Wales, United Kingdom. He is the deputy division chief of the Public Financial Management Division II of the IMF’s Fiscal Affairs Department. Previously, Mario worked in Brazil at the National Treasury Secretariat of the Ministry of Finance and the Federal Internal Control Secretariat.
Carlos Pimenta is a principal specialist in the Fiscal and Municipal Management Division of the IDB. He holds a master’s degree in public sector management from Getúlio Vargas Foundation in Brazil. Previously, Carlos was the executive secretary of the Council of State Reform, national secretary in the Ministry of Administration and State Reform, president of the National School of Public Administration, and vice minister of labor and public administration for the government of Brazil.
Natalia Rezai holds a bachelor’s degree in economics and a secondary degree in international relations from Stanford University. She is currently a Juris Doctor candidate at the College of William and Mary and an independent consultant to the IDB, in collaboration with the Organisation for Economic Co-operation and Development, in the areas of public financial management and institutional capacity of the state.
Marco Varea graduated with a master’s degree in international economics from the Panthéon Sorbonne University in Paris, France. He is currently and independent consultant to the IDB, French Development Agency, USAID, and World Bank in the areas of institutional capacity, management for results, public financial management, treasury, and results-based budgeting.
José Adrián Vargas is an economist with a master’s degree in management of information technology from the National University of Costa Rica. He was the national treasurer of Costa Rica and is currently an expert in treasury and public debt, working as an independent consultant to the IMF and World Bank.
Gerardo Uña graduated with a bachelor’s degree in economics from the University of Buenos Aires. He is also a master’s degree candidate in administration and public policy at University of San Andrés, Argentina. Gerardo was a manager of the SIGFE 2.0 Project in the Budget Office of Chile’s Ministry of Finance and he is currently the management control coordinator of the Cabinet of the Ministry of Finance. In addition, Gerardo is an independent consultant to the IMF and IDB in the area of public financial management.
Mike Williams holds a degree in economics from Cambridge University. He was the first chief executive officer of the UK Debt Management Office and is now an independent consultant to the IMF, World Bank, and other institutions, providing expertise in government debt and cash management.
Latin American Treasury Forum
The Latin American Treasury Forum (Foro de Tesorerías Gubernamentales de América Latina (FOTEGAL)) was created in 2010 by 16 countries with the support of the Inter-American Development Bank, International Monetary Fund, and World Bank.1 Its organization is based on a declaration prepared during an international treasury management seminar in Lima, Peru that took place from April 15 to 16, 2010.
The rationale for FOTEGAL emanates from the need to have a forum to discuss how national treasuries can use financial resources more effectively and efficiently in the face of today’s economic and social dynamics. These objectives require an overhaul of the financial management approaches adopted by the national treasuries to meet their financial obligations on time and ensure that they provide efficient financial suport to public institutions.
FOTEGAL provides a permanent space for debate and sharing of knowledge and experiences. Its annual seminars form a venue to discuss the development of instruments to improve financial policies in relation to the roles and responsibilities of national treasuries. Topics include the management of the treasury single account (TSA); cash management and planning; coordination of debt and cash management; relationship between treasury and public accounting functions; roles and responsibilities of treasuries and central banks; payment and collection processing improvements; financial and operational risk management; management of trust funds and other financial instruments; and the institutional and legal framework for treasury operations.
Various studies and technical notes have been prepared by request of the treasurers, with topics including the implementation of the TSA in Latin America, modern cash management approaches, and the results of an annual survey showing the most important developments of treasury management in the region. Further details about the forum are available at www.fotegal.org.
List of AbbreviationsABC
Asset and Liability CommitteeALM
Asset and liability managementASSE
State Health Service Administration (Administración de los Servicios de Saluddel Estado), UruguayBCB
Central Bank of Bolivia (Banco Central de Bolivia)BCN
Central Bank of Nicaragua (Banco Central de Nicaragua)BCRP
Central Bank of Peru (Banco Central de Reserva del Perú)BNA
Bank of the Nation (Banco de la Nación), ArgentinaCAFTA-DR
Central American-Dominican Republic Free Trade AgreementALC
Asset and Liability CommitteeCC
Financial Management Coordination Committee (Comisión deCCC
Cash Coordination CommitteeCDM
Cash and debt managementCGR
Contraloría General de la República (Chile)CIPFA
Chartered Institute of Public Finance and AccountancyCoA
Chart of accountsCONAC
National Council of Accounting Harmonization (Consejo Nacional de Armonización Contable)CPI
Corruption Perception IndexCSO
Civil society organizationDIPRES
Budget Directorate (Dirección de Presupuesto de Chile)DMFAS
Debt Management and Financial Analysis SystemDMO
Debt Management OfficeDMS
Debt Management StrategyDNCP
National Directorate for Public Procurement (Dirección Nacional de Contrataciones Públicas), ParaguayEONIA
Euro Overnight Index AverageEPT
Expert project teamERP
Enterprise Resource PlanningETA
Electronic transfer accountEU
Federal Accounting Standards Advisory BoardFEES
Economic and Social Stabilization Fund (Fondo de Estabilización Económica y Social), ChileFEIF
Federal Entities Revenue Stabilization Fund (Fondo de Estabilización de los Ingresos de las Entidades Federativas), MexicoFEIP
Petroleum Revenue Stabilization Fund (Fondo de Estabilizacion de Ingresos Petroleros), MexicoFIPE
Institute of Economic Research Foundation (Fundação Instituto de Pesquisas Economicas)FOCAL
Latin American Government Accounting ForumFOTEGAL
Latin American Treasury ForumFRP
Pension Reserve Fund (Fondo de Reserva de Pensiones), ChileGAO
General Accounting OfficeGDP
Gross domestic productGFOA
Government Finance Officers AssociationGFS
Government Finance Statistics ManualGPA
Agreement on Government ProcurementGPP
Green Public ProcurementGRPS
Government resource planning systemICT
Information and communications technologyIDB
Inter-American Development BankIFAC
International Federation of AccountantsIFMIS
Integrated financial management information systemsIFRS
International Financial Reporting StandardsIMF
International Monetary FundINEGI
National Institute of Statistics and Geography (Instituto Nacional de Estadisticas yGeografía), MexicoIPSAS
International Public Sector Accounting StandardsIPSASB
International Public Sector Accounting Standards BoardIT
Joint Financial Management Improvement ProgramKLOC
Thousands of lines of codeLAC
Latin America and the CaribbeanMAPS
Methodology for Assessing Procurement SystemsMoF
Ministry of FinanceOBI
Open Budget IndexOECD
Organization for Economic Cooperation and DevelopmentOGP
Open Government PartnershipOMB
Office of Management and BudgetONP
Contribution to Funds of the Office of Pension Normalization (Contribuciones a Fondos de la Oficina de Normalización Previsional), PeruOSCE
Regulatory Agency for State Contracts (Organismo Supervisor de las Contrataciones del Estado), PeruOSM
Observatório Social de MaringaPEFA
Public Expenditure and Financial AccountabilityPFM
Public financial managementPIPP
Integrated Planning and Budget Process (Sistema del Proceso Integral de Programación y Presupuesto), MexicoPOC
Proof of ConceptPPA
Multiyear Plan (Plano Plurianual)PRM
Public resource managementPRODESP
State of Sao Paulo IT Company (Empresa de Processamento de Dados do Estado de São Paulo)PROFIP
Productive Institutional Strengthening of Provincial Fiscal Management, Phase II (Programa de Fortalecimiento Etapa), ArgentinaPROFISCO
Management Support and Fiscal Integration Program (Programa de Apoyo a la Gestión e Integración de los Fiscos), BrazilPSCS
Public Service Cost SystemRBB
Bank Account Registration System (Sistema de Registro de Cuentas Bancarias), MexicoRepo
Repurchase agreementreverse repo
Reverse repurchase agreementRTGS
Real Time Gross SettlementSAFI
Integrated Financial Administration System (Sistema de Administración Financiera Integrado), El SalvadorSAMI
Integrated Municipal Administration System (Sistema de Administración Municipal Integrado), HondurasSAP
Department of Penitentiary Administration (Secretaria de Administração Penitenciária)SEE
Department of Education (Secretaria da Educação)SEFAZ
Department of Finance (Secretaria da Fazenda)SERCOP
National Service for Public Contracts (Servicio Nacional de Contrataciones Públicas), EcuadorSERPRO
Public data-processing company (Serviço Federal de Processamento de Dados), BrazilSGP
Department of Public Management (Secretaria de Gestão Pública)SIAFEM
Government Financial Management Information System (Sistema Integrado de Administração Financeira dos Estados e Municípios)SIAFF
Federal Integrated Financial Management System (Sistema Integral de Administración Financiera Federal), MexicoSIAFI
Integrated Financial Management System (Sistema Integrado de Administração Financeira do Governo Federal), BrazilSIAP
Budget Administration System (Sistema de Información de Administración Presupuestaria), ChileSICOFFE
Integrated Federal Fund Accounting System (Sistema Integral de Contabilidad de Fondos Federales), MexicoSICOM
Federal Treasury Debt Compensation System (Sistema de Compensación de Adeudos de la Tesorería de la Federación), MexicoSICOP
Accounting and Budget System (Sistema de Contabilidad y Presupuesto), MexicoSIDIF
Integrated Financial Management System (Sistema Integrado de Administración Financiera), ArgentinaSIGEF
Integrated Financial Management System (Sistema Integrado de Gestión Financiera), Dominican RepublicSIGEO
Budget Execution Financial Management System (Sistema de Informações Gerencias da Execução Orçamentária)SIGFE
State Financial Management Information System (Sistema de Información para la Gestión Financiera del Estado), ChileSIGMA
Integrated Management and Administrative Modernization System (Sistema Integrado de Gestión y Modernización Administrativa), BoliviaSII
Integrated Information System (Sistema Integral de Información de los Ingresos y Gastos Públicos), MexicoSIIF
Integrated Financial Information System (Sistema Integrado de Información Financiera), Colombia and UruguaySIMPA
Information Management System of PPA (Sistema de Monitoramento de Programas e Ações do PPA)SIOP
Integrated Planning and Budget System (Sistema Integrado de Planejamento e Orçamento), BrazilSLTI
Secretary of Logistics and Information Technology (Secretaria de Logística e Tecnologia da Informação), BrazilSME
Small- and medium-sized enterpriseSPDR
Department of Planning and Regional Development (Secretaria de Planejamento e Desenvolvimento Regional)SPG
Department of Planning and Management (Secretaria de Planejamento e Gestão)SPP
Sustainable public procurementSS
Department of Health (Secretaria da Saúde)STN
National Treasury Secretariat (Secretaría del Tesoro Nacional), BrazilTA
Federal Treasury of Mexico (Tesorería de la Federación de México)TSA
Treasury single accountUNCITRAL
United Nations Commission on Internationa Trade LawUNCTAD
United Nations Conference on Trade and DevelopmentUNLP
National University of La Plata (Universidad Nacional de La Plata), ArgentinaWTO
World Trade Organization