May the best bureaucrat win!

Chile has reined in spending and corruption; now, it wants to reward quality and efficiency

By Paul Constance

During the first half of the 1990s the Chilean government did something many of its Latin American counterparts would love to do: it almost tripled its spending on public health.

The justifications for doing so were obvious enough. Despite impressive economic growth, Chile still had serious problems in the quality and coverage of its health services. What was not obvious, even after several years, was whether the extra money was making any difference. “We didn’t really know if public health was improving in proportion with the additional spending,” says María Teresa Hamuy, chief of the Government Programs Evaluation Department in Chile’s Ministry of Finance.

Chile was hardly alone in this respect. Whereas private companies (particularly those traded on stock markets) are under constant pressure to prove that their investments are resulting in improved profits or growing market share, public enterprises in Latin America rarely report results of any kind. Even when they do produce an annual report, public services hardly ever disclose enough financial information to let taxpayers determine whether funds were spent efficiently or even if the service met its stated goals.

This lack of accountability can have devastating consequences. Even in the poorest Latin American countries, billions of dollars are spent on public services each year. But without detailed information about the performance of these services, the probability that large percentages of those funds are misspent or siphoned off through corruption is very high. Financial record-keeping at many public services is so lax that it is impossible to determine exactly how the budget was executed in the previous year. On the rare occasion when audits are performed, they often reveal that practically all of a public service’s budget is spent on salaries. Taxpayers, who see very little benefit from most public spending, gradually come to the conclusion that all government services are inefficient and corrupt.

In Chile the situation is somewhat more positive because Chilean bureaucrats enjoy a reputation for scrupulous adherence to laws and regulations. And with good reason. Sooner or later, almost every Chilean government office gets a visit from a lawyer sent by the Contraloría, the national audit agency charged with ensuring the legal integrity of all activities in the public sector.

Chile’s Contraloría is that rare thing: a powerful, autonomous, politically neutral and highly professional public service. Many people believe it has been instrumental in gaining Chile a reputation (confirmed in numerous international surveys) as the least corrupt nation in Latin America.

And yet according to Rosana Costa, a management scholar at the Instituto Libertad y Desarrollo, a think tank in Santiago, the Contraloría’s rigorous audits often miss the forest for the trees. “If you’re a bureaucrat and you buy a pencil, the Contraloría will check to make sure you got the proper prior authorization, filed the receipt and met the government’s technical specifications for pencils,” said Costa. “But they won’t care if you bought it at the most expensive store in all of Chile.”

Worth the money? Costa and Hamuy are concerned about the same problem. Chile’s public sector may be law-abiding, but is it efficient and cost-effective? When the government provides a service, are taxpayers getting the best possible value for their money? According to Hamuy, the effort to answer these questions began with the creation of the National Investment System in the 1980s. Simply put, this unit of Chile’s Planning Ministry conducts cost-benefit analyses of proposed spending items before they are introduced in the budget for approval by the legislature. This way, programs that are redundant, poorly conceived or otherwise suspect have a smaller chance of survival.

Still, once a project did make it into the budget, it was very difficult for Congress to assess its quality after the fact. So in the mid-1990s the Chilean government designed a two-pronged effort to make its public services more accountable. First, the powerful budget office within the Finance Ministry urged each public agency to voluntarily define its products and services, come up with performance indicators, and adopt a set of service improvement goals for each budget cycle. Since 1998, practically all Chile’s public services have posted these detailed Performance Improvement Plans on the Internet at the beginning of the fiscal year.

Then, to make sure these plans did not languish in bureaucratic obscurity, the budget office added an extraordinary incentive. Public agencies that can prove that they met their performance improvement goals by the end of the year are entitled to a 2 percent across-the-board budget increase in the following year.

Measuring value. Knowing that such voluntary assessments can be self-serving and subjective, Chile’s budget office created a sort of reality check in the form of the Government Program Evaluation Department. Currently headed by Hamuy, this department is charged with producing independent assessments of the efficiency and effectiveness of each public service. Not surprisingly, it has met with a less than enthusiastic reception from some government officials who do not think they should be subjected to outside scrutiny of any kind. “In many of our countries we do not have an evaluation culture,” says Hamuy. “And that is particularly true in the public sector.”

According to Mario Marcel, head of the Finance Ministry budget office that oversees the evaluation department, “there was also some initial resistance from people who said, ‘Why are you going to pick on my program?’” To avoid accusations of conducting politically motivated witch hunts of individual agencies, Marcel’s office announced that virtually all agencies would be evaluated according to a schedule that is published at the beginning of each budget cycle. In a further effort to guarantee impartiality, the evaluations are not conducted by the government, but by three-member “expert panels” of independent consultants with relevant expertise. The consultants are given full authority to grill agency officials, examine financial records, and even interview service customers. In the end, they publish a report that is sent to Congress and is also placed on the Internet (see sidebar on the right.)

As an example of a typical evaluation, Hamuy mentioned a government program that provides balanced meals to families in poor neighborhoods. “We want to know if they are actually reaching the number of families they are supposed to,” she said. “We want to know if the food is of the right quality, if it is easy for people to get, if the costs are reasonable, and if the program is sustainable over time. But above all, we want to know if it is having its intended impact: are malnutrition levels in these neighborhoods actually dropping?”

To date, more than 80 Chilean public services have been subjected to these evaluations. Many of the evaluation reports have revealed serious deficiencies and have led to overhauls of individual services. Now, according to Marcel, the challenge is to make sure that budget officials use the evaluation reports constructively when they decide how much each public service will receive in the coming year. “Our goal is to have a budget debate where the question of results is on the table. It’s something that seems obvious in theory, but that in practice is extremely rare,” Marcel said.

Date posted: March 2002