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How to defuse an explosive reform

By Paul Constance


Is it possible to replace an 8,000-person bureaucracy with an autonomous agency run by 47 civil servants? Is it ethical to do so?


In El Salvador’s case, the answer to both questions is yes. In 1999, when El Salvador’s government announced plans to create FOVIAL (see link to main article at right, “A smoother road”), it also disclosed that the Ministry of Public Works department in charge of road maintenance would be shut down.

This meant that some 8,000 public employees would be in need of a new job. In many Latin American countries, this would have been enough to cause mass demonstrations and a general strike. The fact that FOVIAL created only moderate opposition in El Salvador can be attributed to strong leadership, smart use of incentives and a certain amount of luck.

First, El Salvador’s senior government officials at the time, including the president and the minister of public works, were convinced that FOVIAL was the only way to quickly bring about the massive improvements in roads infrastructure that El Salvador so desperately needed. They stood by the plan even when union leaders protested the measure and temporarily took over buildings at the ministry.

Second, the government created safeguards and incentives to ease the transition. Employees of the Dirección General de Caminos, as the maintenance agency was known, were offered generous severance packages based on their years of service. They were also offered training in the business skills required to start and run road maintenance companies. During the first year of FOVIAL’s operations, the government awarded contracts preferentially to 33 small companies that were created by former ministry employees.

Third, the government got a lucky break when it came to financing FOVIAL. When the new agency was created, Salvadorans were already paying a US$0.20-per-gallon gas tax that was used to subsidize diesel fuel prices for public transportation companies. Instead of creating a new tax to finance FOVIAL, the government eliminated the diesel subsidy and simultaneously created the FOVIAL tax.

As a result, citizens did not see any change in their gas bills. And a subsidy that had offered little benefit for the majority (though it was very popular with bus companies) suddenly offered tangible benefits for everyone, as people of all classes began to enjoy safer roads and shorter commutes. In the end, even public transportation providers accepted the change, because they were able to offer faster service (and spend less on vehicle repairs) thanks the resurfaced roads.

Still, FOVIAL’s design was not perfect. Because municipal governments were unwilling to relinquish control of their road maintenance budgets, FOVIAL’s responsibilities were limited to highways and rural roads in between cities and towns. As a result, many urban roads are still just as poorly maintained as they were in years past. Since these jurisdictional distinctions are not understood by the general public, many taxpayers complain that FOVIAL is failing to maintain the roads in their cities and towns.

The confusion has created tension and resentment among El Salvador’s mayors, who would like a percentage of FOVIAL’s budget to be transferred to their coffers. FOVIAL officials maintain that municipalities already collect tax revenue directly that is supposed to be used for roads. The impasse will have to be solved by the next generation of reformers.

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