institutions of restraint, oversight and accountability. Latin American presidential systems of government experiment a democratic deficit, which are particularly acute in public budgeting and financial governance. Latin American ‘delegative democracies’ (O’Donnell 1994) are characterized by important failures in the systems of checks and balances, which undermine the mechanisms of oversight and accountability. The concentration of budgetary powers in the executive, the recourse to executive decrees for managing public finances, and the frequent delegation of legislative budget prerogatives conspire against the anchoring of transparency, oversight, and accountability in accountability in public financial management.
While the ‘raison d’être’ of AAAs is not questioned, their relevance and effectiveness is. In Latin America, AAAs are often discredited and contested organizations because of their perceived inability to dent endemic corruption and improve the efficacy of public spending. Moreover, they are particular hard-to-reform organizations, showing great difficulty to adjusting to shifting executive-legislative budget relations and adapting to new trends in public sector governance. Nevertheless, in the course of the 1990s, Latin American countries have succeeded in modernizing their budgetary systems in important ways. As Tables 1 and 2 illustrates, there have been important reforms in financial control, accounting systems and auditing structures over the past decade (Dorotinsky and Matsuda 2002). Partly adopted at the insistence of international financial institutions, these reforms have included the revision of organic budget laws and financial administration regulations, the adjustment of fiscal control and government auditing frameworks, and the adoption of budget transparency laws and fiscal responsibility legislation.
TABLES 1 AND 2 ABOUT HERE
This reform effort is the latest wave of reform. A first wave occurred in the 1920s with the introduction of modern public budgeting and financial management systems following the recommendations of the Kemmerer missions backed by the United States (Drake 2004) (Mexico 1917, Colombia 1923, Chile 1925, Ecuador 1925, Bolivia 1927, and Peru 1930). These reforms contributed to the rationalization of financial administration and re-equilibration of executive- legislative budget relations, largely in favor of the executive. It was at that period that modern AAAs emerged in the Andean region (Colombia 1923, Chile 1927, Ecuador 1927, Bolivia 1928, Peru 1930). A second wave, also promoted by the United States, occurred in the 1960s when most countries were under military rule. It led to the modernization of budgetary systems in several countries (Brazil 1964, Uruguay 1962, Chile 1975, Mexico 1976). The third wave of reforms started in the late 1980s in the wake of the financial crises in the region and following the precepts of the Washington consensus (Santiso 2004a, 2004b). This wave saw important changes in AAAs, for example in Argentina in 1992, Mexico in 2000, Nicaragua in 2000 and Honduras in 2002.
These reforms have been informed by new findings on the influence of political institutions on fiscal performance and the role of budget institutions in financial governance, including the renewed role of legislatives in the scrutiny of public finances even in countries with highly centralized budgetary systems such as Chile. The renewed focus on strengthening government auditing and reforming audit agencies must be placed in this broader context. The budget literature demonstrates that institutional arrangements for public budgeting do matter. It finds theoretical and empirical evidence to suggest that budget institutions influence fiscal outcomes and that centralized budgetary systems are more likely to generate fiscal discipline and lead to smaller budget deficits (Alesina et al. 1996; Stein et al. 1998).4 Concentration of budgetary powers in the executive, it is argued, is ‘more likely to enforce fiscal restraint, avoid large and
4 Budget institutions are defined as ‘the set of rules, procedures and practices according to which budgets are drafted, approved and implemented’ (Alesina and Perotti 1996:3).