INSTITUTIONAL GOVERNANCE REVIEW
“STRENGTHENING PERFORMANCE ACCOUNTABILITY IN
HONDURAS”
VOLUME I (In Two Volumes)
Executive Summary
Main Report
March 9, 2009
Latin America and the Caribbean Regional Office
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ABBREVIATIONS AND ACRONYMS
ADEL Local Development Association
AIN-C Atención Integral a la Niñez en la Comunidad (Comprehensive Community
Child Health Services)
AMHON Association of Municipalities of Honduras
Sida Agencia Sueca para el Desarrollo Internacional (Swedish Agency for
Internacional Development)
CBOs Community-based organizations
CCERP Consejo Consultivo de la Estrategia para la Reducción de la Pobreza
CEB Centro de Educación Básica (Centre of Basic Education)
CEPREB Centro de Educacion Prebasica (Centre for Prebasic Education)
CESAR Centro de Salud Rural (Rural School Centre)
CEIMSA Commission for the Modernization of the Customs System
CGR Accountant General’s Office
CMH Honduras Medical Association
CNA Consejo Nacional Anticorrupcion (National Anticorruption Council)
COHEP Consejo Hondureño de la Empresa Privada (Honduran Council for Private
Business)
CONADEH Comisionado Nacional de Derechos Humanos (Human Rights
Commissioner)
CONATEL Comisión Nacional de Telecomunicaciones (National Commission for
Telecommunications)
CONEANFO National Commission for the Development of Non-Formal Education
CPME Comision Presidencial de Modernizacion del Estado (Presidential
Commission for State Modernization)
DEI Dirección Ejecutiva de Ingreso (Executive Directorate of Revenues)
DGSC Dirección General de Servicio Civil (General Directorate of the Civil
Service)
EFA Programa Educación para Todos (Eduation for All)
ENEE Empresa Nacional de Energía Eléctrica (Electricity Company)
ERP Estrategia para la Reducción de la Pobreza (Poverty Reduction Strategy)
FONAC Foro Nacional de Convergencia (National Convergence Forum)
GDP Gross Domestic Product
GoH Government o f Honduras
HONDUTEL Empresa Hondureña de Telecomunicaciones (Honduran
Telecommunication Enterprise)
HR Human Resources
IDB Inter-American Development Bank
INE Instituto Nacional de Estadistica (National Institute for Statistics)
INFOP Instituto Nacional de Formacion Profesional (National Institute of
Vocational Training)
Lps Lempiras
MLps Million Lempiras
MOE Ministry of Education
MOF Ministry of Finance
MOH Ministry of Health
NAS Nueva Agenda de Salud (New Health Agenda)
NGOs Non-governmental organization
PIU Project Implementation Unit
PNS Plan Nacional de Salud (National Health Plan)
PN Plan Nacional (National Plan)
PROHECO Programa Hondureño de Educación Comunitaria (Honduras Community
Education Program)
SE Secretaría de Educación (Ministry of Education)
HONDURAS IGR – VOLUME I
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SEFIN Secretaría de Finanzas (Ministry of Finance)
SIAFI Sistema Integrado de Administración Financiera (Integrated Financial
Management System)
SIARH Sistema Integrado de Administración de los Recursos Humanos (Integrated
System for the Administration of Human Resources)
SIARHD Sistema Integrado de Administración de los Recursos Humanos Docentes
(Integrated System for the Administration of Human Resources in
Education)
SIERP Sistema de Información para la Estrategia para la Reducción a la Pobreza
(Poverty Reduction Strategy Information System)
SMEs Small & Medium Enterprises
SGPR Sistema de Gerencia basado en Gestión por Resultados (Results-based
Management System)
SS Secretaría de Salud (Ministry of Health)
TSC Tribunal Superior de Cuentas (Supreme Audit Institution)
UECF Coverage Extension and Financing Unit
UMCE External Unit for Measuring Education Quality
UNAH Universidad Nacional Autónoma de Honduras (National Autonomous
University of Honduras)
UNAT Unidad de Apoyo Técnico
UPEG Unidad de Planificacion y Evaluación de la Gestión (Planning and
Evaluation Unit)
WB World Bank
HONDURAS IGR – VOLUME I
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INDEX
VOLUME I - MAIN REPORT
ACKNOWLEDGEMENTS
EXECUTIVE SUMMARY
MAIN REPORT – STRENGTHENING PERFORMANCE ACCOUNTABILITY IN HONDURAS
VOLUME II - BACKGROUND CHAPTERS AND ANNEXES
CHAPTER 1: OVERVIEW OF THE POLICY-MAKING PROCESS
CHAPTER 2: THE CHALLENGE OF PROFESSIONALIZING THE PUBLIC ADMINISTRATION
CHAPTER 3: JUSTICE AND PUBLIC SECURITY IN HONDURAS
CHAPTER 4: TRANSPARENCY AND ACCOUNTABILITY IN THE EDUCATION SECTOR
CHAPTER 5: TRANSPARENCY AND ACCOUNTABILITY IN THE HEALTH SECTOR
CHAPTER 6: ACCOUNTABILITY FRAMEWORK FOR MUNICIPAL GOVERNMENTS
CHAPTER 7: CORPORATE GOVERNANCE OF HONDURAN PUBLIC ENTERPRISES
HONDURAS IGR – VOLUME I
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INDEX - VOLUME I
EXECUTIVE SUMMARY ................................................................................................................................... 8
MAIN REPORT - HONDURAS AT A CROSSROADS .................................................................................. 12
OVERVIEW OF THE POLICY-MAKING PROCESS ................................................................................................... 15 THE CHALLENGE OF PROFESSIONALIZING THE PUBLIC ADMINISTRATION ......................................................... 20 JUSTICE AND PUBLIC SECURITY IN HONDURAS .................................................................................................. 23 TRANSPARENCY AND ACCOUNTABILITY IN THE EDUCATION SECTOR ............................................................... 26 TRANSPARENCY AND ACCOUNTABILITY IN THE HEALTH SECTOR ..................................................................... 29 ACCOUNTABILITY FRAMEWORK FOR MUNICIPAL GOVERNMENTS..................................................................... 32 CORPORATE GOVERNANCE OF HONDURAN PUBLIC ENTERPRISES ..................................................................... 36
List of Tables, Graphs, Boxes and Figures
Table 1. Characteristics of public policies in Latin America. ................................................................ 15
Table 2. Tax Exemptions ....................................................................................................................... 15
Table 3. Characteristics of the party system. ......................................................................................... 17
Table 4. Quantity and cost of personnel by staff category Honduras Central Government .................. 22
Table 5. Judicial Workload, Selected Countries .................................................................................... 24
Table 6. Evolution of criminal cases, from filing to resolution, 1999-2006 .......................................... 25
Table 7. Performance of sixth grade students in mathematics and Spanish ......................................... 27
Table 8. Health Outcomes and Outputs, 2001 and 2005/06 ................................................................. 29
Table 9. Health Expenditures in Central America, 2005 ....................................................................... 30
Table 10. Municipal Budget vs. Central Government Budget ............................................................... 33
Graph 1. Confidence in the Public Administration, Honduras 1996 and 2005 ..................................... 13
Graph 2. Public spending on interest payments and salaries, 1997-2002 .............................................. 16
Graph 3. Human Resource Management in the Public Sector in Latin America .................................. 20
Graph 4. The Impact of the Increase in Administrative Efficiency ....................................................... 21
Graph 5. Budget execution of the Ministry of Education, 2001-2007 ................................................... 27
Graph 6. Budget distribution in the municipal sector ............................................................................ 34
Graph 7. Submission of Municipal Accounts to the Tribunal Superior de Cuentas .............................. 35
Graph 8. ENEE Financial situation and losses, 2004-2007, millions of Lempiras. ............................... 36
Box 1. The case of Comayagua ............................................................................................................. 19
Box 2. Transparency, trust in government, and willingness to pay taxes. ............................................. 33
Figure 1. The accountability framework ................................................................................................ 14
Figure 2. Diagram of responsibility and accountability relationships in the electricity sector .............. 38
HONDURAS IGR – VOLUME I
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ACKNOWLEDGEMENTS
From the beginning of this project, the World Bank and the Honduran Government agreed that the
method used in creating this study was going to be a key element to its success. In order for it to
be of benefit to those who fight against poverty in the country, and contribute to the national
debate, it would have to be carried out in a participatory manner, by involving national and
international specialists working together with government representatives in each of the relevant
institutions, in addition to considering input from Honduran citizens.
Following these guidelines a Steering Committee was created to lead the process of elaboration
and discussion of the study. This Steering Committee was led by Rodolfo Pastor Fasquelle,
Secretary of Culture, Art and Sports and Coordinator of the Social Cabinet; Ricardo Arias,
Subsecretary of the Presidency; and Hugo Castillo, Subsecretary of Finance; with representatives
from the following government agencies – the Poverty Reduction Strategy Commission, the
Minsitries of Health, Education and Interior and Justice.
The study has been carried out in collaboration with the following actors from the international
community, who contributed with financial support and/or technical specialists: DFID, ASDI,
AECI, IDB, and GTZ. Other actors from the international community that participated in the
process as a part of the Steering Committee were the UNDP and USAID.
On the part of the World Bank, this report has been prepared by a team led by Ana Bellver
(LCSPS) and comprising, in alphabetical order: Cristian Aedo (LCSHE), Antonio Blasco
(LCSFM), Henri Fortin (LCSFM), Lidia Fromm (LCSHE), Linn Hammergren (LCSPS), Martin
Hessel (LCCHN), Christine Lao Pena (LCSHH), Alberto Leyton (LCSPS), Fabienne Mroczka
(LCSFM), and José Rezk (LCSFM). The group of national and international consultants that
worked in the different chapters included: Pedro Antman, Eva Caballero, Ana Cristina Barrios,
Miguel Cálix, Marco López, Israel Mandler, Roberto Martínez, Víctor Meléndez, José Luís
Méndez, Napoleón Morazán, Joaquín Oviedo, Mark Payne, Sandra Pineda, Hernán Pflucker,
Hector Silva, and Miguel Braun and Gabriel Filc from CIPPEC, and Helmis Cárdenas, Rafael del
Cid, Marco Moncada and Ramon Romero from ESA Consultants.
The principal authors of the separate background chapters are as follows:
Chapter 1: Ana Bellver, Martin Hessel and, Mark Payne.
Chapter 2: Alberto Leyton and Martin Hessel.
Chapter 3: Linn Hammergren and Miguel Cálix.
Chapter 4: Cristian Aedo and Lidia Fromm.
Chapter 5: Christine Lao Pena and Lidia Fromm.
Chapter 6; Antonio Blasco, Fabienne Mroczka and, José Rezk.
Chapter 7: Henri Fortin, Ana Bellver and Ana Cristina Hirata Barros.
The team also benefited from the collaboration of Dante Ariel Mossi (LCCHN); Phil Keefer and
Cesi Cruz from DEC; Alexander Berg and Sunita Kikeri from the IFC; Edgard Restrepo from IFC
Honduras, and Jonathan Halpern (ETWWA).
The team would like to thank Laura Frigenti, LCC2C country director; Geoffrey Bergen,
Honduras country manager; Nick P. Manning, public sector manager, Humberto López, lead
HONDURAS IGR – VOLUME I
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economist, and the three peer reviewers – Ian Walker, Steve Webb and Yasuhiko Matsuda – for
their support during the elaboration of this study and their valuable comments.
It is not possible to name all of the Hondurans who have contributed in some way to this study,
but we would particularly like to thank government counterparts from the Office of the
Presidency, the Ministry of Education, the Ministry of Finance, the Ministry of Interior and
Justice, the Ministry of Health, the Public Ministry, the Judicial Branch, the Ministry of Public
Security, the General Directorate of the Civil Service, the Technical Support Unit of Presidency,
the Honduran Social Security Institute, the Poverty Reduction Strategy Commissioner, and the
Association of Municipalities of Honduras, for their involvement, both through the participation
of their senior officials in the Steering Committee and the knowledge and valuable contributions
of their technical teams.
We also want to express our gratitude to the representatives of civil society organizations,
universities and the private sector for their time and dedication. Their willingness to participate in
the numerous meetings, and the contributions they made, greatly enriched the study.
The guiding principles that were established with the Government at the beginning of this project
were that the document should:
Have a practical focus: the selection of priority areas and the identification of the questions
that should be considered in each area were performed pragmatically with the aim of
implementing gradual advances and solutions which would achieve intermediate results.
Be policy oriented: each chapter should conclude with concrete and viable proposals.
Be informed by a participatory process: decision-makers, heads of institutions and technical
teams should be involved in the design and elaboration of each one of the chapters.
Build on existing practices and accumulated knowledge in the sector: the analysis begins with
existing studies and advances already made, and reflects the current beneficial practices and
ongoing initiatives in the country.
We hope that we have fulfilled these objectives and that this study becomes a useful instrument
both for the departing administration to consolidate its achievements, as well as for the new
administration that will assume power in 2010 and for all of the different actors involved in the
fight against poverty in the country
HONDURAS IGR – VOLUME I
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EXECUTIVE SUMMARY
i. Having achieved fundamental milestones in terms of representative democracy
and institutional modernization, Honduras continues to face important challenges in its
bid to provide public services with coverage and quality commensurate with the
resources available to the country. Honduras has come a long way in its democratic
development, with seven free elections held since 1981 and the military subordinated to
civilian control. Since the 1980s, the country has undertaken key public sector management
reforms and has all of the formal components of a modern democracy. However, its average
rate of economic growth and its degree of progress in reducing poverty over the past two
decades have been low relative to most other Latin American countries –– at this growth rate,
Honduras will reach the current income per capita of El Salvador ($2,530) in 2050. Efficiency
of public spending continues to be very low compared to regional standards, and the capacity
of the public administration insufficient for ensuring the minimum goal of universal coverage
of basic services.
ii. These difficulties in improving citizens‟ quality of life have a negative impact on
their confidence in public institutions and undermine the process of democratic
consolidation. Hondurans do not question democracy as the preferred political system, but
they are dissatisfied with its capacity to respond to the problems that confront the country and
provide services that benefit the majority of the population. The high level of absenteeism in
the most recent presidential elections (45 percent in 2005 compared with 16 percent in 1985)
was a wake up call in this sense. The upcoming elections provide a unique opportunity to
regenerate citizens’ trust in public institutions and, in the capacity of the democratic system,
to respond to their main concerns, which include poverty, unemployment, and public security.
iii. The quality of public policies in Honduras is an important factor behind these
poor development outcomes. A few broad characteristics of public policies can be
observed across a variety of sectors. Public resources in Honduras are often inefficiently
allocated; policies tend to benefit the groups with strongest bargaining power rather than the
general interest, and in general, policy implementation is poor. To understand why the policy
process is so prone to the influence of interest groups it is necessary to consider the incentive
structure that stem out of three salient features of the party system: the high level of
institutionalization of the two main parties, their internal fragmentation and weak
programmatic orientation. In a context such as this, political actors have little incentive to
prioritize policy reforms that impose immediate costs on specific well-organized groups,
while the benefits for the wider population may be more evenly spread and uncertain.
iv. The analysis of reform trajectories in the sectors included in this study support
the argument that poor sector performance is related to weak implementation and to the
incentive structure that policymakers face. Some of the initiatives that have been proposed
to enhance sector performance are already contemplated within the current legal and
institutional framework (as in the cases of civil service, education, and public enterprises) and
yet, the policy discussion in the country has focused on designing further reforms rather than
on enforcing already approved initiatives. Even in the cases where major reforms have been
passed (such as the justice sector), performance has not improved accordingly. With few
exceptions, the lack of reform champions that have emerged from the Honduran political
landscape it is striking which is related to the incentive structure mentioned earlier. The
HONDURAS IGR – VOLUME I
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successful reform of the Executive Directorate of Revenues (DEI) shows however that it is
possible to make significant advances in politically sensitive areas, such as human resource
management, if there is a champion behind them that is able to mobilize sufficient political
support. In such context there is a need to be opportunistic to take advantage of entry points
and champions when they emerge.
v. Honduras is making advances towards a stronger institutional framework, but
less rapidly than would be expected in a country with its trajectory of institutional and
democratic reforms. International comparisons reveal that Honduran institutions perform
relatively worse than their counterparts in other democratic countries with similar levels of
development. Three factors are highlighted in this report that, if addressed, could help the
country to improve its institutional framework and the quality of the policy-making process:
the lack of transparency around decision-making and lack of available information to assess
performance that makes it difficult for citizens to hold policymakers for their decisions and
their impact on institutional performance; the shortage of mechanisms to punish or reward
good performance so it can be translated into political capital; and the weak organizational
capacity of groups representing public interest What follows are specific recommendations to
improve the quality of the policymaking process in sectors which are key for the functioning
of the state machinery (such as the public administration and the justice sector), or for the
growth of the country (such as education, health and public enterprises) and for deepening the
decentralization process (subnational governments).
vi. A general conclusion, highlighted throughout the study, is the need to strengthen
the country‟s accountability framework and in particular, the accountability of
policymakers towards citizens and tax payers, and to focus the policy discussion on
performance. In order to make some improvements to the quality of policy-making in the
short term, the following recommendations should be considered. First, to focus public and
political attention on a few key stages in the policy-making process, such as the legislative
passing of the budget, the process for agreeing public service salaries and the electricity tariff
regime. Second, to focus policy discussion on performance, increase the visibility of good
policy outcomes and strengthen the accountability of political actors. Honduras has made
progress in this regard with the implementation of the Results-Based Management System
(Sistema de Gerencia por Resultados, SGPR), developed by the Presidency and managed by
UNAT, and the Transparency Law. Although these instruments still need further
improvements, they represent country-led efforts to enhance transparency and performance
accountability of public institutions. Third, provide support to the groups representing the
broader public interest so they can participate in policy discussions.
vii. To address weaknesses in the implementation of public policies a new approach
towards the professionalization of the public administration needs to be adopted in
order to ensure that reforms take into consideration the country context and become an
integral part of public sector management reforms. Despite its importance for service
delivery and the effectiveness of public policy, management of human resources continues to
be one of the weakest areas within Honduran public administration. Previous reform attempts
failed, partly due to an excessive emphasis on the control of salary expenditures and the wide-
ranging legal reforms which aimed to radically alter the structure of public employment. In
order to increase its chances of success, any reform needs to take into account the co-
existence of different employment regimes in the public administration (i.e. the civil service
HONDURAS IGR – VOLUME I
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regime, special statutes and contractual employment) and should be implemented as part of
broader institutional reforms.
viii. Honduras has undertaken important reforms since the early 1980s to strengthen
the justice sector as a key element in good governance, and its role in improving public
security, but the large increase in funding for the sector has not yielded the expected
performance improvements. Compared to regional and international standards, the
productivity of all sector institutions is very low. In a country with one of the highest crime
rates in the region, the performance of all actors in the criminal justice chain is
disappointingly poor. Less than ten percent of reported crimes reach some kind of resolution
and it is estimated that roughly 90 percent of these are minor infractions in which the
defendant is apprehended on the spot (in flagrante). Although the number of judges has
doubled since 1986, output per judge has not increased and is among the lowest in the region.
It is doubtful that offering more resources to the sector will improve the situation. The first
step should be to use performance information and set productivity goals to hold each
institution accountable for the resources it receives and the services it provides. In addition, a
high priority for policy dialogue should be to avoid a qualitative deterioration in the Supreme
Court at the upcoming renewal. The new selection process implemented in 2000-2001 to
restrict political interference was an important achievement for the country that needs
continuous support so there are not major setbacks. The next step on the Supreme Court is to
move a rolling renewal process so a couple of judges are replaced every year, instead of
having a big bang replacement.
ix. The comparison between the reform trajectories of the two key sectors for
achieving the Millennium Development Goals – education and health – is striking and
reflects differences in the bargaining power of the actors involved. During the 1990 to
2007 period, Honduras substantially increased its expenditure on education, but this increase
in resources has not been translated into better educational outcomes. The country now
invests more per unit of learning achieved, due mainly to the share of spending on teacher
salaries, which, though already high, has increased sharply in the last eight years. The main
factor responsible for such poor educational outcomes is the opposition of the teachers’ to any
attempt to reform the sector and introduce performance measures. Meanwhile, the health
sector is an interesting case in the Honduran context because in general its performance with
regard to advancing reforms has been superior to other sectors. This relative success is mainly
due to the different power structure of the sector and the “bottom-up” reform approach
adopted that generated a constituency for reform at the local level. An important exception is
the procurement of pharmaceuticals where strong vested interests oppose any reform.
x. In education, the main recommendations include the need to empower other
actors to participate in policy discussion, acting as counterweight for the teacher‟s
unions, and to focus the discussion on learning outcomes. The establishment of a National
Education Council that leads the reform process is a critical step to unblock the discussion
around the General Education Law with the unions. Such Council should include
representatives from parent associations, universities, municipal governments, the private
sector and the PRS Council as actors that can represent the broad interest in the sector. In
addition, the development of performance indicators at the departmental, district and school
level would be a critical input for enhancing accountability of the actors involved in the
service delivery chain. Same as the full implementation of the recommendations arising from
HONDURAS IGR – VOLUME I
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the Teacher Census and Auditing of Post conducted by the TSC. If no action is taken, it would
have devastating consequences on government’s credibility. In the case of health, the main
recommendations are to develop performance information for decision-making and
accountability, to set up service standards and to improve continuity of key health staff
appointments to minimize disruptions in the implementation of sector reforms.
xi. An effective accountability framework for municipal governments is critical not
only to enhance the effectiveness of poverty reduction programs at the local level, but
also to raise public support for the decentralization process. However, the accountability
framework currently in place is not exercising an effective control on the financial
management of municipal governments. The main recommendations in this regard are: to
ensure the framework is applied to all funds that are executed at the municipal level and not
only to the funds executed by municipal governments, to incorporate incentives for
municipalities to comply with the reporting requirements and to better leverage on social
monitoring initiatives at the local level. Given that the level of international assistance
executed at the municipal level is significant – both in terms of the number of initiatives and
the amount of funding – donors should be more proactive in strengthening the control
framework and promoting social accountability, by insisting that municipal budget execution
reports be appropriately registered, requesting that annual financial reports be submitted to the
TSC, and that budgetary information be provided to the Transparency Councils.
xii. Strengthening the corporate governance framework of public enterprises is key
to improving the performance of these companies. Honduran public enterprises
predominate in sectors that are integral to the socioeconomic development of the country. Yet
the three largest public enterprises, ENEE, SANAA, and HONDUTEL, have experienced
serious operational and financial difficulties over the recent period. Many of the weaknesses
observed in the institutional framework arise from: (a) the lack of separation of policy-making
functions from those related to regulation and provision of services, which undermines the
effectiveness of the counterbalance system; and (b) the lack of transparency and available
information regarding the management and performance of these companies, thereby
undermining accountability. The lack of empowerment from consumer and citizens as key
stakeholders in improved management of these enterprises is also a contributing factor to
weak accountability. In the short term, a priority should be to (a) establish a specialized
oversight entity to fulfill the Government’s “ownership” function – either strengthening
existing units at SEFIN or Presidency, or establishing an independent commission that would
report first to the Government and then to Congress – and (b) enforce the provisions in the
organic laws of ENEE and HONDUTEL that require the General Manager to be appointed by
the Board of Directors. To improve performance accountability, the priorities are to set up
performance targets to be monitored periodically through the SGPR, ensuring compliance
with the requirements of the Transparency law, and develop service standards. Lastly, to
ensure appropriate financial accountability, public enterprises should be required to publish
their audited financial statements each year.
HONDURAS IGR – VOLUME I
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STRENGTHENING PERFORMANCE ACCOUNTABILITY IN HONDURAS
- THE KEY CHALLENGE AHEAD
1. Honduras has come a long way in its democratic development, with seven free
elections held since 1981 and the military subordinated to civilian control. Since the
1980s, the country has undertaken key reforms and has all of the formal components of a
modern democracy, including: one of the most institutionalized and stable party systems in
the region; an electoral system which is becoming more representative over time; a congress
that acts as a counterbalance to the executive branch; a framework that provides the basis for
judicial branch modernization; a budget operating under a single account that is executed
through an integrated financial management system (SIAFI); an independent central bank;
and a tax agency that has proven to be an efficient instrument for collecting revenues for the
state.
2. However, having achieved fundamental milestones in terms of representative
democracy and institutional modernization, it continues to face important challenges
with regard to providing a level of services commensurate with the resources available
to the country. The efficiency of public spending continues to be very low compared to other
democracies with similar levels of development, and the capacity of the public administration
is insufficient for ensuring the minimum goal of universal coverage of basic services.
Honduras’ average rate of economic growth and degree of progress in reducing poverty over
the past two decades has been low relative to most other Latin American countries. Although
its performance has improved recently, this is more likely a reflection of the favorable
international context than a reduction in long-term obstacles to growth. Even if Honduras
maintains the average annual per capita growth rate of the last four years (1.7 percent),
income per capita will barely double over the next 40 years, reaching $2,500 in 2050 –
approximately the current per capita income of El Salvador ($2,530) – and it is unlikely that
the country will reach the Millennium Development Goals established for 2015 (PER, 2007).
3. The lack of progress witnessed by citizens with regard to improvements in their
quality of life, has led to a downturn in confidence in public institutions and is
undermining the process of democratic consolidation. In spite of all of the reforms carried
out in the previous decade, the confidence in the public administration has not improved (see
Graph below). Hondurans do not seem to question democracy as the preferred political
system, but they are dissatisfied with its capacity to respond to the problems that the country
faces and to provide services that benefit the majority of the population1. The high level of
absenteeism in the most recent election (45 percent in 2005 compared with 16 percent in
1985) was a wake up call in this sense, with one third of citizens who did not vote citing
1 According to Latinobarómetro, while levels of satisfaction with democracy hovered around 45 percent from
1997 to 2000, they fell to 31 percent in 2007 and the two surveys carried out by LAPOP in the last five years
show a decrease in satisfaction with democracy from 64 percent in 2004 to 54 percent in 2006. Similarly, the
levels of dissatisfaction with democracy have increased. According to surveys carried out by the Latin
American Public Opinion Project (LAPOP), dissatisfaction with democracy increased from 36 percent in
2004, to 46 percent in 2006 (Cruz, Argueta and Seligson, 2006).
HONDURAS IGR – VOLUME I
13
reasons related to their attitude toward the political system2. The upcoming elections provide
a unique opportunity to regenerate the trust of citizens in public institutions and in the
capacity of the democratic system to respond to their main concerns, which include poverty,
unemployment, and citizen security.
Graph 1. Confidence in the Public Administration, Honduras 1996 and 2005
28.0%
65.0%
0
10
20
30
40
50
60
70
High/Some Seldom/None
27.5%
66.0%
0
10
20
30
40
50
60
70
High/Some Seldom/None
Source: Latinobarómetro, 1996 and 2005. The sample for each survey comprised approximately 1000 persons
with 66 and 68 persons either not responding or saying that they did not know.
4. Previous analytical studies (Development Policy Report 2004; Poverty
Assessment 2006; Public Expenditure Report 2007), looked into the developmental
challenges that Honduras faces and provided technical recommendations. Many of the
reforms that are needed for improving the provision of basic services and placing the
economy on a path of sustained growth that can have a lasting impact on poverty reduction
are well-known, and yet no government has been able to successfully implement them. The
Development Policy Report (2004) emphasizes four policy areas that are especially important
for accelerating growth in Honduras: human capital, public infrastructure, financial market
development, and governance. Lack of progress in most of these areas does not rest in the
technical content of the proposed reforms but around constraints for decision-making. Using
the conclusions of those reports as a foundation, this study aims to contribute to this
discussion by analyzing the incentives behind decision-making provided by the institutional
framework, thereby contributing to a better understanding of the structural limitations that
each government confronts when assuming office.
5. This study does not try to evaluate any particular administration but rather to
offer recommendations that can facilitate the adoption of some of the reforms that are
needed for accelerating growth and reducing poverty. The first part of the report provides
an overview of the policy-making process; that is, the process of formulation, approval and
implementation of public policies, in order to identify the incentives they provide that affect
the behavior of the actors involved. The second part of this study analyzes the institutional
framework in sectors which are key for the functioning of the state machinery (such as the
bureaucracy and the justice sector), or for the growth of the country (education, health, public
enterprises) and for the decentralization process (the subnational governments). Each
chapters aims to contribute to the debate in that specific area and foster a discussion about
2 That is to say, “lack of interest,” “I do not like any of the candidates,” “I do not believe in the system.”
Another third do not vote because of problems with registration, and the remaining third do not vote for a
variety of personal reasons.
HONDURAS IGR – VOLUME I
14
The State
Politicians Policymakers
Providers
Administrators
Front-line
Providers
Citizens
Users
Voice
Compact
Client Power
Services
possible reform options. An effort has been made to identify with the relevant national
counterparts and development partners, the areas where value could be added to the efforts
already being made in the country.
6. A general conclusion, highlighted throughout the study, is the need to strengthen
the country‟s accountability framework and in particular, the accountability of
policymakers towards citizens and tax payers. The reports applies the analytical framework
developed by the World Development Report (2004) that emphasizes the relationship between
citizens, politicians, service-providers or public institutions and the legal-institutional
framework that governs them (see Figure 1), and Spiller, Stein and Tommasi (2003)
framework to analyze the quality of the policymaking process. In general, recommendations
are geared towards strengthening the electoral connection between voters and decision makers
by altering the incentive structure and increasing the reward for good performance. On the
one hand, there is a need to enhance transparency around decision making and clarify
institutional mandates, so citizens can evaluate their representatives in terms of the decisions
they take on their behalf. On the other hand, the provision of information about institutional
performance can assist citizens in assessing the consequences of those decisions, translate
good performance into political capital and improve the quality of the policy debate.
Figure 1. The accountability framework
Source: World Development Report, 2004
7. The analysis of reform trajectories in the sectors included in this study support
the argument that poor sector performance is related to weak implementation and to the
incentive structure that policymakers face. Some of the initiatives that have been proposed
to enhance sector performance are already contemplated within the current legal and
institutional framework (as in the cases of civil service, education, and public enterprises) and
yet, the policy discussion in the country has focused on designing further reforms rather than
on enforcing already approved initiatives. Even in the cases where major reforms have been
passed (such as the justice sector), performance has not improved accordingly. With few
HONDURAS IGR – VOLUME I
15
exceptions, the lack of reform champions that have emerged from the Honduran political
landscape it is striking which is related to the incentive structure mentioned earlier. The
successful reform of the Executive Directorate of Revenues (DEI) shows however that it is
possible to make significant advances in politically sensitive areas, such as human resource
management, if there is a champion behind them that is able to mobilize sufficient political
support. Therefore, in such context there is a need to be opportunistic to take advantage of
entry points and champions when they emerge
OVERVIEW OF THE POLICY-MAKING PROCESS
8. A few broad characteristics of public policies in Honduras are important factors
in accounting for the poor development outcomes and poor use of resources. A
comparative perspective is provided using the index developed by Stein et al., that is then
backed up with country evidence. Compared to the Latin American and Central American
averages, Honduras performs comparatively well with regard to the stability of the system,
but scores lower in three characteristics that are critical for the allocation of resources and
effectiveness of public policies: public regardedness or orientation to the public good,
efficiency, and the quality of implementation and enforcement. That is, public resources in
Honduras are not allocated to activities that could give the greatest return, policies tend to
benefit the groups with strongest bargaining power rather than the general interest, and in
general, policy implementation is poor.
Table 1. Characteristics of public policies in Latin America.
Adaptability Stability Enforcement Coordination
Public
Regardedness Efficiency
LAC 2.36 2.50 2.08 2.05 2.10 1.85
Centroam 2.30 2.46 2.04 1.91 2.05 1.81
HON 2.43 2.60 2.01 2.14 1.99 1.67
Source: Stein et al. (2005)
9. How public resources are collected and spent is at the core of the policy-making
process and illustrates well these three characteristics, as it is the result of the interaction
between policy-makers and different groups in society and reflects the overall priorities of
public policies, translated into tax measures and spending programs by the bureaucratic
machinery. Based on existing analytical work, the most salient features of resource collection
and allocation are analyzed in order to provide some evidence of these characteristics of
public policies.
Table 2. Tax Exemptions
Exemptions
(MLps)
Exemptions/
Collected Revenues
Exemptions/
GDP
2002 2047.4 11.7% 1.9%
2003 6387.2 32.3% 5.3%
2004 7844.5 33.4% 5.7%
2005 9419.6 35.4% 6.0%
2006 11909.5 37.7% 6.9%
Source: DEI, 2007
HONDURAS IGR – VOLUME I
16
10. The few studies available suggest that the preponderance of taxation on goods
and services makes the Honduran tax system regressive. As in many other countries in
Latin America, Honduras relies to a large extent on tax revenue from indirect taxes, although
important efforts have been made to increase the share of direct taxes during recent years. In
addition, Honduras relies on a large number of tax exemptions, which are not necessarily a
problem in themselves, but their opaque nature – their costs are not reflected in the budget and
they are not consistently subject to any public discussion that allows for weighing their costs
against their benefits – facilitates the extension of tangible favors to specific groups.
11. With regard to the composition of public expenditure in Honduras, the most
notable characteristic is the large quantity of resources devoted to salaries compared,
for example, to capital expenditures. The health sector and, to an even greater extent, the
education sector have absorbed the bulk of the increases into the public wage bill. However,
this has not necessarily manifested into improvements in their respective public services, but
it is a consequence of the bargaining power of these groups. Only a very small share of the
spending increases can be attributed to an increase in the number of teachers, doctors and
nurses. Moreover, these salary increases have not been linked to performance criteria and
have not brought about improvements in the quality of education. Honduras spends more on
education than other countries in the region, while the educational quality is lower than in
neighboring countries.
12. Honduras also stands out for devoting an important share of public expenditure
to subsidies. If all of the subsidies – direct, indirect and hidden – are considered, their
estimated value in 2006 was $320 million (3.5 percent of GDP). In many cases, the argument
used to justify subsidies is that they make public services affordable to poor consumers (such
as the cross-subsidies in the water sector) or that they are a second-best solution to
compensate low-income groups for other disadvantages (as in the case with Bono 80, given to
the urban population to compensate for high transportation costs, but paid through the
electricity bill). However, subsidies tend to be rather blunt instruments for reaching this policy
objective, as they are of disproportionate benefit to well-off groups.
Graph 2. Public spending on interest payments and salaries, 1997-2002
0
2
4
6
8
10
12
1997 1998 1999 2000 2001 2002
Perc
en
tag
e o
f G
DP
Salaries
Interest
Source: SEFIN.
HONDURAS IGR – VOLUME I
17
13. To understand why the policy process is so prone to the influence of interest
groups, it is necessary to consider the salient features of the party system: the high level
of institutionalization of the two main parties, their internal fragmentation and weak
programmatic orientation. Honduras has one of the most institutionalized party systems of
the region with two principal parties, the Liberal Party (PL) and the National Party (PN) that
have alternated in power for much of the period since 1930. However, political parties exhibit
a high degree of internal fragmentation. Each party is comprised of different internal factions
that control the selection of the candidates and provide votes that are necessary for the party
to win. The dynamic between these factions and the party is critical to understanding
Honduran politics, and it has important consequences for the electoral connection and
executive-legislative relations. In addition, the high level of internal fragmentation and the
weak programmatic orientation of the parties create incentives for the parties to attract support
on the basis of tangible benefits for specific groups, instead of basing their appeal on
improvements in public policies over the long term. Even though one observes a tendency
towards programmatic competition in Honduras, clientelistic practices continue to be strongly
rooted, especially at the local level. The recent electoral reforms provide an opportunity to
strengthen democracy from the bottom-up and increase the ties between the deputies and their
constituencies, but they may also reinforce clientelistic practices and lead to further
fragmentation of the parties.
Table 3. Characteristics of the party system.
Party system
Degree of
institutionalization
Effective number
of parties
Programmatic
competition
Uruguay 2.72 3.02 7
Honduras 2.67 2.15 2
Mexico 2.32 2.37 2
Chile 2.30 5.27 8
El Salvador 2.27 3.17 7
Source: Payne et al.(2007) and Stein et al. (2005)
14. In this context, political actors have little incentive to prioritize policy reforms
which impose immediate and clear costs on well-organized groups and provide benefits
which are uncertain and diffuse. Given the comparative weakness of large groups
(consumers, parents, the private sector as a whole, etc.) it is very challenging to implement
reforms with such payoff structures. In the context of clientelist representation, the incentive
for politicians to avoid taking on such risks is even greater, since such reforms are less likely
to be successfully implemented and even if they do, it is less probable that policymakers will
get political recognition for the passing of the reform from voters. This helps to explain why
key decisions are passed from government to government without any of them being able to
absorb the political cost associated with them, such as the salary negotiations related to the
employment statute for teachers; the rationalization of the finances of the electric company
ENEE or of SANAA, whose debts continue to accumulate; the professionalization of public
servants; or a fiscal reform that reduces exemptions.
15. Independent institutions play a fundamental role in the democratic system,
placing some restraints on the executive and the legislative branch and leveling the
playing field for actors to participate in policy discussion. An independent and effective
HONDURAS IGR – VOLUME I
18
judicial system, as well as other independent check and balance institutions, are fundamental
since they provide guarantees that agreements reached will be respected and their associated
policy changes implemented fully and fairly. The democratic system is based on the division
of powers principle, whereby checks and balances are established, so that one set of
institutions controls the others and prevents one branch of government from dominating the
others. Thus, the legislature has the power to formulate public policies and to supervise the
work of the executive in implementing them. Aside from guaranteeing the individual rights
of citizens, the judicial branch performs a fundamental role in the political system; that of
impartial arbiter responsible for ensuring the effective and fair application of policy decisions
and the rules of the game. The considerable gap between the formal powers of the Honduran
legislature and its effective capacity to carry out the assigned policy-making and oversight
functions, creates uncertainty in respect to the interpretation and enforcement of the basic
rules of the game, as well as with regard to whether potential public policy reforms will be
implemented fairly and completely.
16. Honduras is making advances towards a stronger institutional framework, but
less rapidly than would be expected in a country with its trajectory of institutional and
democratic consolidation. International comparisons reveal that Honduran institutions
perform relatively worse than their counterparts in other democratic countries with similar
levels of development. Three factors are highlighted that, if addressed, could help the country
to improve its institutional framework and the quality of the policy-making process: i) the
lack of transparency with regard to policy-making; ii) the shortage of mechanisms to punish
or reward good performance; and iii) the weak organizational capacity of groups representing
public interest. What follows is a brief description of each factor with some recommendations
for the short-term.
17. Greater transparency in the policy-making process would increase accountability
and level the playing field for participation in policy discussion. Access to information
about the process to formulate, discuss and approve public policies, together with information
about the performance of the three branches of government – congress, executive and the
judiciary – with an emphasis on the division of powers, would increase accountability, and
reduce the undue influence of interest groups, thereby providing the opportunity for different
social actors to participate in policy discussions under more equal conditions, whether directly
or through their political representatives in congress. The implementation of the Transparency
Law in public institutions, and especially in the congress, entails an advance in this direction
and its implementation should continue to be supported. The recent initiative to approve a
Public Hearings Law for the congress’ appointment of high level officials – like the Supreme
Court judges – is another effort of this type.
18. Focusing the policy discussion on performance would also provide positive
incentives for policy-makers. An important feature of the Honduran context is the absence
of mechanisms to allow good performance to be translated into political capital, whether for
candidates or for the party, which means that no actors have sufficient incentive to confront
powerful groups and make decisions that generate uncertain outcomes in the medium term.
For this reason, any initiative that increases the visibility and benefits associated with these
types of decisions could alter this political calculation. Three recent initiatives – the Results-
Based Management System, the Transparency Law, and the social monitoring mechanisms –
are helping to change these incentives and will facilitate public awareness of who is
HONDURAS IGR – VOLUME I
19
responsible for decisions and what the outcomes achieved from them are. In this way political
representatives can be rewarded with political support for their efforts to enhance
performance. Examples like the municipality of Comayagua illustrate well how the electoral
dynamic can be a good instrument for rewarding good management.
Box 1. The case of Comayagua
Carlos Miranda has been Mayor of the municipality of Comayagua for three consecutive terms.
During his administration he has managed to increase municipal revenues by 20 percent and
improve the services offered to citizens and businesses. Among other reforms, the municipality
has implemented the Integrated System of Municipal Information (SIIM); has established a
Multimedia Kiosk and One-stop Shop for Administrative Procedures whereby the maximum
length of administrative procedures has been reduced to three days; and has increased the
number of permits for business operation issued by the municipality by 45.7 percent and the
revenues collected for construction permits by 74.7 percent. Comayagua is in the top three
municipalities in the municipal scorecard ranking of the IFC in respect to operating licenses for
businesses and construction permits (IFC, 2007). The web page of the municipality
(www.municomayagua.com) is one of the most complete and, among other services, offers
online facility for the payment of taxes and the resolution of procedures, bidding opportunities,
information about projects and public works in progress in the municipality, and a service
window for citizens. In addition, according to the Human Rights Commission, Comayagua is
one of the municipalities that obtain the best social audit reports of its Transparency
Commissions.
19. A third element that would assist in altering the incentive structure is addressing
the collective action problem. Political actors have little incentive to prioritize policy
reforms which impose immediate and clear costs on well-organized groups and provide
benefits which are diffuse and uncertain (since under clientelistic incentives the reform is
unlikely to be implemented or it may not produce the expected benefits). Given the
comparative weakness of large groups, reforms with such payoff structures are very
challenging to implement. Compared with the organizational capacity demonstrated by
certain interest groups in the country, other groups representing more general interests – such
as consumers, parents of school children, and small and medium-sized enterprises – have
great difficulty in organizing themselves effectively. This imbalance of power, in favor of
narrow interests, reduces the political rewards to those who support the implementation of
reforms that pursue the common good. The report issues recommendations in each chapter in
order to supporting the organizational capacity of groups representing the public good in that
particular sector and strengthening their capacity to participate in policy discussion.
20. In a context of scarce resources and urgent demands, prioritization is essential. It
is not possible to change the whole system at the same time, but it is possible to build up some
key institutions or functions and achieve some results with a significant impact in the short
term. The following are some recommendations in this regard:
With the basic machinery of transparency and access to information now in place, focus
public and political attention on a few key stages in the policy process such as the
legislative passing of the budget, the process for agreeing public service salaries and the
electricity tariff regime.
HONDURAS IGR – VOLUME I
20
Make use of two existing country instruments (Results-Based Management System and
Transparency Law) to center the policy discussion on performance, increase visibility
(and therefore political capital) of good policy outcomes and strengthen accountability
of political actors.
Support the organizational capacity of groups representing the larger interest – such as
consumers of public services, parents, beneficiaries of social programs, small and
medium-sized enterprises, and farmers – and enhance their ability to participate in
policy discussions.
THE CHALLENGE OF PROFESSIONALIZING THE PUBLIC ADMINISTRATION
21. Despite its importance for service delivery and the effectiveness of public
policies, the management of human resources continues to be one of the weakest areas
within the Honduran public administration. Cross-country comparisons show that
Honduras is one of the countries in Latin America that spends most on public employment,
but also one of the countries where human resource management is the weakest. While having
the second highest salary expenditure in terms of GDP in Latin America (10.3%), Honduras
scores below average on all the qualitative indicators developed by the IDB 2006, indicating
serious deficiencies in most areas of human resource management (e.g. planning, job
organization, employment management, performance management, compensation, career
development, and human and social relations).
Graph 3. Human Resource Management in the Public Sector in Latin America
0%
5%
10%
15%
20%
25%
30%
35%
40%
Efficiency
Merit
Structu
ral C
onsistency
Functional C
apacity
Capacity to
Harm
onize In
terests
% o
f M
ax
imu
m V
alu
e
Honduras
Average LAC
Source: IDB (2006)
22. There have been various failed attempts to address some of these challenges
through broad legal reforms aimed at containing the wage bill. Under pressure posed by
an increasing wage bill, Honduran governments have tried to implement wide-ranging
reforms of the public employment regime to reduce the threat to public finances. However,
these reforms did not pass the approval stage. The failed reform attempts of 2003 and 2004
HONDURAS IGR – VOLUME I
21
show that an excessive emphasis on the control of salary expenditures and wide-ranging legal
reforms that radically alter the structure of public employment lower the chances for success.
23. While these attempts to implement changes across the board failed because of
strong opposition from organized interest groups, there are examples of successful
reforms of individual institutions that may provide important lessons for the
development of a more gradual approach. The Executive Revenue Authority (DEI) has
implemented a merit-based recruitment process as a first step towards a new human resources
management model within the institution. Three factors contributed decisively to the success
of the reforms possible: strong political backing, the implementation of a transparent and
clearly-defined recruitment process under external oversight, and the fact that these HR
reforms were conducted as part of an overall institutional reform process. The experience of
the DEI shows that it is possible to carry out human resource management reforms in the
Honduran public sector and that such improvements have an impact on the efficiency of the
institution.
Graph 4. The Impact of the Increase in Administrative Efficiency
0%
5%
10%
15%
20%
25%
In
cre
ase i
n R
even
ue
co
llecti
on
2003 2004 2005 2006 2007
Inflation GDP Growth Efficiency DEI
Source: DEI.
24. This study calls for a change in approach in order to ensure professionalization
becomes an integral part of state modernization reforms. Over the years, Honduras has
implemented numerous reforms to modernize the public administration by introducing
modern legislation and new public expenditure management systems. However, one of the
weaknesses of these reforms is that they have not been conceived, programmed and
implemented together with improvements in human resource management. The sustainability
of these institutional modernization reforms, and the new public management systems,
depends crucially on the existence of a critical mass of skilled and professional staff within
the public administration. Therefore, professionalization needs to be an integral part of
ongoing public sector management reforms. In addition to guaranteeing the sustainability of
public sector institutional and management reforms, this new approach would help to focus
the efforts in areas where other reforms are being implemented, instead of spreading them
thinly across the entire public administration, and it would ensure that the professionalization
process is tailored to the needs of each institutions. Linking improvements of human resource
to other public sector reforms within specific institutions could also facilitate the emergence
of reform champions within these institutions
HONDURAS IGR – VOLUME I
22
25. An important conclusion from the analysis of the structure of public employment
in Honduras is that any reform attempt must take into account the fragmentation of the
Honduran public service and the co-existence of different employment regimes (i.e. the
civil service regime, special statutes and contractual employment). Although the civil
service regime still includes an important group of professionals responsible for the key
functions and the direction and management of public policies, around 70 percent of public
sector employees belong to special statutes that have surged as a result of pressure exercised
by sector specific unions. On the other hand, there is a significant number of persons
employed under fixed-term contractual arrangements, in many cases paid for by external
funding, that have become the backbone of important functions of the public administration,
but that cannot be absorbed by the regular structures of the State because of the high salaries
they are often paid. Given that this fragmentation cuts across institutions, professionalizing
key functions requires adopting an approach that starts with identifying the key functions of
public administration that need strengthening, rather than starting by identifying positions
under a certain regime or salary scale to be professionalized..
Table 4. Quantity and cost of personnel by staff category, Central Government, 2008
Category
Number
of
employees
Total Salary
Expenses
Average
Salary
(MLps.) (Lps)
Civil Service 26,077 2,924 9,343
Special
Statutes 63,036 13,635 18,025
By contract (1) 6,642 n/a. n/a.
Other (Defense
and Security) 24,160 2,874 9,914
Total 119,942 n/a n/a
Source: General Directorate of the Civil Service and SIARH..
26. Despite the many challenges facing Honduras, the Government has already put
in place key building blocks to continue advancing towards a professional public
administration: a generally acceptable legal framework; a concrete plan to gradually
professionalize a limited number of key positions, already approved by the executive; a
modern system to support most human resource management processes under consolidation
(Integrated System of Human Resources Administration – SIARH); and a well-
institutionalized Results-Based Management System. Hence the recommendations provided
by this chapter do not require any major legal reforms or institutional engineering, but rather
that the laws, systems and instruments already in place are fully articulated and applied.
27. Among the most important recommendations to advance gradually with the
professionalization process outlined in the Professionalization Program for the Public
Servant are:
To centre the reform on the key functions of the public administration by: (i) starting
with the identification of the key technical functions that need strengthening within each
institution, rather than by identifying positions under a certain regime or salary scale to be
professionalized; (ii) applying a universal set of basic principles to all public sector
HONDURAS IGR – VOLUME I
23
employees, irrespective of their employment regime; and (iii) allowing for a significant
amount of flexibility to adapt the process to the needs of the line functions.
To strengthen transparency in human resource management it will be important to: (i)
consolidate the SIARH; (ii) make sure that all obligated institutions publish information
on human resources in accordance with the Transparency and Access to Information Law;
and (iii) allow for external scrutiny of the implementation of the professionalization
program by a Validation Committee.
To introduce a performance focus in the three human resources regimes (i.e. the civil
service regime, special statutes and contractual employment) by enforcing the
performance-related provisions in each legal framework and strengthening the links
between the Results-Based Management System and human resource management by:
(i) introducing regular reviews of each employee’s performance against previously
identified performance targets; (ii) linking individual performance targets to the
institutional targets established in the Results-Based Management System; and (iii)
developing indicators for the Results-Based Management System that measure the
progress of the professionalization process.
28. In the very short term, the recommendations are to: (i) in its first phase, apply the
Professionalization Program in the DGSC, the Human Resource Departments within Central
Government, the UPEGs and to functions and positions that are necessary to provide
sustainability beyond the next change in government, to the state modernization reforms
currently under implementation; (ii) establish the external Validation Commission, to ensure
rigorous oversight of the professionalization process from the outset; and (iii) consolidate the
SIARH in order to establish a modern system that provides the information necessary to
monitor the professionalization program and structure the human resource management
processes in a transparent way.
JUSTICE AND PUBLIC SECURITY IN HONDURAS
29. Since the early 1980s, Honduras has undertaken important reforms to strengthen
the justice sector as a key element in good governance and its role in improving public
security. The problems addressed, while doubtless worsened by the prior two decades of
military control, were not dissimilar from those found in much of the region – inaccessibility
of services, outdated procedures, insufficient judicial independence, corruption, and general
inefficiency and inefficacy. Starting even before the 1982 Constitution, but emphasized in that
document, changes were introduced to modernize the legal framework and the criminal justice
proceedings in particular: to create a judicial career, depoliticize judicial appointments and
mandate merit-based recruitment; restructure existing institutions and create new ones (the
Public Ministry and Public Defense in particular, as part of the transformation of the criminal
justice system); and remove the police from military control. Financing for the sector also
increased and the Constitution guaranteed the judiciary an earmark of three percent of the
national budget.
30. However, implementation of the reforms has been slow, partly due to the
opposition of traditional elites who feared their impact on their privileged status. During
the 1990s civil society organizations (including business, labor, minority parties, and
HONDURAS IGR – VOLUME I
24
independent jurists) continued their demands for full implementation and further changes.
With backing from the donor community, their campaigns produced: the creation of the
Public Ministry and a Public Defenders’ Office (1993); the formation of a civilian police
force (1998) and the transfer of the Public Ministry’s police investigators to its ranks (a
measure that remains controversial); the passing of a second Criminal Procedures Code (2002,
replacing a code enacted in 1984, but considered insufficiently different from the prior
“inquisitorial system”); and in 2001-2002, a constitutional amendment altering the system for
selecting Supreme Court justices, lengthening their terms, and increasing their number, as a
means of combating the continued politicization of the Court. By 2008, the reforms had thus
provided the sector with a more modern structure, and a clearer definition of the processes
and of responsibilities of the key institutional actors, larger budgets, and perhaps a higher
degree of transparency in its activities.
31. Despite this progress and the increase in the funding channeled to the sector,
improvements in performance have not materialized accordingly. Compared to regional
and international standards, the productivity of all sector institutions is very low; for example,
although the number of judges has doubled since 1986, output per judge has not increased and
is among the region’s lowest. In a country with one of the highest crime rates in the region,
the performance of all actors in the criminal justice chain is disappointingly poor. Less than
10 percent of reported crimes reach some kind of resolution and it is estimated that roughly 90
percent of these are minor infractions in which the defendant is apprehended on the spot (in
flagrante). All institutions demonstrate a variety of management weaknesses that contribute to
the low productivity– an inefficient allocation of resources, inadequate monitoring systems
and the lack of attention paid to existing systems (e.g. management statistics), absence of
institutional planning, and structures and processes that tend to duplicate efforts and create
intra- and inter-institutional conflicts.
Table 5. Judicial Workload, Selected Countries
Country Incoming cases
per 100,000
Inhabitants
Judges per
100,000
inhabitants
Incoming
cases per
judge
Honduras (2006) 1,089 10.1 108
Ecuador (2006) 1,802 6.7 269
El Salvador (2006) 2,375 9.2 258
Colombia (2006) 2,893 10.2 283
Peru (2006) 3,919 7.7 509
Argentina (2004) 10,225 11 930
Chile (2004) 12,305 5.0 2461
Costa Rica3 (2004) 22,911 17.4 1316
France (2004) 4,411 10.1 436
Italy (2004) 8,611 10.4 828
Spain (2004) 14,000 9.8 1428
3 After 2004, the litigation rate and number of cases per judge decreased by half as transit cases were transferred
to administrative forums.
HONDURAS IGR – VOLUME I
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USA (2004) 33,848 10.2 3351
Sources: Unidos por la Justicia, 2006; CEPEJ, 2006; and official country data. See
Background Chapter 3 for the complete table
32. Critical milestones have been achieved to reduce political interference but it is
still a challenge, especially with regard to the selection of personnel, and compliance
with the new legal framework needs to be a priority for policy dialogue. The reform
carried out in 2000-2001 aimed to restrict political interference through a new process of
selecting the judges and the separation of judges’ terms from the electoral cycle, by
lengthening their terms from four to seven years. The establishment of this new selection
process in which actors can veto any candidate who is considered incompetent or corrupt is an
important achievement that needs continuous support so there are not major setbacks. The
selection of the members of the nominating board, like the members of the Court, was
politicized and the new judges are all identified with one party or the other. However, there
are now certain professional standards that candidates need to fulfill and there is an open
process where other actors can participate. However, it is critical that due process is followed
according to the new legal process. In 2002, in apparent contradiction to the Law, the
Supreme Court majority voted to delegate all its personnel functions to the Chief Justice,
thereby ending further progress in instating competitive merit appointments. The intervention
of the Prosecutor General in the processing of cases involving members of government is
notorious, and in both the courts and the Public Ministry it is claimed that appointments and
assignments of professional and administrative staff are usually based on political criteria.
The public defenders are spared that charge, but their appointment and placement seem
determined more by political criteria than need – and their extraordinarily low productivity
suggests a perverse incentive system.
Table 6. Evolution of criminal cases, from filing to resolution, 1999-2006
Criminal cases 1999 2001 2003 2005 2006
Complaints received 56,845 51,700 52,965 62,463 63,537
Complaints referred for
investigation
31,977 35,336 26,104 48,507 49,198
Complaints investigated DGIC 15,633
(48.89%)
12,749
(36.08%)
8,005
(30.67%)
7,825
(16.13%)
9,213
(18.73%)
Prosecutor appearances (during
summary stage) 1984 Code
9,931 10,525 9,407 5,157 3,367
Formal accusations filed (2002
Code)
--- --- 6,390 6,732 7,181
Formal order of Commitment 3,306 4,634 3,700 4,745 4,621
Preventive detention --- --- 2,463 2,678 2,643
Sentences 4,582 4,969 982 1,317 1,347
Convictions 1,844
(40.25%)
2,208
(44.44%)
759
(77.29%)
996
(75.63%)
1,015
(75.35%)
Total formal and alternative
resolutions
4,582 4,969 5,952 4,748 5,091
HONDURAS IGR – VOLUME I
26
Source: M. Cálix (2008) based on data from the Public Ministry (Anuarios Estadísticos). See Background
Chapter 3 for the complete table.
33. There are numerous explanations for these problems and for the resulting lack of
progress in implementing the reforms such as: the number of initial deficiencies to
overcome; technical errors in the design of laws and new structures; budgetary constraints
(although the organizations could clearly do better with existing resources); the poor quality
of personnel recruited by the sector; the low level of inter-institutional coordination; and the
power of interested parties both within and outside the sector whose agendas are particularly
conflicted with the proposed changes. The reforms have complicated the political situation by
creating another set of interested parties. Changing established practices, even when those
practices are not very effective, has become more difficult, as this is viewed as a threat not
only by the elite, but also by those in receipt of lesser privileges by virtue of working in the
“reformed” structures.
34. It is doubtful that simply adding more resources would improve the situation.
What is required is first an initial, broad-based consensus on the need for change and on
the objectives to be pursued (preferably expressed as quantitative goals – e.g. a 100 percent
increase in the number of completed investigations or a 50 percent decrease in the time taken
to resolve a civil case), and subsequently, a high-level agreement to reduce political
interference in the operations of the various institutions. It would be unreasonable to expect
that all political control will be relinquished, but a strong and well-defined demand for
specific improvements in performance could mitigate its effects by ensuring that those chosen
for high positions have the qualifications and the incentives to respond to that demand. On the
basis of this consensus, several concrete steps should be taken, including: the enactment and
effective implementation of laws to establish a Judiciary Council and judicial career; the
adoption of meritocratic principles in the selection and promotion of all sector personnel,
based on job profiles for all positions, and especially, but not exclusively for professional
staff; and the development of transparent processes for the appointment of Supreme Court
justices and senior positions in the remaining institutions.
35. In the meantime, the first step would be to acknowledge the poor level of
performance within the sector, and setting productivity goals to hold each institution
accountable for the resources it receives and the services it provides. All those committed
to change will have to reexamine some of the policy choices they have made, especially as
regards the organization and internal processes of the sector institutions. Many of these
choices seem destined – even without political intervention – to produce suboptimal results.
Donors can assist by providing information on, and technical assistance from, better-
performing judiciaries (and other institutions) within and outside the region. Finally,
Honduras needs to pay more attention to the performance statistics it already generates for the
sector, and to interpret them in light of international trends. In Honduras, indicators are very
poor. Even taking into account the poverty of the country, the lack of resources and the
shortage of qualified human resources, the sector could perform much better. Comparative
analysis might clarify the gap between resource inputs and product outcomes, and thus
demonstrate that the citizens do not have to settle for so little.
TRANSPARENCY AND ACCOUNTABILITY IN THE EDUCATION SECTOR
HONDURAS IGR – VOLUME I
27
36. During the 1990 to 2007 period, Honduras substantially increased its expenditure
on education but this increase in resources has not been translated into better
educational outcomes. During that period, education spending rose from 5.0 percent to 8.6
percent of GDP. Although the country made important advances in terms of literacy rates,
enrolment rates at each level of education, and the rate of completion of sixth grade, it has not
been able to improve student learning achievements, as scores on standardized tests in
Spanish and mathematics in third and sixth grades have not improved since 1997.
Table 7. Performance of sixth grade students in mathematics and Spanish
(Percentage of correct responses)
Subject 1997 2002 2004 2007
Spanish 42.0 42.5 42.6 45.0
Mathematics 35.0 38.5 38.5 38.8 Source: UMCE.
37. The country now invests more per unit of learning achieved, due mainly to the
high and growing share of spending on teacher salaries, which have increased sharply in
the last eight years. The available information on salaries and public sector employment,
even though limited, suggests that the growth in the real salaries of health care workers and
other public sector workers (who are not teachers) stabilized between 2002 and 2006.
However, it is estimated that the real salary rate of teachers increased by 18 percent during the
same period, reflecting their comparative power in terms of union organization and influence.
In constant 1990 Lempiras, the average teacher salary has increased from 912.1 to 1073.8
Lempiras in 2007. These salary increases were negotiated without any requirement to
improve performance, and as a result the gap between the payments to teachers and their
performance is considerable, and teachers and schools, in general, are not accountable for the
meager achievement of their students.
Graph 5. Budget execution of the Ministry of Education, 2001-2007
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2001 2002 2003 2004 2005 2006 2007
Lem
pir
as M
illi
on
s
0
2000
4000
6000
8000
10000
12000
2001 2002 2003 2004 2005
Le
mp
ira
s M
illi
on
s
Capital
Other current
Salaries
Source: SEFIN.
38. The main contributing factor to the poor education outcomes is the strong
bargaining power of the teachers‟ unions that oppose any attempt to reform in the
sector. The teachers’ unions in Honduras have an unprecedented organizational and financial
capacity and have learned to negotiate with political actors exchanging political support for
salary gains. In this government as well as in previous ones, the Secretary of Education has
made important efforts in introducing reforms aimed at improving the quality of education
HONDURAS IGR – VOLUME I
28
and linking public spending with outcomes (salaries with teacher performance), but these
reforms have failed because of the opposition of the teachers’ unions.
39. Other factors contribute to these poor results, but the insufficient accountability
of all of the actors and problems related to collective action are at their core. Besides the
importance of the teachers’ unions, the education sector is characterized by: (i) the lack of
information about inputs and outcomes, which makes it difficult to hold actors accountable
and to know who is responsible for poor performance; and (ii) disperse and poorly organized
beneficiaries who have little voice in the discussions about education policy.
40. Recommendations are provided to improve the quality of education focus on
strengthening the accountability of the different actors involved in the provision of
services. In line with the accountability framework (Figure 1) the recommendations have
been structured according to the areas of Voice, Compact, and Client Power – Accountability.
The State needs to be accountable to clients-citizens; organizations that provide the services
through the management pact need to be accountable to the State; the teachers need to be
accountable to the providers and education institutions and those responsible for the sector
need to be accountable to clients-citizens.
41. But the main recommendation in the short term is the need to empower other
actors who represent the general interest to participate in policy discussion, and to focus
such discussion on performance and quality of education.
i. To facilitate the participation of other actors in policy discussion, the most important
action in the short term is the establishment of a National Education Council that leads
and supervises the process of sector reform. While the creation of this council is
considered in the General Education Law proposal, it is not necessary to wait until the
Law is approved to create it. Moreover, the Government has the power to provide the
council with broad representation and its first mandate would be to obtain a national
consensus for the approval of the General Education Law4 .The participation of the
municipal governments, the private sector and the Poverty Reduction Strategy Council
is specially relevant as those are two strong actors that have also an interest in the
sector
ii. Similarly, other immediate priorities are to continue with the support for community
participation throughout the school networks, AECOs (Community Education
Associations), ADELs (Associations of Local Education Development) to enhance the
accountability of the education service providers; to strengthen the process of
institutionalization of PROHECO within the formal national, departmental, and
district structures; to continue supporting the social audit initiatives carried out by civil
society organizations; and to empower parents with simple tools and standards to
measure quality of education.
iii. To enhance performance accountability of service providers, the priority in the short-
term is the implementation of performance indicators at the departmental/district and
school level. These indicators could be monitored systematically through the SGPR
4Other actors that are not considered and could be key in the generation of a consensus of this nature, are the
Honduran Council of Private Enterprise (COHEP), the Advisory Council of the Poverty Reduction Strategy
(CCERP) and representatives of the principal political parties.
HONDURAS IGR – VOLUME I
29
and displayed at the school as a social monitoring tool. Table 4.9 presents
recommended indicators. Parents, through the Parent Associations, should be involved
in producing and monitoring these key indicators.
iv. The other priority in this regard is the full implementation of the recommendations
arising from the Teacher Census and Post Audit conducted by the Tribunal Superior
de Cuentas. If no action is taken against those teachers that are receiving collaterals
unduly, this would have devastating consequences on government’s credibility. The
Ministry of Finance and Education need to jointly lead this process.
v. Full disclosure by the Secretary of Education of revenues collected by Teachers’
Unions is also needed.
vi. In addition would be critical as well to revise the economic clauses of the Teachers’
Statute that are most harmful to public spending. The full application of the Teachers’
Statute was agreed with the teachers starting in 2010. The fiscal implications of the
application of the Teachers’ Statute should be analyzed, with the purpose of advising
the future government if it should be applied fully or if a compromise proposal should
be offered. In this analysis the Teachers’ unions should be invited to participate. If by
2010 there remain differences in the vision of the problem and its possible solutions
with the Teachers’ unions, the convenience of convoking a national plebiscite should
be considered. The implementation of the evaluation of teacher performance
established in the Teachers’ Statute should also be considered.
TRANSPARENCY AND ACCOUNTABILITY IN THE HEALTH SECTOR
42. In the last two decades, Honduras has experienced notable progress in most
national health, nutrition and population indicators. Since the 1990s, the country has
succeeded in reducing neonatal, infant and child mortality, and to some degree, chronic
malnutrition. Nevertheless, in spite of the progress achieved, serious challenges remain in the
sector. Approximately 17 percent of the population still does not have access to any type of
health service. Significant gaps in access persist between rural and urban areas, as well as
between low- and high-income households. The quality of service in terms of the availability
of adequate staff, equipment and medicines remains an issue, with only a very small
percentage of health centres and hospitals being accredited. Inequality in the distribution of
financing is another problem, with a large share of health expenditures funded through out-of-
pocket payments.
Table 8. Health Outcomes and Outputs, 2001 and 2005/06 Indicator* 2001 2005/06
Life Expectancy at birth (years)** 70.7 72.1
Infant Mortality Rate (per 1000 live births) 34 (1996-2001) 23 (2001-2005)
Under 5 Mortality rate (per 1000 live births) 44 (1996-2001) 30 (2001-2005)
Total fertility rate 4.4 3.3
Prenatal care coverage 83 92
Percent of women who received their 1st prenatal visit before 4
th
month of pregnancy
56 69
Percent of institutional births 52 67
Percent of women who received post natal care 34 73
Underweight (low weight-for-age) 17 11
HONDURAS IGR – VOLUME I
30
Sources: ENDESA 2006*, MOH Statistical Bulletin 2005**. Based on PER (2007: Table 14).
43. Health expenditures have increased in real terms since the late „90s, but remain
relatively low compared to the rest of the Latin American region. However, since there is
limited potential to increase funding, there needs to be greater focus on more efficient
allocation and use of existing resources, enhancing the performance accountability of policy-
makers and service-providers.
Table 9. Health Expenditures in Central America, 2005 Total health
expenditures
as a % of
GDP
Per capita
total health
expenditures
US$
Government
expenditure as
% of total health
expenditure
Private
expenditure as
% of total
health
expenditure
External
resources as
% of total
health
expenditure
Costa Rica 7 684 76 24 0.2
El Salvador 7 364 54 46 2.2
Guatemala 5 244 38 62 1.1
Honduras 7.5 226 51 49 6.8
Nicaragua 7.9 240 54 45 9.7
Panama 7.3 660 69 31 0.2
Average 7.0 403.0 57 43 3.4
Source: WHO Core Indicators 2008
44. The health sector is an interesting case in the Honduran context because in
general its performance with regard to advancing reforms has been relatively better
compared to other sectors analyzed in this report. This is partly due to: (i) a certain
continuity in some policies and strategies, particularly those related to involving local levels
in improving access to services; (ii) the process followed in undertaking some reforms in the
sector (for example, gradually establishing a consensus among stakeholders with regard to
regional reorganization, as well as emphasizing a bottom-up approach in the case of the
decentralized models of service delivery, and also holding a discussion with unions to gain
sufficient support to continue and to avoid large scale opposition); (iii) the relative power
structure in a sector where there are 30 unions, syndicates, and groups representing various
types of health workers, making it more difficult for them to unite in opposition to reforms
compared to teachers; and (iv) the sector has also benefited from having some committed
Ministers of Health who have championed reform initiatives despite strong pressures from
unions and other interest groups.
45. On the other hand, the challenges faced by the sector underscore the fact that it
still has significant institutional weaknesses that impede reforms and that, in turn,
impact its performance. These institutional weaknesses include: (i) a lack of clearly-defined
policies and strategies and well-articulated, budgeted operational plans to guide the
implementation of reforms; (ii) an institutional framework that does not have adequate
accountability mechanisms to motivate policy-makers and traditional service-providers to
meet sector objectives, (iii) poor human resource management, that is characterized by the
lack of incentives and sanctions to encourage good performance, and high rotation of key
personnel, including the Minister and the technical staff at the Planning and Management
Evaluation Unit (UPEG). The provisions of the Estatuto Médico also make it difficult to fire
underperforming health staff; (iv) duplication of interventions, lack of coordination, and some
HONDURAS IGR – VOLUME I
31
confusion of roles and responsibilities among different sector institutions, agencies, and
administrative levels; (v) lack of access to timely information to guide management decision-
making, as well as to inform citizens about sector performance so they can hold service
providers and policymakers accountable; and (vi) little awareness of users rights and service
standards, and relatively few well-organized citizen associations, especially at the local level,
who promote users’ welfare.
46. Priority recommendations for the short-term emphasize the importance of (1)
strengthening the existing decision-making/consultative bodies and empowering other
stakeholders, especially civil society to effectively participate in these processes; (2)
enhancing and expanding the current Results-Based Management System; and (3) improving
continuity of key health staff appointments to minimize disruptions in the implementation of
sector reforms. These include:
Reviewing the experiences of key decision-making and consultative bodies especially the
Advisory Council for the Health Secretariat (CONCOSE), the IHSS Board of Directors,
and National Health Council (CONSALUD), improving their decision-making process by
providing incentives to increase the likelihood of their members reaching consensus for
the common good, while minimizing party/interest group politics. As part of this review
process, undertake a stakeholder survey to obtain recommendations on how to better
engage civil society representatives in the different forums for dialogue (for example, at
the sector table (mesa sectorial), CONSALUD, Consultative Council for the PRSP, etc.)
Developing and disseminating performance information along the service delivery chain,
improving and leveraging on the existing Results-Based Management System by (i)
expanding it to include the regional and local levels; (ii) standardizing indicators used
(e.g. age groups, number of visits, dosage of immunizations, etc.) across different
administration levels (central to local); (iii) establishing a mechanism for independent
verification of reported results; and (iv) making the results available through various
channels of information in addition to the internet.
Enhancing consumer awareness by developing service standards and simple indicators to
assess service quality and expanding the social audit initiative that was initiated in two
main hospitals in collaboration with the Tribunal Superior de Cuentas (TSC) to include
other health facilities and agencies. Establish a formal process in which audited facilities
have to formally respond to the social audit findings in public forums.
Improving the duration/stability of appointments of key personnel, including the Minister
and the technical staff at the Planning and Management Evaluation Unit (UPEG). Include
the health UPEG in the first phase of the Professionalization Program for the Public
Servant.
Improving accountability and transparency in the procurement of pharmaceuticals. The
MOH should (i) resolve concerns raised in June 2008 regarding the Inter-institutional
Commission on Medicine’s (CIM) role in awarding direct contracts to 13 ineligible firms.
The findings of the investigation should be made public and appropriate actions taken; (ii)
review CIM’s role in technical evaluations – if allowed to continue – based on the profile
of its members, and (iii) systematically disclose the complete results of bidding processes
for the procurement of medicines and ensure that the results are audited.
HONDURAS IGR – VOLUME I
32
47. In the medium term, other recommendations to address the above issues are as
follows:
Reaching a consensus on a strategic vision for health reform based on a budgeted
operational plan. The MOH needs to confirm based on the work being done by the review
committee assigned by the new Minister of Health to what extent the draft health sector
reform framework, presented by the National Health Council (CONSALUD) in a public
forum in September 2008, will continue to be the basis for health sector reform.
Clarifying and possibly redefining roles and responsibilities of sector institutions and
administrative levels. This also needs to be based on a review of the regulatory issues that
affect the sector financing, service provision, and insurance functions performed by each
sector entity, as they relate to the proposed health reform framework. In this review
process, for example, (i) the MOH and IHSS should agree on which activities they should
undertake jointly (e.g. the procurement of medicines) and which ones they should
undertake separately; and (ii) the MOH should also clarify how the stewardship function
will be implemented across the different administrative levels. The central and regional
levels should perform their official roles and functions. Efforts must be made to ensure
that each level is provided sufficient resources and training to do so, particularly in the
case of the new regional health administrations.
Reviewing and updating the sector’s human resource strategy (e.g. hiring and retaining
qualified administrative and technical staff, staff deployment, and managing health staff,
including performance evaluations, incentives, and application of sanctions). This also
includes identifying provisions of the Estatuto Médico that should be changed.
Consultations should be held with unions and syndicates to achieve a consensus on
proposed changes and to minimize strikes.
Improving the management and distribution of pharmaceuticals in the sector. Develop
and implement specific guidelines on storage, distribution, transportation, formulation of
therapeutics guides, inventory control, and quality control.
ACCOUNTABILITY FRAMEWORK FOR MUNICIPAL GOVERNMENTS
48. Since the passing of the Municipal Law in 1990, the Government of Honduras
has taken a series of steps to promote and strengthen the decentralization process.
Municipal management has been bolstered recently with the adoption of a state procurement
law, the reorganization of budget management, the regulation of the reporting and
accountability of municipal funds, the creation of the Superior Tribunal of Accounts (TSC)
and the establishment of a model for the supervision and control of public management,
including municipal management.
HONDURAS IGR – VOLUME I
33
Table 10. Municipal Budget vs. Central Government Budget
Year
Overall Budget of Municipal
Governments*
(Approved, MLp.)
Central Government Budget
(Approved, MLp.)
Municipal Budgets
vs. Government
(%)
2004 4,738 34,520 13.7%
2005 5,517 39,288 14.0%
2006 6,291 42,996 14.6%
2007 N/A 49,383 N/A
Sources: National Budget SEFIN, Municipal Budget SGJ-SINIMUN
* Includes municipal taxes and transfers from the Central Government
49. However, the further advancement of the decentralization process depends on
strengthening the institutional capacity of municipal governments to ensure they can
fulfill their new responsibilities and manage the resources transferred in an efficient and
transparent manner. In this respect, important deficiencies in the laws and/or their
application remain. For example, the 1990 Law of Municipalities has lagged behind with
respect to various aspects of current management, including the definition of “municipal
autonomy,” the conditions for the creation and operation of municipal associations, and the
incorporation of different modalities of citizen participation.
50. Building institutional capacity within the municipal governments to manage
funds and increase their accountability is not only key to the effectiveness of poverty
reduction programs at the local level, but also to raising citizen‟s support for the
decentralization process. The survey conducted by the Latin American Public Opinion
Project (LAPOP)5 shows that support for decentralization is limited in Honduras, which may
be interpreted as an indication of the low level of confidence that the population has, that the
additional transfer of resources will truly translate into better services. As Box 2 shows,
enhanced transparency and accountability in municipal management has a direct impact on
citizens’ trust in the sound use of public funds, and their willingness to channel additional
resources to the local government.
Box 2. Transparency, trust in government, and willingness to pay taxes.
According to the survey carried out by LAPOP, Honduran public perception of municipal
management is characterized by low confidence in the management of funds (60 percent of
respondents say that they have no or little confidence in the good management of funds on the
part of the municipal government) and little disposition to pay local taxes (79 percent believe
that it is not worth paying taxes to the municipality). The survey also shows that few citizens
receive information about how municipal resources are invested. Seventy-six percent say that
the municipal government does not provide this type of information and that citizens that receive
information about the allocation of public resources tend to have more confidence in the
management of funds by the municipality.
To investigate how these two variables – trust and transparency – affect the disposition to pay
taxes to the municipality, a Logit regression analysis was done. Variables for controlling the
level of satisfaction with municipal services, as well as for various socioeconomic characteristics
(not shown) were also included. As can be seen in the table below, information about the use of
5 The 2006 LAPOP Survey on Honduras was performed by Vanderbilt University. The survey is statistically
representative at the national level; the sample consists of 1,585 households.
HONDURAS IGR – VOLUME I
34
resources increases the probability of being disposed to paying more taxes by nine percent.
Citizens that responded that they have a lot of confidence in the management of funds are 57
percent more likely to be disposed to paying taxes compared with those that have no confidence.
Little or some confidence increases the probability by 14 percent.
Results of the Logit Regression – Disposition to pay more taxes
The municipality informs about how it invests its
resources
0.09
(2.90)
Little or some confidence in the management of funds 0.15
(5.28)
A lot of confidence in the management of funds 0.57
(8.13)
Observations 1223
Pseudo R2 0.17
Note: t-statistics in parenthesis. Coefficients of control variables and the constant not shown.
These results show that good management of municipal funds, that inspires the confidence of
citizens, is key for convincing tax payers of the value of paying more taxes for investment in the
municipality. It also shows that greater transparency in the management of resources contributes
to generating this confidence.
Source: Hessel and Moller (2008) with data from Honduras 2006, Latin American Public Opinion Project
(LAPOP), Univeristy of Vanderbilt.
51. An important conclusion of this study is that the distribution of funds in the
municipal sector is not evenly dispersed, and a large proportion of municipal
expenditure is concentrated in only a small number of municipalities. More than 50
percent of the funds that are executed at the municipal level is concentrated in five
municipalities, and 18 percent of municipalities receive 80 percent of the executed funds.
Even though this study does not specifically focus on this aspect of municipalities, any
municipal financial management modernization or improvement program must take this
factor into account, in order to benefit overall public financial management at the municipal
level by considering larger municipalities as the primary objective.
Graph 6. Budget distribution in the municipal sector
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 31 61 91 121 151 181 211 241 271
Perc
enta
ge of
Tot
al B
udge
t
Number of MunicipalitiesSource SGJ - Municipal Budget2006
Budget Distribution in the Sector
52. The level of international assistance that is executed at the municipal level is
significant, both in terms of the number of initiatives and the amount of funding, which
are not always adequately reflected in the municipalities’ budget execution reports. This is
HONDURAS IGR – VOLUME I
35
particularly true in the case of aid channeled through mancomunidades. International
cooperation agencies may establish and agree on simple and effective rules in order to create
incentives to promote compliance with control framework and strengthen social
accountability at the municipal level.
Graph 7. Submission of Municipal Accounts to the Tribunal Superior de Cuentas
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2000
2001
2002
2003
2004
2005
2006
% of Municipalities (Source: TSC)
Submission of Municipal Account to TSC
Submitted to TSC Not submitted to TSC
53. The current control framework does not effectively exercise control on financial
management in the municipalities. A large percentage of municipal governments do not
submit their financial statements to the TSC nor do they present complete budget information
to the SGJ. Since budget execution reports are not reviewed or verified in detail against other
sources of information, they are not necessarily complete or accurate. The current control
system does not include incentives for those municipalities that comply with the norms,
differentiating them from those that do not, nor does it reward municipalities that consistently
apply accountability mechanisms. In general, the most important factor in the quality of
municipal financial management appears to be the attitude of authorities, especially the
attitude and management capacity of the Mayor. This also appears to be the key factor in
accounting for the efficacy of citizen participation instruments for the supervision of
municipal operations.
54. The three key recommendations for the short-term are to provide incentives for
the municipalities to comply with the legal framework and to strengthen nascent social
accountability initiatives at the local level:
i. To reward municipalities that comply with reporting requirements, develop
indicators on compliance with institutional and social control mechanisms at the municipal
level together with other indicators about the quality of financial management, and publish
them.
ii. To promote effective enforcement of the control framework at the local level,
international cooperation agencies may agree on simple and effective rules to create
incentives to ensure that the current accountability framework is enforced. For instance,
requiring that their assistance they provide to the municipalities is appropriately incorporated
in the municipal budget execution reports and the annual report presented to the TSC and
Transparency Councils, and is conditioned to the timely submission of those reports.
iii. To strengthen control systems at the local level, promote the participation of
community organizations in the audit process of the Tribunal Superior de Cuentas at the local
level. As seen from the audit pilots, the collaboration between the TSC and the social
HONDURAS IGR – VOLUME I
36
monitoring mechanisms at the social level can strengthen the control framework for municipal
financial management in the short term.
55. In addition, it is recommended that the Municipal Law be updated so that it
coordinates with the Law on Citizen Participation, thereby providing further
clarification of the concepts concerned, and facilitating the enforcement of both laws. Donors should be more proactive in strengthening the control framework and promoting
social accountability at the municipal level by securing the adequate registry of municipal
budget execution reports, and requesting that annual financial reports be submitted to the
TSC, and that budgetary information be provided to the Transparency Councils. It would be
beneficial to train the Citizen Transparency Councils in social auditing procedures, to enhance
their capacity to oversee public finances. Internal control functions should be strengthened
either by linking these to the Transparency Councils or by separating out the internal auditors
from core-line activities. There is also a need to identify and quantify the funds that are not
administered by the municipalities, but that generate contributions in financial resources,
goods and services for the community.
CORPORATE GOVERNANCE OF HONDURAN PUBLIC ENTERPRISES
56. Honduras has a relatively large state-owned enterprise sector. This includes some
of the most important entities in the country‟s economy that are facing serious
operational and financial difficulties, which in turn has negative consequences for the
economy and the tax payer. Public enterprises predominate in sectors such as water,
electricity, ports and telecommunications, that have strategic importance for the
socioeconomic development of the country. Yet the three largest public enterprises ENEE,
SANAA, and HONDUTEL have recently experienced serious operational and financial
difficulties. ENEE’s financial losses currently amount to two percent of GDP, while
HONDUTEL’s income went from covering 15.3 percent of public spending in 2005 to 7.4
percent in 2007. This situation is posing a financial burden on Honduran taxpayers,
undermining the provision of efficient services for citizens and local enterprises, and having a
potential impact on macroeconomic stability and the country’s capacity to attract foreign
investment.
Graph 8. ENEE Financial situation and losses, 2004-2007, MLps.
(3,500)
(3,000)
(2,500)
(2,000)
(1,500)
(1,000)
(500)
0 0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2004 2005 2006 2007
Debt Net equity Annual loss
Sources: Audited financial statements (2004-06) and ENEE Website (2007).
HONDURAS IGR – VOLUME I
37
57. In order for public enterprises to continue playing a key role in these strategic
sectors and improve their performance, it is crucial to improve corporate governance
and quality of management. Managing public enterprises faces a series of challenges that
are inherent to the very nature of this type of enterprise. Public enterprises frequently have
multiple objectives that are sometimes contradictory. The State is the owner, provider of
goods and services, and regulator all at once, which creates conflicts of interest and
opportunities to discriminate against private sector enterprises. Accountability is hampered as
the principals (citizens, or the Government on their behalf) are dispersed and poorly
organized, while agents are large in number (for example, managers, Boards of Directors,
politicians, and regulatory bodies) with objectives that are frequently different. In addition,
when State-owned enterprises enjoy a monopoly in the market, potential monopoly rents
create incentives for using enterprises to generate visible rents for the State, jobs, and
subsidies, rather than to provide efficient services to citizens and companies. These
characteristics do not imply that public enterprises inherently function poorly, but rather that
they pose particular challenges that need to be tackled with practical solutions, many of which
lie in designing a set of appropriate corporate governance arrangements.
58. Corporate governance involves the array of relationships between company
management, its board of directors, its owners (mainly the State, on behalf of its citizens,
in the case of public enterprises) and other stakeholders such as customers, employees,
business partners, etc. A good corporate governance framework results in a system of checks
and balances in the rights and responsibilities of these groups, and provides the structure
though which a company’s objectives are set. A sound corporate governance framework for
state-owned enterprises is based on four pillars: (i) an adequate legal framework; (ii) efficient
government bodies; (iii) a robust, high quality financial management system, based on sound
accounting principles and reliable internal controls; and (iv) a rigorous accountability
framework.
59. The institutional framework of public enterprises suffers from serious
weaknesses that are affecting their performance. Most of these weaknesses arise from: i)
failure to observe the fundamental principle of separating policy-making functions, from
those related to regulation and provision of services, which undermines the effectiveness of
the counterbalance system; and ii) the lack of transparency and available information about
the management and performance of these companies, thereby undermining accountability. In
addition, the legal framework applicable to state-owned enterprises is highly fragmented,
which has a negative impact on its enforcement.
60. The absence of influence from consumer and citizen stakeholders – i.e. those with
a direct interest in improving the management of the enterprises – is also a contributing
factor which weakens the accountability framework further. Even though this study has
not addressed the relationship between enterprises and these two stakeholders (consumers and
citizens), both are key to the accountability framework as illustrated by Figure 1 in relation to
the electricity sector, and therefore attention should be paid to this issue in the medium term.
61. Two areas are highlighted as key for improving the corporate governance
framework of public enterprises in the short-term: i) the need to strengthen the division of
policy, regulatory and service provision functions as envisioned in the legal framework; and
HONDURAS IGR – VOLUME I
38
Representatives
Organizations
ii) the need to enhance accountability and transparency of these enterprises and focus the
policy discussion on performance. Below are some recommendations for the short term in
these two areas.
Figure 2. Diagram of responsibility and accountability relationships in the electricity sector
62. The roles of policy-making, regulation and service-provision overlap in many
Honduran public owned enterprises, with detrimental effects on their performance.
Most public enterprises operate in key socioeconomic sectors where the State plays a natural
role as policy-maker and regulator – ensuring public goods and services are properly
delivered and accessible to all, protecting citizens and consumers, while providing a level
playing field for competition whenever possible, and providing incentives for the company to
be as efficient as possible. To perform these two functions properly and to exert the necessary
checks and balances, it is important that they are conducted independently from the provision
of services. In that regard, a priority for the short term in this regard should be to strengthen
the policy and planning function, designating the institution within the executive branch
responsible for the formulation of policies and sectoral plans in each sector, and ensuring it
has the necessary technical capacity to undertake its obligations.
63. The State‟s role and responsibilities as owner of these public enterprises, which
needs to be clearly separated from policymaking and regulatory functions, should be
both clarified and reinforced. The “ownership” function naturally lies with the Executive
(i.e., Government), which is responsible for ensuring that public sector entities – including
public enterprises – are properly and efficiently managed. This in turn requires that
appropriate objectives, organizational structures, operational policies are put in place for each
of these enterprises, in compliance with relevant laws. Recommended actions to strengthen
the ownership function with respect to public enterprises include:
(a) Establishing a specialized oversight entity to fulfill the ownership function. An option
would be to strengthen the existing units either within SEFIN (Dirección General de
Instituciones Descentralizadas, DGID), or within the Presidency (Comisión
Honduran State
CNE SEFIN, SERNA, SOPTRAVI
Users
More advantaged sectors
Less advantaged
sectors
Coalitions/Communities Administration
Services
Voice Long Route of
Responsibilities
Short Route of
Responsibilities
Responsibility
ENEE
Client Power
HONDURAS IGR – VOLUME I
39
Presidencial de Modernización del Estado, CPME), or to establish an independent
commission that would report to the Executive and to Congress.
(b) Strengthening the role of the Board and improving the quality of Board deliberations.
The above-mentioned commission would be in charge of appointing Board Members
according to pre-established technical requirements, to ensure that they have the
necessary technical capabilities, independence and time to perform their board duties;
and
(c) Enforcing the provisions in the organic laws of ENEE and HONDUTEL that require
the General Manager to be appointed by the Board of Directors, in order to improving
the accountability of the General Manager to the Board and reducing political
interference in the management of the companies.
64. In addition, Government has the responsibility of setting up performance targets
for these companies, monitoring progress over time and holding the Board and the
General Manager accountable for their performance. Honduras has made progress in this
regard with the implementation of the SGPR and the Transparency Law. These instruments
could be used to enhance the transparency and accountability of public enterprises to the
Government and the public at large, by setting up performance targets to be monitored
periodically through the SGPR, and ensuring these companies publish their audited financial
statements, external audit reports and performance information as required by the
Transparency Law. The introduction of modern financial management and accounting
systems is critical to ensure that timely and reliable information for decision-making and
accountability is available.
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