The Politics of Infrastructure Services

1
The Politics ofInfrastructure Services

• Mario Bergara
• Joint Seminar of IADB - World Bank
• POLITICAL ECONOMY OF SERVICE DELIVERY
• June 2 - 3, 2005

2
ANALYTICAL FRAMEWORK
Institutions and History
Features of Policies
Political Transactions
Political Institutions
Policy Outcomes
3
TRANSACTION-COST FEATURESOF POLICY ISSUES
Requirement and ability for intertemporal
political exchanges
Policy preferences
Gains from conflict
Set of veto players
External enforcement
Design-implementation
Costs of safeguards
4
ANALYTICAL FRAMEWORKFOR SPECIFIC PMP
Institutions and History
Features of Policies
Political Transactions
Political Institutions
Policy Outcomes
5
PUBLIC UTILITIES AND INFRASTRUCTURE
IMPLICATIONS
CHARACTERISTICS

• Large highly specific investments
• Economies of scale, scope and density
• Massively consumed

Few agents
High politicization
Incentives for expropriation and opportunism
6
CREDIBILITY AND CAPTURE
Need for safeguards
Quality of institutions
Institutional design to support credibility and
mitigate capture
State Ownership Solution by defect
7
INSTITUTIONAL FRAMEWORK
Political system
Culture, ideology and informal norms
Judicial system
Nature and balance of social interests
Administrative- bureaucratic capabilities
8
REFORM IN LATIN AMERICA
Privatization Public vs. Private and the nature
of ownership
Monopolies, liberalization and the introduction
of competition
Regulation for the competition
Role of the State and role of the market
9
THE RULES OF THE GAME
Separation of roles of the State
policy, regulation and service delivery
Creation of regulatory agencies, particularly in
utilities
Institutional location of regulators
and competition authorities
Relative strength of agencies dependent on
institutional framework
10
THE MAIN ELEMENTS OF THE GAME
History
Transaction mechanisms
Relevant agents
Relationship with political and judicial systems
Ability to achieve intertemporal agreements
Credibility and contract enforcement
Incentive structures
11
RELEVANT OUTCOMES OF THE GAME
Privatizations
Regulation, competition and consumer protection
Effective introduction of competition
Political interference
Investments, prices and quality of services
Identifying winners and losers of the processes
Existence and strength of regulators
12
ARGENTINA Institutional weaknessand volatile
policy outcomes
Poor starting point allowed privatizations
Political interference, capture and expropriatory
measures
Intervened and weak regulators and poor
judicial enforcement
Low investment in institutional capabilities
New sectoral PMP agents (privatized firms), weak
regulators, politicians, consumers
13
CHILE Institutional consistency andstable and
adaptable policy outcomes
Privatizations and introduction of competition
Regulators with appropriate resources and
technical capabilities
Independent competition authority contributed to
credibility
Adequate judicial intervention
New sectoral PMP privatized firms, regulators,
strong judiciary, consumers
14
URUGUAY Relative institutional weakness, direct
democracy and rigidity
Reforms threatened by referenda / plebiscites
Lack of intertemporal cooperation
Improvements in State-owned firms fiscal role
disencourages reforms
Rigidity derived from institutional factors and
political conflict
New sectoral PMP new firms, weak regulators,
State-owned firms, unions
15
PERU Weak institutions, imported credibility
and rigid / volatile policies
Policy changes with different powerful Executives
nationalizations, privatizations, competition,
political blockades
Weak regulators dependent on Executive
Need for credibility specific legislation, conces
sion contracts and international investment
protection agreements
New sectoral PMP privatized firms, weak
regulators, politicians
16
The Politics ofInfrastructure Services

• Mario Bergara
• Joint Seminar of IADB - World Bank
• POLITICAL ECONOMY OF SERVICE DELIVERY
• June 2 - 3, 2005