Cutting Red Tape

Simplifying Regulation at the Municipal Level in Latin America: Lessons from IFC’s experience in Peru and Nicaragua By: Luke Haggarty, Kristtian Rada and Edward Dohm

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Executive Summary........................................................................................................ 3 INTRODUCTION .......................................................................................................... 5 I. ADMINISTRATIVE BARRIERS: A KEY ELEMENT OF THE BUSINESS ENABLING ENVIRONMENT...................................................................................... 5

The Costs of Poor Regulation. .................................................................................... 5 II. WHY WORK AT THE MUNICIPAL LEVEL? ....................................................... 7 III. IFC MUNICIPAL SIMPLIFICATION METHODOLOGY .................................... 8

Ensure Political Will. .................................................................................................. 8 Engage Beneficiaries for Sustainability...................................................................... 8 Four Phases ................................................................................................................. 8 Phase 1: Preparation and Diagnostics ......................................................................... 8 Phase 2: Municipal-Specific Proposal Development.................................................. 9 Phase 3: Project Implementation ................................................................................ 9 Phase 4: Design and Implementation of Sustainability Mechanisms ....................... 10

IV. REFORM IN PERU AND NICARAGUA............................................................. 10 V. RESULTS AND COMPARISONS IN FOUR MUNICIPALITIES ...................... 12 VI. SUMMARY OF LESSONS LEARNED................................................................ 14

Strengthening of Sustainability Strategies and Mechanisms .................................... 15 Monitoring and Evaluation ....................................................................................... 16 Key Factors for Success............................................................................................ 16

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Executive Summary The case for the reduction of administrative barriers is clear, high barriers to entry, operation or exit lead to less entry and competition, increased corruption and higher levels of informality. Lowering administrative barriers has now been widely accepted as a necessary ingredient to improve the business environment. However, too often, reform efforts focus solely at the central government level and fail to penetrate to the sub-national (state or municipal level). This is problematic for three reasons: first, with the spread of decentralization local governments are increasingly responsible for the application of a growing number of business regulations and in several countries in Latin America sub-regional regulations have now become the greatest barrier to entry; second, local governments tend to be weaker and therefore in greater need of assistance than central governments; and lastly, for many firms the local government is their first contact with the state and creates a long lasting impression of government regulation. To help fill this gap the IFC’s Technical Assistance Facility for Latin America and the Caribbean (IFC-Plus), is implementing a program of administrative simplification at the municipal level and is currently working with 19 municipal governments in 6 countries across the region. The IFC- Plus methodology has two core foundations and four phases. The core foundations consist of ensuring political will and engaging reform beneficiaries to enhance sustainability. The first reflects a basis premise of reform, no matter how essential economists and outside analysts may think it is unless it holds an important place with the relevant authorities it will not get implemented. IFC-Plus therefore works only with municipalities that agree up front to implement reform and concrete this by signing a public agreement to do so while also providing space and technical counterparts for our team. The second point is based on our research of many sub-national reforms across our region that have stalled and died within a few years, usually due to neglect following a change of administration. To combat this threat we actively engage the primary beneficiaries of the reform (the private sector and especially micro and small entrepreneurs) through the creation of public-private roundtables to oversee the progress of reform. These roundtables meet regularly to oversee the progress of reform and to ensure continued good performance. Over time these roundtables can be used to expand the reform agenda with the municipality. The IFC-Plus implements a four step strategy consisting of a) detailed diagnostics to identify the exact problem and solution focus areas, b) municipal specific reform proposal, c) reform implementation (including installation of monitoring and evaluations framework and systems) and d) design and implementation of sustainability mechanisms such as the private public roundtables described above. Each of these steps is implemented with the complete participation with the municipal counterparts to ensure that the diagnostic and the reform proposal reflect the reality of the municipality and its administrative capabilities. This methodology has proven highly effective, even when applied to such diverse municipalities as the relatively large and sophisticated Metropolitan Municipality of

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Lima, Peru as well as smaller, poorer municipalities with much lower capacities such as Leon, Granada and Masaya in Nicaragua. The result speak for themselves, in November both all of these municipalities are completing the implementation process. The most dramatic case is Lima where requirements dropped from over thirty to just five, inspections from five to one, visits to the municipality from eleven to just two and days from sixty or more to less than one for most firms (1.6 days using a weighted average). In Leon in Nicaragua similarly requirement dropped from nine to just two, inspections from three to one, visits to the municipality from seven to one and days from about eighteen to less than one for simple firms (See figures below). While these reductions are impressive, we cannot as yet judge the success of the reforms as this will only become evident over the next year when the response to the reform, in terms of firms registering their activities can be measured. These projects have helped put in place monitoring and evaluation systems to ensure that this data is captured over time. Lessons Learned. While it is too early to draw overly strong conclusions from these reforms, a few lessons have come out clearly. First and foremost that it is possible to implement such reforms even when the municipality is financially weak and where capacity is low. Second that no reform is feasible without the political will to reform backed by direct beneficiaries and wider stakeholders Third that it is critical to find local institutions, beneficiaries and other stakeholders who can effectively participate in the reform, inform the wider community of the reform and its benefits and assume the role of overseeing the reform efforts and ensuring continuity across future administrations. Lastly in order for these activities to take place the reform must help put into place a strong monitoring and evaluation system which helps to generate the data necessary to track reform progress over time.

Operating License in Lima Peru

33

5

11

51 2

60

1.60

10

20

30

40

50

60

Requirements Number ofInspections

Visits toMunicipality

Days * (wieghtedavg.)

Pre-reform Post-reform

Operating License in Leon, Nicaragua

9

3

7

18

4

13 32

0 1 0.50

5

10

15

20

Requirements Number ofInspections

Visits to Municipality Days

Pre-reform

Post reform w/inspPost reform w/o Insp.

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INTRODUCTION This paper outlines the experience of IFC in simplifying municipal regulations in Latin America. This work is part of the Business Enabling Environment program in the Latin American Technical Assistance Facility of the IFC based in Lima, Peru. The paper has six sections as follows: section I reviews the role of administrative barriers in the overall business environment and the costs associate with poorly functioning regulation in terms of informality and corruption; section II examines the case for working at the municipal level; section III reviews the principal parts of the municipal simplification methodology developed by the IFC; section IV combines an overview of the municipalities in Nicaragua and Peru and briefly describes key points in the simplification process; section V discusses outcome in the four municipalities and section VI summarizes key lessons learned in these reforms.

I. ADMINISTRATIVE BARRIERS: A KEY ELEMENT OF THE BUSINESS ENABLING ENVIRONMENT The business environment is comprised of many features which make a country (or a particular part of a country) more or less attractive for private investment. These features can be grouped into five main areas: i) Governance (regulatory environment), ii) Infrastructure and logistics, iii) The level of technology, innovation and quality control, iv) The quality, quantity and cost of labor and v) Financial markets. All of them are essential to understanding the response of the private sector to investment opportunities. In many ways the area of governance is the most important to the investment decision process since a lack of transparency and efficiency in the regulatory framework can negate other positive aspects of the business environment and deter investment. The Costs of Poor Regulation. Regulation of the private sector by the public sector is clearly necessary for a number of reasons: to ensure that firms comply with norms to safeguard public health and safety, pay taxes (which make other public services possible) and to ensure orderly development (city planning for example). Unfortunately regulation sometimes goes well beyond these aims and all too often is implemented in a way that is heavy handed and costly for firms. When governments make regulation complicated and compliance costly many firms seek to evade the regulation rather than comply with it. In many cases public officials can use the difficulty of compliance as a tool to extract rents by demanding payment to “look the other way”. Such a situation pushes potentially legal firms into the informal sector where no regulations apply to their activities and they do not pay taxes. This is especially true when the state has a low capacity to enforce the regulation and hence bureaucratic discretion in application is high.

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The correlation between complicated and costly regulation and informality is strong. According to the World Bank’s publication Doing Business 2004 the more difficult it is to comply with regulation the higher the level of informality in the economy (see figure 1). In addition they find that countries that require more procedures to register a firm have higher levels of corruption, a finding corroborated by other sources as well (see figure 2). The Doing Business in 2004 report points out that the most developed countries regulate entry the least whereas poorer countries, particularly in Africa and Latin America have the highest regulations of entry.

A substantial amount of work by the World Bank shows that regulatory costs are much more onerous for SMEs since the opportunity cost of the entrepreneur’s time is so high and they often cannot pay to have a lawyer or a notary take care of the paper work as larger firms do (World Bank, 2004) as a result SMEs are the most effected by poor regulatory practices and much more likely to opt for informality rather than comply with the high regulatory costs. This is bad for development since informality limits their opportunities for growth, denies the government much needed tax revenue and stimulates corruption. In addition informal workers have few social rights, and no social security, severance pay, minimum wage, or standards for working conditions. They receive little vocational training, which contributes to low quality and low productivity. Most SMEs are trapped in low-productivity operations with little access to finance, key government services, new technologies, and formal customers. As more and more countries adopt value added taxation the lack of formalization becomes a more important barrier for growth since small firms cannot get a contract with a larger firm unless they can issue a legal receipt which can be discounted against the value added tax. Since SMEs make up between 60-90 percent of the private sector in most countries this is of great concern to both governments and donors.

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II. WHY WORK AT THE MUNICIPAL LEVEL? Regulation of economic activity typically occurs at every level of government, central, state or provincial and municipal. The scope of regulation may vary from regulations which apply to all firms (e.g. tax registration) to regulations which apply to only a particular sector (e.g. mining or forestry regulations). In some instances a single government entity may be responsible for application of regulation but in many instances multiple government agencies are involved in the same regulatory process. Over the last decade nearly all countries in Latin America have begun a process of decentralization and the responsibility for applying regulation is increasingly falling to the municipalities. Unfortunately, the municipalities generally have low levels of capacity to handle these responsibilities and have not generally been recipients of significant assistance to improve that capacity. For example, in the area of simplification of business processes, the World Bank, the IDB and many bilateral donors have programs across the region at the central government level; however, few have had such programs at the municipal level. As a result, in many countries simplification of business processes has proceeded at the central level but these advances have not been matched at the municipal level. This situation comes out clearly in the data. In many countries in the region the municipal level paperwork accounts for well over 40% of the total time needed to register a firm, the case of Lima, Peru provides an example (see figure 3). In addition for many firms, particularly SMEs, the municipality is their first experience with Government so interactions at the municipal level set the tone and expectations of dealing with the public sector.

Municipal Operating Permit (66 days)

Figure 3: Time and Cost to Register a Firm in Peru

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In order to address these issues, IFC (Plus) has developed programs that support the business enabling environment for SMEs. They involve regulatory restructuring at the municipal level (focused on two regulatory actions; the municipal operating license and the construction permit), fostering public-private dialogue, building local capacities, and creating mechanisms to encourage entrepreneurs to formalize their operations. These programs have evolved incrementally, are highly attuned to local realities, and are linked to relevant stakeholder groups.

III. IFC MUNICIPAL SIMPLIFICATION METHODOLOGY Based on our experiences in Latin America the IFC has developed a four part methodology that is comprehensive in its approach to the reform, ensures stakeholder engagement and sustainability and places strong emphasis on monitoring and evaluation of outcomes and impacts. The following is a description of the key elements and the four phases of our typical reform program. Key Elements Ensure Political Will. First and foremost we only work with interested clients. We do not sell reform to unwilling buyers, we are not interested in generating reports or publishing analysis, rather we insist that our clients commit up front to implementing reforms with us. We make this commitment concrete in the form of a Memorandum of Understanding signed publicly between the Municipality, the IFC and other stakeholders. While not a binding contract the MOU helps clarify roles and responsibilities and the fact that it is signed publicly with press coverage helps ensure commitment. Engage Beneficiaries for Sustainability. In our experience the only way to ensure sustainability over the medium to long term is to have beneficiaries actively engaged in the reform and overseeing the reform so as to ensure there is no back-sliding by future administrations. The means that a representative sample of the private sector needs to be engaged in the reform process and become the owners of the reform by the end of the process. We achieve this through the creation of public-private advisory committees which oversee the reform and become a permanent part of the monitoring and evaluation system in overseeing results on a periodic basis.

Four Phases

Phase 1: Preparation and Diagnostics • Sign MOU with Municipality spelling out responsibilities of each partner. • Contract local consultant to work directly with technical team in municipality. • Carry out very detailed diagnostic of the process (steps, costs, necessary

requirements, and time) of entire process including inspections and any other ancillary activities.

• Carry out legal review of all requirements to establish legal basis and legal requirements.

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• Validate diagnostic with all departments and agencies involved to ensure accuracy.

• Present diagnostic to private sector stakeholders to ensure accuracy.

Phase 2: Municipal-Specific Proposal Development • Using process and legal diagnostic consider each step in current process and

eliminate those that have no legal basis • Isolate each of the remaining steps and consider what is actually needed and

whether it could be simplified and/or combined with another step in the process. • Joint team proposes a reorganization of the registration process including details

on: a) Reorganization of functions of departments and/or positions; b) Identify training needed for new position and develop training course and

material c) Identify any legal changes needed to carryout reorganization and prepare

draft of new legislation; d) Design new or improved information system to manage the new process

and detail all costs (up front and recurring) as well as training needs associated with the changes

e) Design monitoring and evaluation indicators for the process, outcomes and impacts and ensure that the system can track them and generate reports for a variety of audiences (i.e. managers and stakeholders)

• Proposal is validated as feasible by all departments involved in the municipality and shared for comments with private sector stakeholders.

Phase 3: Project Implementation PART I – Training of Municipal Officers and Establishing New Procedures

• Assess knowledge, skills, and capabilities of municipal officers, and address initial areas of concern

• Train municipal officers, utilizing workshops and simulations of new procedures • Determine areas to be strengthened, both with new procedures and municipal

officers • Design necessary new registration forms and Manual of Procedures

PART II – Implementation of a Monitoring and Evaluation (M&E) System

• Design and installation of a computerized system that continuously tracks data on all simplified procedures and automates certain processes (usually form of workflow)

• Training of relevant municipal authorities to utilize M&E system for constant access to statistics regarding procedures, in order for them to make continuous improvements.

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Phase 4: Design and Implementation of Sustainability Mechanisms • Follow-up monitoring and training of municipal officers on new procedures • Assess improvements of baseline data, and constant analysis (with M&E) of

efficiency of procedures. • Ensure that Advisory Council has access to periodic M&E reports of performance • Carry out two project evaluations: one that evaluates the project after

implementation, and the second that evaluates it 18 months after project completion.

IV. REFORM IN PERU AND NICARAGUA In 2004 the IFC began municipal simplification reforms in two very different countries, Peru and Nicaragua. Peru is a fairly large, middle income country in South America while Nicaragua is a small poor country in Central America. Similarly the municipalities were quite distinct, in Peru we are working with the Metropolitan Municipality of Lima (MML) which is the largest city in Peru and accounts for about 45% of GDP. However it is important to note that due to the political structure of the city the reform impact is limited to the district municipality of downtown Lima (Cercado). In Nicaragua we are working with three secondary cities, Granada, Leon and Masaya. Granada and Leon are old colonial cities who now mix tourism and industry as their main economic activities while Masaya is a vibrant town of small artisans that is a short distance from the capital, Managua. Table 1: Key Statistics on municipalities in Peru and Nicaragua

Peru Nicaragua Municipality Lima (Cercado) 1. León

2. Granada 3. Masaya

Project Start Date October 2004 November 2004 Local Partnerships Metropolitan Municipality of Lima

(MML) and CONFIEP (confederation of Industries)

Association of Municipalities of Nicaragua (AMUNIC) and CACONIC (Confederation of Commerce)

Simplified Procedures 1. Municipal Operating License 2. Construction Permit

1. Municipal Operating License 2. Construction Permit

Population of Municipality

2.6 million León: 198,314 Granada: 122,858 Masaya: 157,929

% of National Pop. 10% 9% SME as % of all firms 99% 95% (average of the three municipalities) % of firms that are Informal (estimated)

86% 1. León: 55% 2. Granada: 50% 3. Masaya 60%

New Enterprises Registered 2004

1,050 282 (average of three municipalities)

Despite the large differences in size and sophistication the municipalities shared several characteristics; all recognized that they had significant levels of informality, that their

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registration processes where bureaucratic and burdensome, and that their information systems were archaic to non-existent. None of the municipalities had even the basic information available on level of demand for licenses or average days to complete the process. However each of the mayors was committed to change and all four embraced the reform process and named highly qualified and committed technical teams as counterparts to the consultants placed in the municipalities. During the diagnostic it became clear in all of the municipalities that the process of getting a license crossed several departments which required identical information from the entrepreneur, often performed the same revision of the information and yet were unaware of each others activities. It also become obvious that, despite relatively low numbers of applications on a daily basis, the process in each municipality lacked fluidity and frequently became backlogged due to reviews or simply waiting to be processed (See table 2 for an example from Lima).

Source: Secretaría Técnica para la Simplificación de Trámites, 2005. As can be seen in table 3 all municipalities showed very high numbers of steps in the process but had large variations in terms of number of requirements, number of days to get a license, number of inspections and visits to the municipalities. Without doubt Lima at 60 days was a much longer and more bureaucratic process.

Table 3: Comparative Statistics for Municipal Operating LicensesLima León Masaya Granada

VariableProcedures 4 3 3 3Requirements 33 9 4 10Steps 160 188 110 198Number of Inspections 5 3 1 2Visits to Municipality 11 7 2 5Days 60 18 4 10

Source: Secretarias Tecnicas, Lima y Nicaragua

92374.122.73.26.49.43.6LAED4

35.623.913.020.5Total days

4.52374.15.71.22.10.22.3LFP5

6.5384.630.519.04.21.06.2CDC3

8.53193.718.63.08.12.35.1CCU2

93123.815.69.23.00.03.4CAE1

TOTAL Nº.OF

DAYSWAITDISPATCHREVISIONOPERATION

TIME INVESTED IN VISITS

(HOURS)

VISITSTO

MUNI.COST

NATURE OF THE ACTIVITY

PROCEDUREN

TABLE 2: ANALYSIS OF THE TIME FOR OPERATING PERMIT BY ACTIVITY IN LIMA

92374.122.73.26.49.43.6LAED4

35.623.913.020.5Total days

4.52374.15.71.22.10.22.3LFP5

6.5384.630.519.04.21.06.2CDC3

8.53193.718.63.08.12.35.1CCU2

93123.815.69.23.00.03.4CAE1

TOTAL Nº.OF

DAYSWAITDISPATCHREVISIONOPERATION

TIME INVESTED IN VISITS

(HOURS)

VISITSTO

MUNI.COST

NATURE OF THE ACTIVITY

PROCEDUREN

TABLE 2: ANALYSIS OF THE TIME FOR OPERATING PERMIT BY ACTIVITY IN LIMA

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However the analysis uncovered some important facts that are not apparent in the summary statistics. For example, it would appear that the municipality of Masaya which licensed people in just four days was relatively efficient in licensing. However the analysis showed that part of the reason for its speed was that it was not applying any of the zoning requirements in its licensing process. As a result economic activity was not following any city plan so that, for example, dangerous industries were being given a permit even if they were in the middle of residential neighborhoods or sited next to schools. The reform therefore had to help Masaya design a system which could assist it to apply its own zoning regulations. In every municipality the detailed information that came out of the diagnostic was a shock to the municipalities and proved to be a great motivator for reform. The level of overlapping duties was unknown to the section managers and the complexity of the process for the client had never been fully appreciated by workers in the municipality. There was also a great deal of nervousness on the part of workers in all the municipalities. In each situation the municipality went to great lengths to assure the staff that the reform was not an excuse to dismiss workers and helped to make them part of the process. The workers are often the best sources for innovative ideas but these have rarely been tapped as the highly bureaucratic nature of the administrations did not empower them to innovate or suggest changes. In each municipality a great deal of time and effort has been spent to ensure that the workers understand the reasons for the changes and to help shift the municipality to a client focused culture. Most of the workers have been trained in the new processes however there were some workers who were no longer needed with the more efficient process and these are being re-trained and redeployed to other functions in the municipality.

V. RESULTS AND COMPARISONS IN FOUR MUNICIPALITIES The reforms have not yet been completed in the municipalities (this is expected by mid-November) so it is not possible at this point to give final numbers on how the system is functioning, however we can give the numbers in the reform proposal. In the case of Nicaragua we present the pre and reformed numbers as representative of the three municipalities. In reality the three municipalities agreed to a single unified proposal so that now the process will be exactly the same in all of them. In each municipality the number of days to get a license will drop to no more than three days and one day or less for most firms. All of the municipalities now divide license applicants on risk categories and those in low risk (e.g. commerce, services, restaurants) will receive their license in a day or less while those higher risk categories (nightclubs, some manufacturing and all heavy industry) will require slightly longer to allow for the necessary inspections prior to approving the license. As is apparent in figures 4 and 5 the reformed process is dramatically less onerous, requirements have dropped from over 30 in Lima to just 5 while they have gone from 9 to 4 in Leon and just 2 for simple firms. Similarly the number of visits by the entrepreneur to the municipality has been slashed from 11 to 2 for Lima and from 7 to 1 for simple

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Fig. 5: Operating License in Leon, Nicaragua

0

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15

20

Procedures Requirements Number ofInspections

Visits to Municipality Days

Before

Proposal w/inspProposal w/o Insp.

firms in Leon. This is extremely important particularly for poor SME owners as there are significant costs in both time and the cost of transport to the municipality. Finally the number of inspections has been reduced from 5 to 1 in Lima and from 2 to 0 for simple firms (one inspection for others) in Leon. In all four municipalities the reform of inspections included not only combining several inspections (often inspecting the same things) into a single multi-purpose inspection but also has made the inspection process more objective with clear criteria and single yes or no answers.

These last two areas, visits to the municipality and number and objectivity of inspections are critical to reduce levels of corruption. Prior to reform these repeated interactions between the entrepreneur and public servants provided ample opportunity for irregular payments. Interestingly in the case of Lima the municipality, upon revising the process and estimating probable demand, came to the conclusion that the department currently handling inspection could not possibly cope with projected demand. They have, therefore, decided to contract out the service and have the current inspections department focus on oversight of the contractor. Although more time is needed to judge the outcome of the reform, the final numbers for the reformed process are very similar to outcomes from earlier experiences in Bolivia and are expected to be sustainable. The larger question to be answered is the demand response of the private sector which is of course a function of reduction in time and cost combined with both level of dissemination and increased enforcement. Here Lima has set the most ambitious targets, aiming to register 10,000 firms in the year after reform. This is nearly ten times current registration rates but the municipality is planning a large dissemination campaign as well as innovative solutions such as a mobile registration center that will lower transactions costs dramatically by bringing the application process to the entrepreneur. The other unknown element of the reform to date is the sustainability of the reform in the medium to long term. Based on earlier experience in Bolivia the IFC has incorporated the inclusion of the private sector as beneficiaries of the reform in all projects. In each country the projects have ensured that the private sector has been a partner in the reforms. The private sector partners, representatives of both large firms and SMEs, have been

Fig. 4: Operating License in Lima, Peru

0

10

20

30

40

50

60

Procedures Requirements Number ofInspections

Visits toMunicipality

Days

Before Reform Proposal

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consulted and informed at each stage of the process. However the measure of success will only come at the conclusion of the reform when we will be able to judge how the private-public council to oversee the reform works in practice. The largest hurdle for sustainability will come at the end of the current administrations when the architects of the reform leave office and the private sector will need to continue to pressure the new administration to maintain and improve the performance of the municipality. To help the private sector in this work the IFC is developing a regional product, the Municipal Scorecard, which will measure and rank the efficiency of municipal administration (initially for only the operating license and construction permit). This will allow for both national and international comparisons of municipal performance in regulation of the private sector. We expect this tool, which will be applied to five countries this year (Honduras, Nicaragua, Bolivia, Peru and Brazil) and then expanded in the region in subsequent years, will assist the private sector in each country to keep the issue at the forefront of the political debate and public attention. The other important partnership that can help expand reform and ensure sustainability are the association of municipalities. In the case of Nicaragua the national association of municipalities (AMUNIC) has become a strong and important partner in the process. They have embraced municipal simplification as a service that they can offer to their members and have taken a leadership role in the reform process and the technical secretariat (consultants paid by IFC) has been housed in AMUNIC. They have agreed to hire the consultants to aid other municipalities in the country and extend the simplification program nationally. The municipal association, along with the chamber of commerce, has evolved into a key partner for the simplification projects as well as the Municipal Scorecard.

VI. SUMMARY OF LESSONS LEARNED As with any project that aspires to make fundamental changes to the working of a community or organization, there are concerns about project implementation and sustainability over the medium and long-term. It is difficult to make decisive conclusions or profound suggestions for lessons learned in municipal simplification given the short amount of time that has passed since the initial pilot in La Paz (2003). That being said, there are certainly learning points worthy of mention from these initial municipalities, and areas where attention must be paid and processes can be strengthened. Many of these areas address manners in which municipal simplification can be supported and maintained through changing administrations and over the long-term. They also address strategies that will allow countries to be able to independently expand simplification reform to additional municipalities.

The primary areas that can be improved in future municipal simplification initiatives can be broken down into two larger categories: 1) Strengthening of sustainability strategies and mechanisms and; 2) Monitoring and evaluation

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Strengthening of Sustainability Strategies and Mechanisms Much stronger systems and processes must be developed that will facilitate the growth and support of future municipal reforms. � Key beneficiaries and stakeholders must be involved in the entire reform process,

both from the public and private sector. Advisory Councils that are composed of these local actors and that have wide-ranging responsibilities will help achieve this, and assure that the most important interests are being considered. These responsibilities should include: i) conducting community outreach and public consultations to gauge public opinions, ii) serving as advisors and helping with the development of reform proposals, iii) promoting and lobbying for reforms, and iv) actively participating in evaluating reform results.

� It is necessary to work in partnership will municipalities and create an alliance

and trust with the authorities and officials in charge of processes. Developing workshops with the officials is a good way to create networks, keep authorities informed, and get the backing of those who are responsible for the day-to-day operations of each municipality.

� A local institution and multidisciplinary team are crucial for reform success. The

local institution gives credibility to the reform efforts, acts as a project advocate and supporter, and is the foundation of building local capacities throughout the entire process. A multidisciplinary team that includes different disciplines such as lawyers, accountants, and tax experts encourages consensus-building and further private sector involvement, and assures a comprehensive approach in project and proposal design.

� Integrated strategies must be developed during all phases of reform proposal

development and implementation. All of the administrative processes must apply the simplification and generate a detailed plan to reengineer the necessary systems that will allow proposed changes to occur. For example, an outline of how municipal officials will be trained, how the private sector will be involved, and how reform promotion and sustainability will be carried out, must accompany stated goals or objectives of the reform.

� Strategies must be developed to better promote reform efforts and raise

community awareness. Sustainable reform depends on the ability to pass regulations that support these initiatives. A strong effort is needed to get municipal reforms on the public and political agenda, influence public opinion, utilize media outlets to spread reform messages, and plan events that encourage reform discussions.

� It is important to build local expertise and form a network of simplification

experts capable of championing and implementing reform expansion. Identifying, selecting, and continuously training consultants equipped to independently implement reforms will facilitate self-sufficiency and future expansion ambitions.

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Monitoring and Evaluation � An in-depth analysis and diagnosis is important to achieve good results and

effectively monitor reform progress. It is critical to identify and collect accurate baseline data in order to measure the outcome and impact of reforms.

� It is essential that municipal authorities have indicators, and feel ownership of the

systems designed to monitor and evaluate the performance of simplified procedures. This will give them the ability to measure, assess, and continuosly improve the process.

� The type of data and information that is required from the Technical Secretariat /

consultants must be clearly defined. The inclusion of a template detailing the minimum amount of information desired in the Progress Report is important to help ensure the receipt of a complete Report.

� Advisory Councils need to be active and responsible for significant parts of the

reform process. Systems need to be developed to oversee Council activities as well. The distribution of annual or semi annual reports written by a third-party institution or by the Council itself is one way of helping ensure that continued progress is made on reform initiatives.

Key Factors for Success In order to better organize the lessons learned in municipal simplification, certain characteristics have been identified that help enable projects to succeed. This includes:

� Political will and commitment � Full backing from reform stakeholders and beneficiaries (reform should

not be imposed) � Technical Secretariat and institutional support to local institution acting as

the champion for reform implementation � Reform promotion and outreach to internal and external stakeholders, and

local communities � Institutional agreements and inter-institutional coordination � Adequate strategy for implementation � Hands-on and realistic approaches with detailed plans for implementation � Financing support from donors and private sector � Collaboration with local and multilateral organizations � Continuous learning, training, and scrutinizing of reform

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References Secretaría Técnica para la Simplificación de Trámites, 2005 Informe del diagnostico del actual proceso para obtener autorizacion de funcionamiento en la Municipalidad Metropolitana de Lima, Lima Peru World Bank, 2003. Doing Business in 2004, World Bank and IFC, Washington, DC World Bank, 2004. A Better Investment Climate for All, World Development Report, World Bank, Washington, DC