Governance Crisis and the Andean Region: A Political Economy Analysis. Andres Solimano.

Governance Crisisand theAndean Region:

A Political Economy Analysis.

Andres Solimano.

1. Governance and development outcomes.

2. Analytical framework

1. Governance and development outcomes.

2. Analytical framework for Governance2.1 Basic Concepts.

• Hierarchy of institutions.

• Formal rules.

• Actual patterns of social behavior.

2.2 Three main variablesa) Nature and stability of the political regime and the constitution.

b) Quality of institutions.

c) Patterns of social cooperation/conflict related to inequality and ethnic diversity.

Diagram

Constitutionand

Political System

QualityOf

Institutions

SocialCooperation/

Conflict

ActualGovernance

Development Outcomes(economic growth, macro stability,

Poverty, social equity)

a. Constitutions and political systems.• Analytical traditions: Contractarian approach

(Rosseau, Locke, Rawls, Nozick), Public Choice Theory (Buchanan, Tullock, Dixit, North), Collective Choice (Arrow, Sen).

• The social contract and the setting-up of the rules of the game.

• Playing the game.• Rights and the political system: presidential and

parliamentary systems.• How well each system handles political crises?• Probabilities of “regime breakdown” under

presidential and parliamentary systems.

Presidential system:• Fixed term.• Legislative initiative of the president.• Presidents appoints cabinet.

Parliamentary system:• Prime-minister chosen and removed by

parliament.• Parliament intervenes in the designation

of the cabinet

a. Constitutions and political system.• Setting-up the rules of the game.• Playing the game.• Presidential and parliamentary systems.• How well each system handle political crises?• Probability of “regime breakdown” under each

system.

a. Constitutions and political system.b. Quality of institutions.

• Administrative branch, judiciary, parliament, central banks, budgetary process.

• Transaction costs approach (Dixit, North) (institutions are created to reduced transaction costs).

• Power and institutions (Olsen)(Institutions play a redistributive role and support power structures).

• Principal-agents problems (enforceability monitoring, flows of information).

• Dysfunctional aspects of institutions.• Rent-seeking.• Corruption.• Violence.

a. Constitutions and political system.b. Quality of institutions.c. Social cooperation and conflict.

• Related to inequality of income and wealth and ethnic diversity.

• Conflict around shares of national income, conflict around taxation and public expenditure, conflict around political participation and power-sharing.

• Inequality, conflict, investment and growth.

Empirical Analysis

For the Andean Countries (Bolivia, Colombia, Ecuador, Peru and Venezuela)

a) Frequency of mayor constitutional reforms, presidential crises and political regimes (The whole 20th century and the 1950-2002 period, see table G1).• Number of constitutions (1900-2000):

• Venezuela (8)• Ecuador (7)• Bolivia (5)• Peru (4)• Colombia (1)• Average (5)

• Comparison to Chile, Uruguay, Costa Rica and OECD countries (se table G2).

• Frequency of presidential crisis (1950-2002): Bolivia (16 crisis), with 11 taking place between 1969-82.

• Ecuador (10 crisis), mostly in the 1970’s and 1990’s.• Colombia (2 crisis both in the 1950’s).

Empirical Analysis (cont.)

• Presidential crisis and political regime: high frequency of presidential crisis in both authoritarian regimes and in democracy. e.g. Bolivia in the 1970’s had a high frequency of political crisis under authoritarian regimes. In the 1990s Ecuador had a high frequency of presidential crisis under democratic regimes.

• High frequency of regime breakdown in Peru, Ecuador and Bolivia in the last decades. In contrast, we find a low frequency of regime breakdown (high continuity of democracy) in Colombia and Venezuela since the 1960’s.

• Comparison of frequency of crisis in parliamentary regimes (e.g. Italy, Germany, UK) with frequency of crisis in presidential regimes (Andean Countries, most of Latin America, the US, others).

Number of

presidential

Crisis

Year Number of in the

constitutional period

reforms 1950-2002

in the 20th

century

19381945 5 16196019671994

1991 1 2

Crisis Year and President

Non-elected, military



1978 (Gral. Juan Pereda)

1980 (Lidia Gueilier)

1981 (Gral. Luis García)

19781979

1979-1980

1985 (Hernán Siles)

CrisisCountries

TABLE G1Constitutional, Presidential Crisis and Political Regimes

Andean Countries

Presidential [b]

1979 (Walter Guevara)

Period Until

1970-1971

1979

1908-19811981-1982

19821982-1985

Crisis

Bolivia

Colombia

1982 (Gral. Celso Torrelio)

1982 (Gral. Guido Vildoso)

Number ofConstitutions [a]

1900-2000

1970 (Gral. Alfredo Ovando)

1971 (Gral. Juan José Torres)

1951(Mamerto Urriolagoitia)

1952 (Gral. Hugo Ballivián)




Democratially elected

1969 (Luis Siles)

Presidential

BeforePresidential

Constitutional succesion





1951-19521964 (Víctor Paz) 1960-1964

1966-19691969 (Gral. René Barrientos) [d]



1997-20022001(Hugo Banzer) [c]

1979 (Gral. Alberto Natusch)

PrevailingPolitical Regime



1969-1970Non-elected, civilian

1950 - 2002

1969

1949-1951

1953-19581953 (Laureano Gómez)

1957 (Gustavo Rojas)

Crisis


19291938 7 1019451946196719791998

19201933 4 619791993

19011909 8 4193119451947195319611999

[a] New constitution approved.

[b] Presidents that did not complete their constitutional periods by coups,

resignation and non-voluntary removals.

[c] By illness of the President

[d] Death of the President

[e] Self - Coup

[f] Failed Coup

Source: http://geocities.yahoo.com.br/escritoriorbm/historia/index_b.html, http://es.geocities.com/datalia2002/colombia.htm,

http://www.explored.com.ec/ecuador/1960.htm, http://www.tierra-inca.com/presidents/index_es.html, http://www.aldeaeducativa.com

1995-20001948-19501952-1958

1997

2002 (Hugo Chavez) [f]

1992 (Alberto Fujimori) [e]

1950 (Carlos Delgado) [d]

1958 (Marcos Pérez)

1981 (Jaime Roldás) [e]

2000 (Solórzeno, Mendoza, Vargas)

1997 (Abdalá Bucaram)

2000 (Jamil Mahuad)

1963 (Carlos Arosemena)

1970 (José María Velasco) [e]

Venezuela

Ecuador

Peru



1993 (Carlos Andrés Pérez) 1989-19931999-






1972 (José María Velasco)

1976 (Gral. Guillermo Rodriguez) Non-elected, military







Non-elected, military andcivilian


Non-elected, civilian




1990-19921975 (Juan Velasco) 1968-1975

1968 (Fernando Belaude)

1998-20002000

1962-19621963-1968

1961 (José María Velasco) 1960-1961

1968-19701970-19721972-19761979-1981

1962 (Manuel Prado) 1956-1962

1997 (Rosalía Arteaga)

1996-1997

2001 (Alberto Fujimori)

1963 (Ricardo Pérez)

1961-1963

Number of

presidential

Crisis

Year Number of in the

constitutional period

reforms 1950-2002

in the 20th

century

1925 2 119801949 1 019181934 5 2194219521967

0 2

Turnover

of

Prime-

Minister

1950-2002

1919 2 519491948 1 58

0 12

[a] New constitution approved.

[b] Presidents that did not complete their constitutional periods by coups,

resignation and non-voluntary removals.

Source: http://icarito.tercera.cl, http://www.observa.com.uy/eluruguay/historia/1presidentes.html, http://www.guiascostarica.com/h02.htm#republica,

http://www.inter-nationes.de/d/frames/presse/sonder/s/brjabre-s-11.html, http://www.fmmeducacion.com.ar/historia/notas/prestadosunidos.htm,

http://www.bbc.co.uk/portuguesa/noticias/2001/01/010509-italiatempo.shtml, http://es.geocities.com/datalia2002/inglaterra.htm

1976 (Juan M. Bordaberry)

1976 (Alberto Demichelli)

1950 - 2002

Period Until

Crisis

1970-1973

1972-1976

1973 (Salvador Allende)

Crisis Political Regime

TABLE G2

Presidential [b] PrevailingConstitutions [a]

UruguayCosta Rica

Chile

United Kingdom

USA 1963 (John F. Kennedy)

1974 (Richard Nixon)

PARLIAMENTARY

Italy

REGIMES

Germany

Countries

1900-2000


Crisis

Constitutional Reforms, Presidential Crisis and Turnover of Prime- Minister, Selected Countries



BeforeCrisis Year and President Presidential Presidential

Number of





Non-elected, civilian

1961-19631969-1974

1976

Quality of governance

a) World-Bank (qualitative, survey-based, 1998-2001)

• Kaufman, Kraay and Zaido-Lobatón index computed for over 150 countries.

• Six categories of the index: • Voice and accountability.

• Political instability and violence.

• Government effectiveness.

• Quality of regulation.

• Rule of law.

• Control of corruption.

Andean countries rank lower in most of the 6 dimensions than Chile/ Uruguay/ Costa Rica, lower than the average of Latin America and lower than OECD.

170 173 152 161 153 159 163 168 167 169 152 160

1998 2001 1998 2001 1998 2001 1998 2001 1998 2001 1998 2001

Bolivia 63 67 87 122 83 101 22 39 97 100 95 119Colombia 91 112 140 149 74 95 69 93 128 132 102 89Ecuador 66 92 108 131 110 129 61 95 121 130 123 140Peru 124 70 111 95 54 93 37 61 110 109 73 72Venezuela, RB 68 106 92 100 131 124 91 115 117 136 114 107Andean Countries 82 89 108 119 90 108 56 81 115 121 101 105Top Latin AmericaChile 54 52 51 30 23 23 18 13 24 24 25 17Costa Rica 21 16 30 24 42 37 16 26 48 50 37 32Uruguay 46 32 58 25 37 44 13 22 61 48 45 37Latin America 83 81 83 91 92 83 79 61 105 101 91 89OECD 24 23 28 26 24 25 28 29 27 27 25 23

Source: Kaufmann D., Kraay A., and Zoido-Lobatón P.(1999-2002). "Governance Matters", Policy Research Working Paper 2196 and "Governance Matters", Policy Research Working Paper 2772, World Bank.

Number of Countries

PoliticalInstability

and Violence

GovernmentEffectiveness Quality

Regulatory

TABLE G3Ranking of Governance Indicators for the Andean Group

Countries CorruptionRule

of LawControl of

(World Bank)

Voice andAccountability

Quality of governance

b) World-Economic Forum-Harvard University (based on surveys)

Growth Competitiveness Report, 75 countries including developed, developing countries and transition economies.

Growth Potential = F [technology index, quality of public institutions index, macroeconomic environment index].

Index of Quality of Public Institutions:• Contract and law sub-index

• Corruption sub-index

Table G-4 shows a positive correlation of the rankings of growth potential and the ranking of quality of public institutions. The place of the Andean countries is similar in both rankings.

Growth Public Contracts Corruption

Competitiveness Institutions and Law Subindex

Countries Index Rank Rank Subindex Rank

Rank

Number of Countries 75 75 75 75

Peru 55 45 60 30Venezuela 62 65 71 61Colombia 65 57 67 40Bolivia 67 62 62 56Ecuador 68 68 73 63Andean Countries 63 59 67 50Top Latin AmericaChile 27 21 26 13Costa Rica 35 37 35 43Uruguay 46 31 27 38Latin America 56 55 57 51OECD 20 21 21 23

subindex. The Rank is of 75 countries.

Source: The Global Competitiveness Report 2001-2001, World Economic Forum, Harvard Universitty.

Competitiveness and Governance Indicators Rankings

TABLE G4

Andean Group, 2001-2002

Note: Growth Competitiveness Index = 1/3 technology index + 1/3 public institutions index + 1/3 macro-

economic environment index. Public Institutions Index = 1/2 contracts and law subindex + 1/2 corruption

(World Economic Forum-Harvard University)

Social Inequality, Ethnic Diversity and Conflict

• Inequality, as measured by Gini coefficients is high in all Andean countries.

• Share of indigenous population in total population is high in Peru, Bolivia and Ecuador but low in Colombia and Venezuela.

• Social conflict seems correlated with high inequality, the relationship between conflict and ethnic diversity is an open question. It is mediated by political participation of indigenous groups.

Gini Ratiocoefficient Q5/Q1

0.484 0.0621994 0.435 0.1041997 0.455 0.088

0.518 0.0581991 0.403 0.1171994 0.505 0.1041997 0.477 0.088

0.381 0.1281994 0.397 0.1081997 0.388 0.125

19861990 0.438 (a)1991 0.370 (a)1994 0.350 (a)19951997

0.306 0.1841990 0.378 0.1271994 0.387 0.1321997 0.425 0.101

199019941997

(a) Zonas Urbanas

Q5/Q1 = Ratio of the poverst quintile to the richest quintile.

Source: Economic Commission for Latin America and the Caribbean and The World Bank.

37

504652

41

2234

3836

42423541

Latin America 1980

Bolivia (a) 1989

Colombia 1980

Ecuador (a) 1990

Venezuela 1981

Perú 1979

4556

% households belowthe poverty line

4946

5047

4739

Countries

52

Table E6Poverty and inequality in the Andean Countries 1990-1997

Social Inequality and Ethnic Diversity

• Inequality, as measured by Gini coefficients is high in all Andean countries.

• Share of indigenous population in total population is high in Peru, Bolivia and Ecuador but low in Colombia and Venezuela.

Countries Year Total Indigenous %Population Population

Bolivia 1992 5183403 3058208 59.0Colombia 1985 29719875 237759 0.8Ecuador 1992 11078717 3800000 34.3Peru* 1992 22500000 9000000 40.0Venezuela 1992 34974667 314772 0.9

Source: Based on last censuses,CELADE.

(*) Estimation.

Andean Countries

TABLE G6Indigenous Population in the

The Growth Record

The annual growth record of the Andean country in the 1950-2000 period was, on average, 1.2 percent lower than the (average) rest for Latin America. This is correlated with the governance problems documented in the paper

1950-00 1950-90 1990-95 1995-99 1990-99 2000-01(a)2.5 2.5 4.2 3.9 4.0 1.23.7 3.7 4.5 1.4 2.9 2.24.2 4.2 3.4 0.2 1.9 3.72.2 2.2 3.9 3.6 3.3 1.32.3 2.3 4.0 0.9 2.4 3.03.0 3.0 4.0 2.0 2.9 2.34.2 4.5 2.6 2.5 2.7 2.3

(a) 2001 Preliminary estimates.

Source: Economic Commission for Latin America and the Caribbean.

Table E1Economic Growth in the Andean Countries 1950-2001

(annual rate of change, %)

CountriesBolivia

PeruVenezuelaAndean GroupLatin America

ColombiaEcuador

Conclusions

• Several measures of frequency of constitutional change, presidential crisis, quality of institutions and income inequality shows important government problems in the Andean region. This is correlated with a just moderate growth performance and various indicators of political and economic instability.

• In presidential regimes a political crisis can lead to a “regime breakdown” . In the Andean region this was the case in Peru, Bolivia, Ecuador in recent decades. In Colombia and Venezuela this was not the case since the 1960s. However, there are some destabilizing trends currently in Venezuela.

• Parliamentary regimes, in principle, seem to de-link political crisis from turning into regime breakdown and constitutional crises.

• Both democratic and authoritarian regimes had their fair share of presidential crisis. Authoritarian regimes are not more stable than democracies in the Andean region.

Conclusions (cont.)

• There is a close correlation between various indicators of quality of institutions and growth potential.

• High social inequality seems correlated with slower growth. This feature holds in the Andean group. The impact of ethnic diversity on growth performance is still an open question.

Governance Crisisand theAndean Region:

A Political Economy Analysis.

Andres Solimano.

Governance Crisis and the Andean Region: A Political Economy Analysis. Andres Solimano.

Documents

political systems

presidential system

political crises

political regimes

political participation

cabinet slide

social equity slide

north institutions