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 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
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STRENGTHENING PERFORMANCE A HONDURAS - … CONADEH Comisionado Nacional de Derechos Humanos (Human Rights Commissioner) CONATEL Comisión Nacional de Telecomunicaciones (National Commission
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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
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
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
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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
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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
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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
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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
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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
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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
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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
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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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