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Budgeting in Chile

Budgeting in Chile. Santiago de Chile, 26 January 2005. Jón R. Bl öndal Deputy Head of Division Budgeting and Management Division. OECD Country Reviews. One of the core activities of the OECD Chile is observer at the OECD Review conducted by the Secretariat in 2003

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Budgeting in Chile

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  1. Budgeting in Chile Santiago de Chile, 26 January 2005 Jón R. Blöndal Deputy Head of Division Budgeting and Management Division

  2. OECD Country Reviews One of the core activities of the OECD Chile is observer at the OECD Review conducted by the Secretariat in 2003 Examined at the 2004 OECD meeting of budget directors

  3. Agenda Sound public finances Tumultuous political history Private provision of traditional public services Structural budget surplus rule Bidding fund Role of Ministry of Finance Role of Parliament Transparency

  4. Sound public finances Very low debt levels – circa 15% of GDP Strong record of budget surpluses over time

  5. Tumultuous political history Economic malaise in the 1970’s used as a pretext by the military for overthrowing the democratic government Unstable political situation following return to democracy Experience of neighbouring countries

  6. Private provision oftraditional public services • Headline expenditures ~ 20% of GDP • Private provision of “traditional” expenditure ~ 11% of GDP • Mandatory pensions: 10% + 2-3% of pay • Mandatory health contributions: 7% of pay • Mandatory unemployment insurance: 1.6% of pay • Significant use of PPP’s • Contingent liabilities

  7. Structural Budget Surplus Rule • To formalize fiscal prudence • To increase fiscal predictability • To operate counter-cyclical fiscal policy • 1% of GDP • Independent panels • In-year adjustments to maintain it • Calculations of structural balance not considered an issue

  8. Bidding Fund • Mechanism for financing new initiatives • About 2½ percent of total spending • Financed from critical review of existing programs and from growth in economy • To improve quality of budget submissions • Spending ministries rank their own bids • Technical quality • Consistency with political priorities

  9. Role of Ministry of Finance • Centralised budget process • Strong Ministry of Finance • Line-ministries not pro-active • Risky ? • Attempt to change this are underway • Ministries and agencies

  10. Role of Parliament • Historically, a strong parliament • Civil war fought over its role in the budget process in the late 1800’s • Irresponsible fiscal behaviour • Today, a very weak parliament • Constitutional restrictions • No political will for stronger parliament

  11. Transparency • No budgetary information made available during military rule • A difficult legacy to overcome • Great progress has already been made and the government is committed to further improvements • Formal agreement between the executive and the Congress to implement the OECD Best Practices for Budget Transparency

  12. Conclusion • “An innovative and sophisticated budget process that is focused on maintaining aggregate fiscal discipline.”

  13. For further information • www.oecd.org/gov/budget • OECD Journal on Budgeting • jon.blondal@oecd.org

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