Note #6 – June 2005
"Regional Development In the Context of Fiscal
Decentralization: Supporters and Opponents
One of the intrigues of these elections consists in that the current Minister of Finance, nominated as a candidate by the ruling Party of the Communists of Moldova, will much likely become the general mayor of Chisinau, the largest city-donor of the Moldova’s state budget. And if this happens, according to the common sense, a marvelous transformation has to take place: Minister of Finance, a disciple of strict centralization of state budget revenues and further transfers to regions and towns will immediately turn into a disciple of decentralization and, first of all, tax decentralization, who would strengthen economic basis of local self-administration.
That is quite a twist of fate! However, such a turn of circumstances will, fortunately, actualize again search for a balance in relations of the “vertical of power” and local self-administration based on European Charter of Local Self-Government, which the Moldovan Parliament ratified in 1997, but many officials have already forgotten about this...
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The transition period in most CIS countries, including Moldova, was characterized by shifts towards democracy and partial decentralization of state administration systems. New constitutions and corresponding laws of these countries reflect the principle of local self-administration. And, at least formally, division of powers was implemented.
Authorities admit that democracy in a country as a whole and at the local level – the closest to population and its needs – is not possible without decentralization. In practice, though, all CIS countries, including Moldova, move towards decentralization with considerable difficulties and counteraction of “opponents”. Inertia of previous decades of centralized administration is too strong. 15 years turned out to be insufficient to let new legislation and new state bodies become a natural part of real life of those countries. In the meantime, the example of the Central and Eastern European post-socialist countries showed that decentralization of state administration is quite achievable in the course of 10 years, but only given the political will and public consensus on the common sense and expected results of reforms.
Yet, as opinion polls demonstrate, population is not quite content with democracy and capability of local self-administration bodies in CIS countries. The main cause of disillusionment in the results of administration reforms consists in that rights and responsibilities of local authorities, stipulated legally, are far from being supported with proper resources (property, taxes) in full measure. Those resources are small, and the largest part of local budgets is formed from the central government subsidies, which sharply narrows opportunities of independent decision-making at the lower level.
Besides, in most post-soviet countries, including Moldova, decentralization has been generally limited to de-concentration and/or delegation, when a certain dispersal of power takes place, but central government retains the right to override decisions of local bodies and take, at any moment, those powers back. There has been no full transfer of rights and resources to local authorities (devolution as the strongest form of decentralization) yet. But such an approach is shortsighted, as weak, amateurish and corrupted local bodies cause problems both to the state and population. Moreover, there are signs that the lack of local state administration capacities blocks reforms of the central level in Moldova.
Decentralization is a method which provides premises to increase transperency in the management of public property and taxpayers money, as well as to enhance the rationality of public spending. In a decentralized political system citizens have more opportunities to participate in political decision-making, because the political process is broken down to smaller units.
Decentralization instead of forcing a unified way of life, recognises the peculiarity of the grass roots. It forms a basis for improving customer service. In the political area, it means stregnthening of the bases of democracy and development of the multy party system, preservation of local and cultural identity.
The success of decentralization depends less on the formal rhetoric used by politicians but rather on the real quality of decentralization, e.g. the degree to which decentralized units take part in decision-making. Decentralization itself is no guarantee of good governance or access of citizens, especially the poor, to basic services. It requires decentralization that goes beyond administrative and financial measures to a dimension of political power sharing to enhance civil society.
One of the biggest problems that public administration in CIS countries faces is the rethoric of decentralization or de-concentration or delegation, at best. Moldova‘s recent experience is a classic example of de-concentration, when new institutions are established at the regional and local level (which shows through a tendency of ministries to establish their own branch offices at the lower level), local governments fulfill tasks under the supervision of central bodies; the central level increases fiscal control of resources and delegates new responsibilities to local government without allocation of appropriate financial resources to fulfil them, central decisions are indicated by legislative provisions as being of higher order.
The real proccess of devolution is taking place when the power to make decisions is transfered to local level and the local units are autonomous and independent, have freedom of action and resources within their competence. There are four components defining discretion:
· General legal framework in which local government exist;
· Degree of discretion in the number of local services. This category includes how many constrains localities encounter in the forms of central standards with regard to the services they need to deliver;
· Financial discretion at the local level is critical. In a system where central government money transfers account for most of the local government income, independence is difficult to achieve. Real decentralization can be measured along local government’s powers in generating independent revenues such as local taxes, service fees, and charges;
· Non-legal forms of influence: non-authoritative government advice or circulars may have binding power on localities. Non-compliance to central circulars may end up in legal or financial penalties.
In order to make local self-administration a real force in public life of CIS countries and an efficient component of the state machinery, reform measures should focus on the following:
These reforms will require time and effort, but shifts towards European integration, as well as economic recovery apparent in the country, inspire optimism, since openness, growth, and increasing welfare of the population bring greater political stability and suggest that the country has a greater potential to democratise.