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El Salvador Economic Reform and Civil Society

Latin America and the Caribbean USAID 1997 2002

For five years, DevTech worked closely with USAID to assist the Salvadoran public and private sectors to design, discuss, and analyze economic policy reform proposals in three areas:Decentralization and Local Governance;Public Financial Management; andTrade and Competitiveness.Work orders were issued under the contract to perform economic studies, prepare and/or arrange for the preparation of seminars on economic topics, conduct in-country training, and provide related technical assistance to private- and public-sector entities.DevTech completed 31 work orders and prepared several significant technical publications, highlighted below.Decentralization and Local GovernanceFiscal Reform: Reviewed the overall public finances of El Salvador, including several issues related to financing municipal transfers. DevTech assistance focused on how the transfer system (FODES – Fondo de Desarrollo Económico Social) addressed horizontal inequality, its impact on local revenue effort, and the slow implementation/usage rate by local governments. Recommendations were made to improve the incentive aspects to encourage local revenue effort and to improve the programming of transfers to better meet implementation cycles. This included not only analytical work and setting an agenda for reform, but also making several presentations, including to the Budget and Municipal Affairs Committees of the Legislative Assembly. DevTech’s presentation was aired on television and radio and appeared on the front page of the country’s main newspaper.Municipal Tax Reform: Provided technical assistance and advisory services to the Municipal Affairs Committee of the Legislative Assembly and worked closely with the Mayors’ organization, COMURES, in conducting a dialogue with the private sector. Sub-tasks included: preparing a guideline to facilitate the Legislative Assembly’s review and qualification of municipal tax proposed legislation; developing analytical techniques for assessing the impact of local tax law changes on industry and municipal revenues, and its application; development of model legislation; developing a proposed agenda for municipal finance system reform; advising the new Government’s transition team on municipal finance system reform; and assisting the Legislative Assembly in the development of property tax and other municipal tax legislation.Municipal Finance. Assisted the municipalities of San Salvador and Sonsonate in the analysis of options for private sector participation in municipal infrastructure investment. This included economic, financial, and regulatory aspects of BOO BOT. DevTech also conducted a seminar on private sector participation in municipal infrastructure investment.Municipal Finance (Asset Tax): Assisted the municipal government of San Salvador in the proposal and defense of an important reform of its asset tax. This included developing alternative scenarios and revenue projections, reclassifying municipal finance data in the IMF Government Finance Statistics format, participating in discussions with the private sector on the need for the reform, and supporting the municipal government in defending its position.Municipal Finance. Assisted the municipalities of San Salvador with analytical and legal issues related to the first bond issuance.Public Financial ManagementExamined El Salvador’s public-sector budget and made recommendations regarding taxation, spending, subsidies, and transparency. This public sector review was presented in a seminar to the Budget Committee of the Legislative Assembly.Established the Office of Budget Analysis and Oversight in the Legislative Assembly and trained the staff.Provided advisory assistance to the Ministry of Hacienda on tax administration. Reported on use of computerized data systems, tax administration, tax personnel, tax code, and other non-policy aspects of the tax system.Trade and CompetitivenessTrade Capacity Building. Strengthened the institutional capacity of the Ministry of Economy Office of Export Market Promotion to assist local El Salvador clients in expanding their sales into international markets. Technical advisory assistance included: a) assessments of how units of the Ministry could be better organized and coordinated in support of the national competitive program; b) skills development in conducting research to collect international country, market and product intelligence; and c) team building to enhance the effectiveness of staff working in the three Ministry offices implementing the program. Competition (Micro, small and medium sized enterprises). In the aftermath of the earthquakes of early 2001, a DevTech team conducted an assessment of how to reactivate the economy, including examining the expansion of credit for housing, enterprises, and other financing instruments; evaluating priority actions to stimulate the growth of enterprises, particularly micro, small, and medium sized enterprises using non-credit instruments, with particular emphasis on the use of private business associations, business development organizations, NGOs, and other intermediaries that can work with enterprises on a fee for service basis; and other possible policy interventions. Assisted the Mission’s efforts to clarify performance indicators in education, micro-finance, and policy. DevTech also helped the Mission refine its system for measuring and monitoring rural policy. Supported the USAID Mission in El Salvador in crafting an updated agriculture and rural development assistance strategy for the country.

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