Thursday, February 22, 2018

Making Bonds Work

Are governments always O
ver-Indebtedness and Fiscally Irresponsible?
Governmental debt and financial sustainability are pressing issues in all countries around the world. Many if not all subnational governments play an important role in delivering public services which helps to end poverty and promote economic development. Yet, current tension exists between policy experts encouraging harder budget constraints to control ostentatious subnational debt issuance, while trying to stimulate equitable and sustainable public financial mechanisms. 
Public finance is the capital that makes governments run well, municipal bonds in particular grease the wheels to ensure public services are delivered at the local level by allowing project based support to build infrastructure. Unfortunately, many developing economies do not know how to develop management techniques that allow markets to function, especially at the subnational level. For example, Mexican state and municipal debt has increased in real terms over the past decade by 121.2 percent. The Mexican system is unique because it created public and private souses of capital to manage its funding (trust funds, commercial banks, a bond bank and the local bond market). Reaction by the government in 2016 was to create a fiscal discipline law which may supersede more stringent state government policies.
International financial institutions, such as IMF and the World Bank, have focused more on the financial sustainability of central governments than subnational governments. Nevertheless, we do not have a clear understanding on how to control or manage subnational government spending and debt in order to improve financial sustainability.  For example, according to a study on public debt in OECD countries, fiscal decentralization has two faces: it causes excessive borrowing of subnational governments on the one hand, while improves fiscal stability of the public sector on the other. Often what happens is political maneuvering where national congress, like in the US, passes debt selling increases thus making finances unsustainable. These factors become more problematic during elections.
Other examples of unclear management include the United States. For example, Hillary Clinton’s 2016 campaign proposed to create a bond bank to resolve the diminishing transportation trust fund. The proposal used the United Kingdom’s model for supplying infrastructure finance throughout the country without including a bond board, which is necessary for oversight of such highly political decisions.  Early consensus agreed that implementation in the United States could work, few if any, analyzed additional models of how this proposal could end up in elite capture, bureaucratic manipulation and corruption at the highest level.
Despite the growing attention of unsustainable municipal finances in places like China, Mexico and the Philippines few analyst, if any, have explored whether or what management factors may be important in determining the level of subnational government debt or how subnational governments should access foreign capital.  Research to understand how the Chinese bond market, for example the largest subnational market in the world, is initiating. Managing important elements of the municipal bond market, such as political indicators of elections, accountability and participation, could determine which countries sink or swim in the upcoming decades.

Thursday, February 15, 2018

Academic Conference Listing

Interested in Political Economy, Public Policy, Administration, Comparative Democracy, Decentralization or Governance in Latin America.  Here are the academic conference that bring these topics to life:

American Society of Public Administration (ASPA) annual conference in March ever year in the US

American Political Science Association  (APSA)  annual conference the last week in August in select US cities alternating with Washington DC.

Midwest Political Science Association Meeting (MPSA) located in Chicago every year in April

National Schools and Programs in Public Administration NASPAA annual fall conference alternating between Washington DC and cities in the US

Association for Budgeting and Financial Management Conference (ABFM) fall conference in September one year in DC alternating with cities in the US.

Red para el Estudio de la Economía Política de América Latina (REPAL) is an annual political economy conference around cities in Latin America

Public Management Research Conference 2018 (PMRC) annual conference hosted over the Summer in a global city.

Jornadas de Finanzas Publicas (IDB/CEPAL)  subnational public finance group hosts events every Fall around Latin America.

La Red Inter-Americana de Educación en Administración Pública (INPAE) spring conference hosted by public policy schools in Latin America

Association for Public Policy  Analysis and Management (APPAM) Fall Research Conference held in Washington, DC and over the summer they host and international conference.

Tuesday, February 13, 2018

Ironic Debt Issuances, New Legal systems of Centralized Control: A case study of Behavioral Public Administration

Ironic Debt Issuances, New Legal systems of Centralized Control: A case study of Behavioral Public Administration

by Heidi Jane Smith[1]
While state and municipal debt has increased in real terms over the past decades by 121.2 percent, the response by the Mexican government was to follow International Monetary Guidelines and created a National Law of Fiscal Disciple[2] approved by congress in 2016. This governmental response not only centralizes the control of debt issuance; it also adds to the perpetual bureaucratic red tape by creating new instructions for centralized authorities to monitor subnational debt policy decisions. This law creates an emergence to study behavioral public administration since principally the 2016 fiscal disciple law is a secondary law to the balanced budget requirements and debt limits already on the books in most state governments. The law establishes common sense guidelines on how to access the market but simultaneously also creates heavy administrative burden and government regulation on subnational governments (Pandey et al 2017; Bozeman 2000; Grimmelikhuijsen et al. 2017). 
The explosion of subnational debt in Mexico has increased because of two fundamental reasons. Frist, additional options for local public authorities to access the markets place (through commercial loans, a national bond bank, a trust fund model and also issuance on the local stock exchange) became available in 2001 along with the opening of democracy and a change of political power at the national level. Secondly, the current administration has used the bond market to fuel sluggish local economies since the global economic crisis in 2008 and plummeted global crude oil prices in 2015, which is a fundamental share of the federal budget. 
Ironically, research has shown that municipalities are not accessing effectively the bond market and debt policy decisions are being made irrationally, regardless of political parties (Simon 1947; Benton and Smith 2017; Smith and Benton 2017[3]). Thus confounding political economy literature on the best policy response to strengthen both the bureaucracy and markets in emerging economies. The proposed law is supposed to correct for this irrationality but nudging subnational actors to select low interest rate loans with better terms and sources (Thaler and Sunstein 2008).
Yet, the largest problem for implementation of the National Law is the issuance of the fiscal rules from the center when weak institutional arrangement exists. Amplified further at the time of budget execution where little or no transparency is provided. Confounding these compliance factors includes a country where the central government has historically allowed soft bailouts (Hernandez et al 2002) causing problems of moral hazard on the market.  Finally, it is speculated that these centralized controls will not help create and strengthen checks and balances at the local ballot box through referendums where people decide their debt issuance, instead political patronage and clientalism will guide who can access the market when “re-negations” take place. These factors become even more problematic with the upcoming presidential election in 2018. In which proposals to change the law have already begun in congress to use budget surpluses for campaign purposes.
This proposed research will survey six middle income cities in Mexico to better understand how this new regulatory frame will create bureaucratic red tape and ironic bureaucratic behavior. Ongoing research in this area already exists (with an elaborate dataset of over 85,000municipal debt policy decisions and a survey in the field underway) and therefore, the new frame of behavioral public administration will help guide this research agenda.


Benton and Smith (2017)  The Impact of Parties and Elections on Municipal Debt Policy in Mexico Governance, Vol. 30, No. 4, October 2017 (pp. 621 - 639);
Bozeman, Barry. 2000. Bureaucracy and red tape. Upper Saddle River, NJ: Prentice Hall.
Grimmelikhuijsen, Stephan, Sebastian Jilke, Asmus Leth Olsen, and Lars Tummers. 2017. “Behavioral public administration: Combining insights from public administration and psychology.” Public administration review 77(1): 45-56.
Hernández Trillo, Fausto, Alberto Díaz Cayeros and Rafael Gamboa González, 2002. "Fiscal Decentralization in Mexico: The Bailout Problem," Research Department Publications 3143, Inter-American Development Bank, Research Department.
Pandey, Sanjay K., Sheela Pandey, and Gregg Van Ryzin. 2017. “Prospects for experimental approaches to research on bureaucratic red tape.” In Experiments in public management research: Challenges and opportunities. Edited by Oliver James, Sebastian Jilke, and Gregg Van Ryzin, pp. 219-243. New York: Cambridge University Press.
Simon, Herbert A. 1947/1997 Administrative behavior. New York: The Free Press.
Smith and Benton (2007)  The Role of Metropolitan Cooperation and Administrative Capacity in Subnational Debt Dynamics: Evidence From Municipal Mexico. Public Budgeting and Finance, Vol. 37, No. 2, Summer 2017 (pp.58 - 82).
Thaler Richard, H., and Cass R. Sunstein. 2008. Nudge: Improving decisions about health, wealth, and happiness. New Haven, CT: Yale University Press.

[1] Economics Department, Universidad Iberoamericana, Prolongación Paseo de Reforma 880, Lomas de Santa Fe, México, C.P. 01219, Ciudad de México
[2] Ley de Disciplina Financiera de las Entidades Federativas y Municipios

Making Bonds Work

Are governments always O ver-Indebtedness and Fiscally Irresponsible? Governmental debt and financial sustainability are pressing i...