report no. 39817-ni nicaragua institutional and governance...
TRANSCRIPT
April 17, 2008
Document of the World Bank
Report N
o. 39817-NI
Nicaragua
Institutional and Governance R
eview
Report No. 39817-NI
NicaraguaInstitutional and Governance Review
Poverty Reduction and Economic ManagementLatin America and the Caribbean Region
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ABBREVIATIONS AND ACRONYMS
AECI AGO Attorney General’s Office ALN Alianza Liberal Nicaragiiense A M A T BCN Central Bank o f Nicaragua BIDE cc Coordinadora Civil CDE Consejos Directivos Escolares CDP Community Driven Projects CEA Centros Escolares Autonomos CEM Municipal Evaluation Committee CGR CNE CNR Centro Nacional de Registros CONAPAS CONAR Comisidn Nacional de Revisidn CONPES Economic and Social Council CONTRAS National Resistance cos0 CPL Criminal Procedural Law cso Civil Society Organization DGI DGR Direccion General de Registros DIRAC Direccidn Alternativa de Conjlictos DNR DP Department o f Law (Procuraduria) EMAJIN ENACAL ENEL EU European Union F IL Freedom o f Information Law FISE Social Emergency Investment Fund FSLN GDP Gross domestic product GMR Global Monitoring Report 2006 HIPC I and I1 IADB Inter-American Development Bank IB I ICA Investment Climate Assessment ICAC Inter-American Convention against Corruption IDA International Development Association IDB Inter-American Development Bank IADB-INPRHU-CINASE survey IGR Institutional and Governance Review IGV INAA INE INIM I N S S INETER INPRUR
Spanish Agency for International Cooperation
Empresa de Acueductos y Alcantarillados de Matagalpa
Boston Institute for Developing Economies
Controller General’s Office (Contraloria General de la Rep2iblica) National Commission on Energy (Comisidn Nacional de Energia)
Comisidn Nacional de Agua Potable y Alcantarillado Sanitario
Committee o f Sponsoring Organizations o f the Treadway Commission
Internal Revenue Service (Direccidn General de Ingresos)
General Directorate o f Registry (Direccidn Nacional de Registros)
Empresa de Agua y Alcantarillado del Departamento de Jinotega Empresa Nacional de Acueductos y Alcantarillados National Electricity Company (Empresa Nicaraguense de Electricidad)
Frente Sandinista de Liberacidn Nacional
Heavily Indebted Poor Country I and I1
Impuesto a 10s Bienes Inmobiliarios (municipal tax on local properties)
General Sales Tax (Impuesto General de Ventas) Instituto Nicaraguense de Acueductos y Alcantarillados National Energy Institute (Instituto Nacional de Energia) Instituto Nicaragiiense de la Mujer National Institute o f Social Security Instituto Nicaraguense de Estudios Territoriales Instituto de la Propiedad Reforma Urbana y Rural
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INRA I N S S IP I S 0 JP MDC MDRI MEC MFPC MHC MOE MOF MOFL MOH MRS N A NGO NP NPS OAS OCI OOT OTR OUT PA PAININ PC PER PFM PGR PLC PRODEP
PRS PRSC PS RAAN R A A S RJF RPIM SCJ SEC SECEP SIGFA SIICAR SINARE SISCAT SISEP TELCOR
UNO USAID WBI
Instituto de Reforma Agraria National Institute o f Social Security Administration o f Property (Intendencia de la Propiedad) Land administration services providers Judicial Power Municipal Development Committee Multilateral Debt Relief Initiative Municipal Education comitB Ministry o f Finance and Public Credit Municipal Health Committees Ministry o f Education Ministry of Finance Ministry o f Family Ministry o f Health Movimiento de Renovacibn Sandinista National Assembly Nongovernmental organization National Police National Penitenciary System Organization of American States Ojcina de CuantiJicacibn de Indemnizaciones Ojcina de Ordenamiento Territorial Oficina de Titulacidn Rural Ojcina de Titulacidn Urbana Poverty assessment Program o f Integral Attention for Children Partido Consewador Public Expenditure Review Public Finance Management General Budget o f the Republic Partido Liberal Constitucionalista Land Administration Project (Proyecto de Regularizacibn de la Propiedad) Poverty Reduction Strategy Poverty Reduction Support Credits Penitentiary System North Atlantic Autonomous Region Autonomous Region o f the South Rural Judicial Facilitators Property Registry (Registro de la Propiedad Inmeuble y Mercantil) Supreme Court o f Justice Supreme Electoral Council (Consejo Supremo Electoral) Secretary for Coordination and Strategy o f the Presidency The computerized public financial management system Initiating the Integration o f Registry and Cadastre National Registry System (Sistema Nacional de Registros) A software program implemented countrywide Superintendence o f Public Services National Institute for Telecommunications and Postal Services (Instituto Nicaragiiense de Telecomunicaciones y Correos) Unibn Nacional Opositora United States Agency for International Development World Bank Institute
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Acknowledgments
This report was prepared by a team led by Amparo B a l l i v i h (LCSPP) and comprising David Reinstein (LCSEG), Frederic de Dinechin (LCSAR), Antonio Blasco (LCSFM), Jose Eduardo Gutierrez (LCSPS), Klaus Urban (FAO) and Consuelo Cruz (consultant). The EC office in Managua and Alejandro Alcala (LEGLA) contributed to Annex 2 to Chapter I, section B. Eloy Vidal (CITPO), Jordan Schwartz (LCSTR) and Gustavo Saltiel (LCSUW) contributed to Chapter 11. Peer reviewers are Richard Messick (PRMPS), Stephen Ndegwa (AFTPR) and Helge Jahn (Kreditanstalt fiir Wiederaufbau, Germany). All these contributions, as well as those o f participants in the decision meeting, are gratefully acknowledged.
V
NICARAGUA
INSTITUTIONAL AND GOVERNANCE REVIEW
Table of Contents
EXECUTIVE SUMMARY ......................................................................................................... 1 CHAPTER I: INTRODUCTION .............................................................................................. - 4 CHAPTER 11: THE REGULATORY SYSTEM FOR PUBLIC SERVICES ............................. 7
A . Background .................................................................................................................. 7 B . Legal and Institutional Framework., ............................................................................ 9 C . Formal and Informal Decision-making Mechanisms ................................................ 16 D . Institutional and Governance Bottlenecks ................................................................. 18 E . Policy Options ............................................................................................................ 21
A . Background ................................................................................................................ 24 B . Institutional Framework: Strengths, Weaknesses, and Governance Problems .......... 26 C . The System o f Property Registry: Processes, Formal and Informal Mechanisms,
and Governance Problems ......................................................................................... 32 D . Reform Proposals: Options and Risks ....................................................................... 38 E . Conclusions ................................................................................................................ 41
CHAPTER IV: OVERSIGHT AND ACCOUNTABILITY MECHANISMS ......................... 43 A . Background ............................................................................................................ 43
Control Systems .................................................................................................... -44 Social Accountability Mechanisms ....................................................................... 51
CHAPTER 111: SECURITY OF PROPERTY RIGHTS ........................................................... 24
B . C .
Annexes
Chapter I . Annex 1 : Monitoring Governance: Indicators and their Use .................................. 58 Chapter I . Annex 2: Country Governance Background .......................................................... 75 Chapter I11 . Annex 1 : Summary Process for Registration o f a Property Title ....................... -92 Chapter I11 . Annex 2: Organigrams (Corte Suprema de JusticidINETER) ............................. 94 Chapter I11 . Annex 3: Legal Framework for Property Rights and Registration o f Property
Titles in Nicaragua ..................................................................................................... 95 Chapter I11 - Annex 4: List o f SIICAR Beneficiaries and their Roles .................................... 111 Chapter I11 - Annex 5: Property Legalization in Nicaragua Institutional Mapping Matrix .... 113 Chapter I11 - Annex 6: Summary o f Legalization Costs and Time for a Sale Procedure ....... 121 Chapter IV - Annex 1 : External Control Models and Their Application in Nicaragua .......... 122
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List of Tables
Table 2.1 : Telecommunications. Local Tariffs in Central America in 2003 (US$) Table 2.2: Average Water Tariffs in Selected Latin American cities Table 2.3: Average Electricity Tariffs in Latin America (US$kWh) Table 2.4: Institutional Arrangements for Public Service Regulation in Nicaragua Table 3.1 : Costs for the Legalization o f a Rural Property in Nicaragua, 2000; Model Property o f 10 mz.
Table 3.2: Revenues and Costs o f the Property Registry in Nicaragua (in C6rdobas) Table 4.1: NICARAGUA-CGR Total Audits Included in The Annual Audit Plan in 2003-2005
Table 4.2: CGR Results o f Audits by Legal Responsibility in 2003-2005
Category o f Land Use P2. (US$)
(in numbers and percentages)
(in numbers o f audits and amounts in millions)
List o f Figures
Figure 2.1 : Internet Prices for Twenty Hours per Month Figure 4.1 NICARAGUA: CGR's Audits Origin Sources in 2003-2005 Figure 4.2: Correlation between Number o f Cases and Amount o f Fines Collected in 2005
List o f Boxes
Box 2.1 : Summary o f Legal Framework in the Water and Sanitation Sector Box 2.2: Summary o f Legal Framework in the Electricity Sector Box 2.3: Summary o f Legal Framework in the Telecommunications Sector
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EXECUTIVE SUMMARY
1. Beyond the formal l ines o f Nicaragua’s political and judicial systems1, their functioning in practice conditions outcomes in the three areas examined in this Revied, as political party considerations influence strongly many aspects o f public management. Given this, profound institutional and governance reforms have been scarce and several have not been sustained. Hence, expectations for rapid and deep change from donors and civil society need to be modest. Yet, in the three areas examined (regulatory system, security o f property rights and social accountability mechanisms) there i s scope to implement some actions o f a long-term and less politically-controversial nature, that can make public services more efficient and transparent, laying the ground for more profound and long-lasting institutional reform.
2. What matters most i s not what are the best institutional and governance arrangements -in any o f the areas- in an abstract sense, but what institutional and governance structures are likely to work best within the Nicaraguan context. Such considerations, which are likely extensive to other key areas for Nicaragua’s development, lead to three main conclusions. First, reform efforts seeking to be sufficiently long-lasting to achieve their intended results need to be taken with broad political consensus to decrease the probability o f policy reversals. Secondly and as a corollary to the above, reforms may need a longer lead time before their approval and implementation, while such consensus i s achieved. And thirdly, f i rs t best technical solutions are likely to be short lived if they are not politically informed. The consequence for donor support points to lower expectations about the swiftness and extent o f reforms, and emphasize work on the technical aspects that lay the ground for the success o f reforms.
3. The application o f these conclusions in the area o f regulation o f public ut i l i t ies (electricity, water and sanitation and telecommunications) indicates that, while the independent regulatory model has proven to yield the best results in other countries and i s s t i l l the model that Nicaragua should aim for in the long run, i ts implementation in Nicaragua should be progressive and take into account the political context. Steps forwards leading to this objective entail several options outlined in the corresponding chapter, but priority issues to decide include:
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Whether Nicaragua should have a single multi-sector regulator or three independent regulators, one for each public service. The degree o f separation o f policy-making and regulatory functions. In this respect, the recent creation o f the Ministry o f Energy i s an important decision. Similar separation o f functions i s desirable in the water and sanitation and in the telecommunications sectors. The degree o f independence granted to the regulatory agency or agencies. Moreover, while the extent o f autonomy granted to the regulatory agencies i s
See Annex 2 to Chapter I for a brief description of Nicaragua’s political and judicial systems. Regulation o f Public Utilities, Security of Property Rights, and Oversight and Accountability
Mechanisms.
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important, even more important i s the respect for their assigned responsibilities. Predictability for service providers and consumers i s the key factor.
4. In order to make the above decisions, technical considerations and best practice examination o f other countries’ experiences are necessary, but not sufficient. The most important factor i s the achievement o f a modicum o f consensus among the political decision-makers and affected stake holders, following a debate o f the options that i s both technically and politically informed.
5. Maintaining the status quo i s not advisable, especially in the electricity sector, where problems are acute and their solution depends largely on attracting new investment, which requires a credible regulatory framework. The SISEP law provides an opportunity for making progress in this area -should the Nicaraguan authorities opt for multi sector regulation-, but only if it i s amended so that the selection o f i t s principal authorities requires political consensus between the executive and the legislative.
6. In the area o f property rights, similar conclusions may be drawn with respect to the long-term objectives and the short term actions. Whi le the independence o f the property registrar i s desirable as an ultimate goal, the achievement o f this objective under the present circumstances o f Nicaragua i s not likely. At the other extreme, maintaining the status quo would imply perpetuating the tenure insecurity that affects mostly the poor’s access to real and financial assets.
7. A few options for moving forward, two o f which have been maturing for the past few years, can improve considerably the current situation, while laying the ground for the best long-term alternative. These are:
0 Approval o f the Registries Law, creating the National Directorate o f Registries and laying the ground for the integration o f cadastral and property registry information. Implementation o f the computerized system for the integration o f the property registry and cadastral records (SIICAR). Further involvement o f municipalities in the cadastral r e g i ~ t r y . ~
0
0
8. Regarding the performance o f the General Comptroller’s Office, substantial changes to the prevailing governance arrangements would require a major overhaul o f the legal framework for the institution’s functioning. An alternative to this i s to proceed with meaningful improvements that can be made at the technical level and which would go a long way towards increasing the institution’s credibility as a control and oversight mechanism. Some o f these are:
Aside from the nation-wide benefits o f this action in terms o f property security, this could have the secondary benefit o f improving municipal tax collection.
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The annual audit o f execution o f the general budget could become regular, cover progressively more public sector institutions, including decentralized and autonomous ones, and be conducted according to international accounting standards. The CGR could change i ts mode o f selection o f audits, relying less on accusations and more on risk-based analysis, to increase the chances o f finding recoverable assets. The coordination between the executive and judicial branches o f government in the pursuit o f CGR’s findings would need to be strengthened in order to lead to actual punishments, especially for civil and penal offenses, if the intention i s that audit findings become an effective deterrent for wrong-doing and that the general population regards the institution as a credible means o f control o f public resources and public servants.
9. Finally, several groups within Nicaraguan society have implemented various forms o f social accountability mechanisms. Some o f these have been led by civil society organizations and other by public institutions seeking feedback on their performance. But the results in terms o f influencing policy decisions are meager. The National Assembly has recently approved the Law o f Access to Information, which can become a useful instrument to increase the impact o f these social accountability mechanisms. Some government actions that would make much progress towards this end include:
Making available to the public monitoring indicators o f public policy, in particular those related to the country’s poverty reduction strategies and the Millenium Development Goals. These and other information already available to the public -such as the national budget and i ts execution- could be presented in a more user-friendly format that i s easily understandable by the general population. Implementing mechanisms o f public consultation before approving policy decisions, especially with relevant stakeholders, both at the executive and legislative levels. These mechanisms can go a long way towards ensuring the sustainability o f public policy in several areas. A possible starting point could be in the regulatory system for public services. Approving implementing regulations to the Access to Information Law regarding filing, archiving and presentation o f information in public institutions and preparing them to meet information demands from the general public.
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CHAPTER I INTRODUCTION
10. Nicaragua i s one o f the poorest countries in Latin America, with a per capita gross national income o f only US$l,OOO in 2006 (Atlas method) and a total population o f 5.2 million. Poverty i s heavily concentrated in rural areas and associated with agricultural sector activities, which s t i l l account for a large proportion o f gross domestic product (GDP) (12 percent) by regional standards. Nicaragua also has among the lowest social indicators in Latin America; however, these broadly correspond to the differences in per capita income levels.
11. In the past few years Nicaragua has been very successful at stabilizing i t s economy and restoring growth. This effort has been supported by a heavy influx o f foreign resources and debt rel ief including HIPC I and I1 and, more recently, the Multilateral Debt Relief Initiative (MDRI). Most o f the resources freed from debt-service have gone to poverty reduction. Accordingly, poverty-related expenditures increased from the equivalent o f 8 percent o f GDP in 1998 to 13.5 percent in 2005.4 Yet, the results o f such financial efforts in reducing poverty are modest at best.
12. The big question now i s how to achieve greater impact from public policies on poverty reduction. Whi le the amount o f financial resources assigned to poverty- alleviation efforts, their mode o f delivery, and the accompanying public policies are strong determinants o f development results, experience has shown that the results can be disappointing. There i s a large body o f literature and much country experience that points to the crucial link between the strength o f public institutions and governance arrangements, on one hand, and development results on the other.5
13. Whi le Nicaragua i s a country, like many others, with institutional and governance challenges, analyzing all o f them in detail i s beyond the scope o f this document. Annex 1 presents the main governance indicators for the country, as compiled by the World Bank Institute (WBI), and how are they used by international institutions in making decisions about assistance to Nicaragua. Although these indicators have weaknesses, they can provide a general indication o f what are the priority areas for investigation. Accordingly, the present review concentrates on a few key areas where the Bank’s expertise can add value and complement the efforts o f other donors, including: (a) the regulatory system, (b) the system o f property registries, and (c) two o f the mechanisms for oversight and accountability o f public sector performance (the Comptroller’s Office and social accountability).
Nicaragua: “Informe de Gasto en Pobreza Enero-Marzo,” Secretaria Tdcnica, Presidencia de la Republica, 2006.
The f i rs t milestone report for the Latin America and the Caribbean Region was the 1998 flagship report, “Beyond the Washington Consensus: Institutions Matter,” by S. J. Burki and G. E. Perry. An additional bibliography, covering a wide array o f periods, regions, and analytical methods, i s included in the recent D A C report, “Strengthening Bank Group Engagement on Governance and Anticorruption,” prepared as background for the 2006 Meetings o f the Development Committee.
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14. A further reason to take a closer look at Nicaragua’s governance challenges i s their impact on the investment climate and, hence, growth prospects. The latest Investment Climate Assessment (ICA) for Nicaragua indicates that “Firms perceptions rank weak governance, lack o f finance and uncertainty in the provision o f electricity services as their most important obstacles. Two areas dominate the top ten rankings o f obstacles, weak governance and lack o f finance. Over 55 percent o f a l l surveyed firms report that these two issues affect their ability to grow. Entrepreneurs were very clear that institutional governance issues such as corruption, economic and regulatory pol icy uncertainty and macroeconomic instability are o f great concern as is their ability to access finance at a reasonable cost. Concerns over informality, crime, electricity and the level o f tax rates round out the top ten concerns expressed by firms.”
15. Another useful finding from the I C A for the purposes o f this Review is firms’ perception o f corruption. Perceptions o f “grand” corruption or influence remain high and seem to contribute to overall perceptions o f corruption and high levels o f pol icy uncertainty. Firms perceive corruption as the single largest obstacle to the growth o f their firm, but report few actual experiences with petty corruption. The paradox o f a high perception o f corruption, but relatively l o w actual experience with it, seems to be due to a pervasive sense that some can unfairly gain business advantage though influence. Rather than actual payoffs, influence i s the practice o f “bending” rules to favor certain well- placed individuals or companies. One result i s that firms feel great uncertainty about economic and regulatory pol icy since they feel current policies may be changed due to influence. This finding has been taken into account when deciding o n the coverage o f this Review.
Report Objectives
16. The overall objective o f the Institutional and Governance Review (IGR) is to examine the institutional and governance bottlenecks that stand in the way o f more effective impact o f key public policies, particularly poverty reduction policies. Since the report i s l imited in scope, the criteria to decide priority areas for review included: (a) issues that are o f particular significance for better governance and institutionality, (b) issues that are particularly important in relation to poverty reduction, (c) issues where the Bank has a comparative advantage, and (d) issues where there would not be a duplication o f effort with other donors or other studies undertaken by the Bank and where the IGR can add value.
17. To summarize, the objectives o f the IGR are:
a) To provide recommendations for policy-makers in three areas: regulatory framework, property rights, and oversight and accountability mechanisms.
b) To provide a framework for the Bank’s next Country Assistance Strategy, and for other donors, on issues o f governance and institutionality that impinge on the effectiveness o f the country’s reform efforts.
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Complementary Analytical Work and Report Structure
18. The IGR complements three other analytical works undertaken simultaneously by the Bank: a Public Expenditure Review (PER), a Poverty Assessment (PA), and an Energy Strategy Study. The IGR was contemplated in the last Interim Strategy Note for Nicaragua covering FY06-07, as a mechanism to provide an analytical underpinning for Nicaragua’s development initiatives and Bank-supported programs for poverty reduction, including the design o f the new Country Assistance Strategy FY08-11, a possible new series o f Poverty Reduction Support Credits (PRSCs), and investment operations. By the same token, the IGR should facilitate donor coordination, especially in the context o f joint budget support operations and investment operations that have a governance/institutional reform component.
19. Chapters I1 through IV provide more in-depth institutional and governance analysis o f the three substantive areas o f this report: the regulatory system for public services, the system o f registration o f property rights, and two areas o f accountability and oversight (the Comptroller’s Office and social accountability), and discuss the reform alternatives and political economy implications o f their timing and sequencing.
20. In all countries, public sector institutions and governance arrangements can only be properly understood within each country’s political and judicial context. Annex 2 to this chapter describes briefly the Nicaraguan political and judicial systems and derives some conclusions on how it conditions both the current state o f the institutions and governance arrangements in the three areas mentioned and what political considerations must be taken into account in the search for long-lasting improvements. In the case o f Nicaragua, the impact o f political dynamics on the institutional and governance arrangements in the three substantive areas o f this report, as well as in many other areas, illustrate the importance o f the political context powerfully.
21. Two basic conclusions emerge from this analysis. First, rapid and fundamental reforms should not be expected, but in the three areas analyzed there are possible improvements o f a more technical nature that can lay the ground for more profound reforms. Secondly, the key to long-lasting institutional and governance reforms in the three areas o f this report, as well as others affecting poverty reduction, i s strong political consensus between the executive and legislative branches o f government, as well as with civil society. Prior attempts to reform that did not fulfill this condition have led to subsequent policy reversals, conducing to what can be characterized as an excessive propensity to reform with few long-lasting results for poverty reduction.
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CHAPTER I1 THE REGULATORY SYSTEM FOR PUBLIC SERVICES
Guatemala
El Salvador Honduras
Nicaragua
Costa Rica
A. Background
Commercial (1,000 min.)
28.03
35.28
23.72
41.83
12.5
22. Access to public water, energy and telecommunication services determines the quality o f l i fe for people in urban and rural areas, principally for people who l ive in poverty. These services, provided through an efficient infrastructure, also have powerful effects throughout the economy, expanding and deepening markets, opening new opportunities, and reducing costs in al l sectors. The current situation o f these services in Nicaragua varies f rom sector to sector. The telecommunications sector is characterized by high competition among private providers. Coverage, especially in cellular service, has increased significantly in recent years and average prices have gone down, although they are s t i l l high by regional standards (see Table 2.1). The same can be said o f internet prices (see Figure 2.1). At the other extreme are water and sanitation services, provided by public companies, where coverage and quality o f services are low, but tar i f fs are also l o w (Table 2.2). Electricity is somewhere in the middle, with some public generation, public transmission, and private actors in generation and distribution. Tariffs in this sector are also high by regional standards (Table 2.3), a consequence both o f the fact that 75 percent o f electricity generation is oil-based, and o f electricity losses due to technical losses, stealing, and legal limitations o n pursuing electricity thefts.
Table 2.1: Telecommunications. Local Tariffs in Central America in 2003 (US%) Figure 2.1: Internet Prices for Twenty Hours per Month
Source: Calculations based on regulatory agency information.
20
10 _I 0
51.05 48.11
40.56 36
T
1 31.24
Belize Nicaragua El HondurasPanamaGuatemalaCosta Mexicc Salvador Rica
Source: ITU.
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Table 2.2: Average Water Tariffs in Selected Latin American cities
City
Arequipa Bogoth Cali Cochabamba Costa Rica L a Paz Lima Managua Medellin Pernambuco Santa Cruz Trujillo Uruguay
Average Residential
Tariff (US$/m3,2003)
0.22 1.16 0.76 0.32 0.34 0.22 0.32 0.31 0.78 0.5 1 0.59 0.38 0.72
Average 0.51 Median 0.38 Minimum 0.22 Maximum 1.16 x m e : ADERASA.
Table 2.3: Average Electricity Tariffs in Latin America (US$/kWh)
Commercial Industrial Argentina 4.44 2.08 Barbados 19.95 19.65 Bolivia 8.43 3.98 Brazil 7.27 3.84 Chile 8.21 5.56 Colombia 9.24 7.17 Costa Rica 8.58 5.96 Cuba 10.45 8.35 Ecuador 11.11 9.65 El Salvador 11.89 12.10 Grenada 23.40 18.80 Guatemala 6.21 7.48 Haiti 8.84 8.45 Honduras 2.88 3.44 Jamaica 15.03 11.55 Mexico 13.95 6.95 Nicaragua 16.24 12.61 Panama 11.80 9.90 Paraguay 5.97 3.76 Peni 7.59 7.20 Dominican Republic 10.60 10.82 Suriname 17.30 13.10 Trinidad & Tobago 3.73 4.62 Uruguay 7.03 3.89 Venezuela 7.90 2.80 burce: SIGET.
23. Although in the final analysis utility regulation i s a means to an end-better sector performance-this review focuses on legal and institutional inputs that regulatory agencies need to fulfill their roles, and does not look into the outcomes in terms o f sector performance. The evaluation concentrates on describing formal, legal attributes o f the regulatory system, and on informal decision-making mechanisms, and identifying problems areas. This chapter i s not intended to be a complete evaluation o f the regulatory system, but to examine only the f irst o f two basic dimensions o f any regulatory system- regulatory governance and regulatory substance-in the Nicaraguan context.6 The objective o f the report i s to provide options to improve the system, focusing on those elements o f the regulatory system that, if changed, would clearly lead to better sector outcomes. In other words, the report will make note o f what i s good, but focus on what can be improved.
Regulatory governance refers to the institutional and legal design o f the regulatory system and the fi-amework within which decisions are made. Regulatory governance involves decisions about the independence and accountability o f the regulator, the relationship between the regulator and policymakers, the process by which decisions are made, the transparency o f decision-making, the predictability o f decision-making, and the organizational structure and resources o f the regulator. Regulatory substance i s the content o f regulation. I t i s the actual decisions, whether explicit or implicit, made by the regulatory entity about tariff levels and structures, quality-of-service standards, automatic and non-automatic cost pass-through mechanisms, investment or connection obligations and reviews, accounting systems, network access conditions for new and existing customers, and periodic reporting requirements. This side o f regulation w i l l not be addressed in t h i s report.
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24. The next section o f th i s chapter, Section By will describe the legal and institutional framework applicable to the three regulated sectors: water and sanitation, energy, and telecommunications. Section C will look at the formal and informal decision- making mechanisms. On this basis, Section D looks at the governance bottlenecks. Section E provides policy options.
B. Legal and Institutional Framework
1. Water and Sanitation
25. Important legal reforms were made in the water and sanitation sector during 1998-2004, resulting in the partial separation o f functions among government agencies. The main laws and decrees enacted in this period for the sectors are summarized in Box 2.1. In May 2004, the Executive Secretary o f the Consejo Nacional de Agua Potable y Saneamiento (CONAPAS) was created. Soon afterward, CONAPAS created a Special Commission to work together with the Executive Secretary in the development of the sector strategy.’ In addition, the government formulated a National Development Plan, the Environmental Plan for Nicaragua, and the National Health Plan. Taken together, these documents define the basic planning framework for the different programs to be executed by various government institutions in the water and sanitation area.
’ The water sector strategy i s contained in the document titled, “Estrategia Sectorial de Agua Potable y Saneamiento (2005-2015),” published by CONAPAS in August 2006 with support fiom the Inter- American Development Bank.
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Box 2.1: Summary of Legal Framework in the Water and Sanitation Sector
Law 275 reformed the Organic Law of the Nicaraguan Institute for Water and Sanitation giving to the Znstituto Nicaragiiense de Acueductos y Alcantarillados (INAA) the regulatory and quality-control functions. Law 276 created Empresa Nacional de Acueductos y Alcantarillados (ENACAL) as a decentralized commercial state entity, with i t s own governance and budget defined and approved by the Central Government, indefinite duration, and capacity to acquire rights and make contractual commitments. The main objective o f this company i s to provide water and sanitation services. Decree No. 47-98 created the Empresa de Agua y Alcantarillado del Departamento de Jinotega (EMAJIN) and the Empresa de Acueductos y Alcantarillados de Matagalpa (AMAT). In 1998, Executive Decree No. 51-98 created CONAPAS with the main objective o f formulating strategies and policies in the water and sanitation sector. CONAPAS i s composed o f the Executive Presidents o f E N A C A L and INAA, the Minister o f the Environment, the Health Minister, and the Director o f Instituto Nicaragiiense de Estudios Territoriales (INETER). In 2001 two new companies were created to provide water and sanitation services in the cities o f Ledn and Chinandega. Laws 479 and 480 (2003) reformed the law that created ENACAL. In November 2003 Decree No. 75 limited the functions o f E N A C A L to the urban areas and gave the Social Emergency Investment Fund (FISE) the responsibility o f servicing all rural areas o f the country. This Decree also added two new members to the CONAPAS board, the Secretary for Coordination and Strategy o f the Presidency (SECEP), and the Executive President o f the Social Emergency Investment Fund (FISE).
26. The water and sanitation sector i s s t i l l a monopoly in the hands o f the State and privatization i s not an option for the current administration. The current institutional setup i s a result o f reforms adopted in 1998, when three main public institutions were created: (a) the policy body Consejo Nacional de Agua Potable y Saneamiento (CONAPAS), (b) the regulatory body Instituto Nacional de Acueductos y Alcantarillado (INAA), and (c) the public operator Empresa Nacional de Acueductos y Alcantarillados (ENACAL). INAA and ENACAL started operations in 1998, but CONAPAS operations were delayed until 2002 when Decree No. 33 redefined i ts functions and organization as a multidisciplinary body o f the Executive Power to formulate objectives, policies, strategies, and general directions for the entire water and sanitation sector. This function includes indicative planning in order to promote development o f these services for the entire country. Decree No. 33 appointed an Executive Secretary and earmarked a budget directly from the National General Budget.
27. ENACAL i s the main service provider in Nicaragua, serving 147 urban and rural concentrated localities. There are also 26 small municipalities managing their systems and about 5,000 rural water boards. ENACAL i s headed by a president, designated by the President o f the Republic. It has a general manager, six functional managers, 32 vice managers, and 28 departments, agencies, and units. In addition, there
10
are the following units depending on the President: Planning, Legal Advisors, Technical Communications, Energy, and one unit to follow managerial performance and operational results. ENACAL’s internal structure i s reasonable, but it i s grossly overstaffed. There are 7 employees per 1,000 water service connections, far from the international standard o f less than 3 per 1,000 customers.
28. Regarding INAA, once it was re-created as a regulatory body, it passed new decrees and resolutions to mandate a reformed tariff structure.’ However, this was not a real sector reform, because the political weight o f both CONAPAS and INAA are s t i l l marginal in the face o f the dominant role o f ENACAL. INAA regulates only three regional companies: ENACAL, the national provider o f water and sewerage services in urban areas o f the country; EMAJIN, the provider o f services to the Department o f Jinotega; and AMAT, the provider o f services to the Department o f Matagalpa; as well as a group o f small municipal and rural companies. A concession agreement between ENACAL and INAA does exist, but it does not include operational indicators to allow effective monitoring. INAA’s budget for fiscal year 2006 was US$1.1 million. The number o f INAA employees-8 employees per 1,000 customers- surpasses the industry standards in other countries.
2. Energy
29. The structural reforms in the energy sector started in 1993 with the creation o f the National Electricity Company (Empresa Nicaragiiense de Electricidad, ENEL). Through this act, all previous entrepreneurial functions o f the National Energy Institute (Instituto Nacional de Energia, INE) were passed to ENEL, while INE retained planning functions, policy formulation, and approval o f norms and regulations for the energy sector. This process was reinforced in 1998 by the enactment o f Laws 271 and 272, which limited the responsibilities o f INE to the regulatory, supervision, and control functions, while entrusting the responsibility o f approving energy policies to the National Commission on Energy (Cornisidn Nacional de Energia, CNE). Box 2.2 summarizes the current legal fiamework o f the electricity sector.
30. The energy sector underwent a deep restructuring during the late 1 9 9 0 ~ ~ as the 1998 Electricity Law unbundled the generation, transmission, and distribution divisions o f the state-owned ENEL, and allowed the privatization o f generation and distribution activities. The Electricity Law o f 1998 divided the governance functions for the power sector between two institutions: CNE and INE,
31. INE i s the regulatory agency, responsible for approving and enforcing specific norms and procedures for the electric energy and hydrocarbons sectors. The Institute’s top authority i s i t s Council, composed o f three members. The members are chosen by the National Assembly from a l i s t o f candidates submitted by the President o f the Republic. The President o f the Council i s appointed for a six-year term, while the other members have alternate periods with respect to Presidential terms, to reduce political influence.
’ INAA uses long-run marginal cost methodology as the mechanism for setting water rates, under which there i s no role for state subsidy.
11
Box 2.2: Summary o f Legal Framework in the Electricity Sector
0
0
0
0
0
0
e
0
e 0
e
Legislative Decree No. 46 (1993) created ENEL as a public enterprise, giving it the responsibility to generate, transmit, distribute, and market electric energy. Law 27 1 (1 998) i s the Organic Law o f the National Institute o f Energy (INE). Law 272 (1998), known as the Electricity Industry Law, and Decree No. 128 (1999), created the National Commission on Energy (CNE), giving it policymaking responsibilities and leaving INE as an independent regulatory agency. Decree No. 128-99 reformed the previous scheme separating policymaking and regulatory functions and created the CNE , giving it policymaking responsibilities and leaving INE as an independent regulatory agency. Law 467 (2003) limits the concessions for hydroelectric projects up to 5 megawatts. Laws 465 and 494 (2004) reformed Law 272 and added articles 18 and 135. Law 493 (2005) reformed Law 271 allowing for the destitution o f INE's authorities with 60 percent o f the votes o f legislators. Law 53 1 (2005) increases the limit to allow private investments in hydroelectricity from 5 to 30 megawatts. Law 532 (2005) intends to promote electric generation using renewable energy sources. Law 554 (2005) i s the Energy Stability Law, creates an Energy crisis Fund, establishes price controls, regulates the energy spot market and allows the settling o f cross-debts between distribution companies and publicly-owned generators. Law 600 (2006) reformed Law 554, extending the period for spot market regulation and for subsidies to consumers o f less than 150 kilowatts per month to December, 2007. Authorizes the Ministry o f Finance to issue bonds for up to U S $ 5 mill ion to finance purchases o f energy by the transmission company.
32. INE employs approximately 100 people and i s administratively and financially independent. It manages i ts own budget financed by: (a) a regulatory service fee o f up to 1.5 percentg o f the total billing o f the regulated electricity companies, (b) fees for concessions and distribution licenses, and (c) a regulatory and control fee o f up to US$0.06 per barrel o f o i l or o i l products sold by hydrocarbon retailers. The budget for fiscal year 2006 was approximately US$3.4 million." The main function o f INE i s to promote competition in order to lower the costs for consumers and improve the quality o f energy services, assuring the financial efficiency o f the agents in the market. Specific functions include: protecting consumer rights, approving and controlling tariffs, controlling and enforcing regulatory decisions, preventing agents from discriminatory practices, and resolving problems among industry agents. Until recently, the CNE was responsible for formulating sector policies, preparing national and rural power-expansion plans, proposing energy sector laws and presidential decrees, and implementing rural electrification projects. The Ministry o f Energy and Mines, created in January 2007, absorbed the CNE and assumed the functions o f INE with respect to licenses and concessions.
The current fee i s 1 .O percent. lo Law 569, calculated at the exchange rate o f C$18.1623 per US$.
12
3. Telecommunications
33. In 1982 the Revolutionary Government passed Decree No. 1053, which created the National Institute for Telecommunications and Postal Services (TELCOR)," an agency o f the central Government, that had the functions o f the Ministry o f Posts and Telecommunications, the Regulatory Agency and operated both postal and telecommunications services. Through this Decree, the State retained the mandate to promote, facilitate, and regulate the services, promote private investment, intervene in the market, and guarantee universal access to the population. Reforms in the structure o f the telecommunications sector started in 1995 by the approval o f two laws: (a) Ley 200, the General Telecommunications Law, that established the separation o f roles o f the State (policy setting and regulation) and the private sector (operation o f companies to provide services), and (b) Ley 210, the Private Participation in the Telecommunications Sector, that divided TELCOR into three parts: (i) ENITEL, the telecommunications Operator, (ii) Correos de Nicaragua, the postal Operator, and (iii) TELCOR, that will remain the Policy Making Body and the Regulator. New laws and decrees complemented the regulatory framework, as described in Box 2.3.
Box 2.3: Summary of Legal Framework in the Telecommunications Sector
Law 200 (Ley General de Telecomunicaciones y Sewicios Postales) o f 1995 established the legal and institutional principles giving autonomy to TELCOR-under the tutelage o f the Presidency-to develop faculties to norm, regulate, plan, and supervise al l sector activities, with the aim o f accelerating sector development.
0 Law 210 (1995) allowed private participation in the operation and extension o f telecommunication services in the country.
0 Presidential Decree 19 o f 1996 defined procedures and requisites needed to obtain licenses to operate any type o f telecommunication services. Law 320 (1 999) reformed Law 200.
0 Law 389 (2001) reformed Law 210 introducing some changes to the bidding procedures for the privatization o f ENITEL.
0 Presidential Decree No. 19 o f 1996 defined procedures and requisites needed to obtain licenses to operate any type o f telecommunication services.
0 Decree No. 13 1 o f 2004 reformed and improved some articles o f the previous Presidential Decree.
34. In addition to these norms, over the years TELCOR has enacted a set o f internal regulations, according to the particular conditions o f the telecommunications market in the country, in order to guarantee the fulfillment o f the quality and expansion goals for telecommunication services.
35. Liberalization has been more successful in the telecommunications sector than in the water and sanitation and energy sectors. TELCOR increased tariffs for local telephone services to M l y recover costs and a reasonable rate o f return on investment; and
l1 Decree No. 1053, June 5, 1982 (Ley Orgdnica del Instituto Nicaragiiense de Telecomunicaciones y Correos) .
13
awarded national licenses to three new cellular operators to compete with the incumbent, Bell South o f Nicaragua, Radio Movi l Dypsa and ENITEL. This market liberalization has resulted in a dramatic increase in the number o f fixed and mobile phones- from 194,000 in 1999 to more than 1,800,000 phones in 2006 (1 , 100,OO ENITEL, 700,000 Movistar). Today there are two operators actively competing for the market, with networks covering almost all areas o f the country, except in small rural communities.
36. The Government sold 40 percent o f the shares o f ENITEL with management control to MEGATEL, a consortia o f Honduran and Swedish investors in December 2001. It also sold 11 percent o f the shares o f ENITEL to its workers. As per Law 210, at the time o f the transaction, ENITEL had an exclusivity over local, long distance and international telephone service for 3 years, expiring in December 2004. Later, in 2003, The Government sold the remaining 49 percent o f ENITEL’s shares to America Movi l S.A. o f Mexico. America Movi l also purchased the 40 percent from MEGATEL, which enabled them to control the company.
37. In April o f 200512, competition started in the basic local, long distance and international telephone service. Prices for international calls plummeted. It i s important to note that in the telecommunications sector, all services are under competition and the Government does not operate any commercial service.
38. TELCOR i s the most successful o f the three regulators. It has well-qualified technical professionals, although its total number o f employees-4ose to 200-is about twice what it needs. The number and quality o f TELCOR personnel can be explained at least partly by i ts generous budget, which, for fiscal year 2006, was US$6.2 million.
39. regulation o f public services in Nicaragua.
Table 2.4 shows the overall picture o f the institutional arrangements for the
Table 2.4: Institutional Arrangements for Public Service Regulation in Nicaragua
Energy (electricity Ministry of Energy and Mines Comisidn Nacional de and hydrocarbon Energia (CNE) GEMOSA fuels) Executive President GEOSA
GECSA appointed by the National HIDROGESA Assembly fiom a l i s t of candidates nominated by PRISMA the President of the ENTRESA Republic DISNORTE
DISSUR 9 municipal distribution companies
Water and sanitation Comisidn Nacional de Agua Instituto Nicaraguense de ENACAL services Potable y Alcantarillado Acueductos y AMAT
Sanitario (CONAPAS) Alcantarillados (INAA) EMAJIN Municipal and rural entities
l2 Four months after the exclusivity expired, due to the additional time to approve and publish the concession contract in the official newspaper.
14
I Telecommunications Insrituto Nicaragiiense de Insrituto Nicaragiiense de ENITEL (fixed, mobile, long- 3 Telecomunicaciones y Correos Telecomunicaciones y distance, private) (TELCOR) Correos (TELCOR) MOVISTAR , ENITEL (mob)
Executive President appointed by the nation's President
ESTESA (TV), Direct TV, Cable Com TV, 10 TV channels, 3 ISP, and radio operators
4. New Initiatives
40. In late 2004 Nicaragua's National Assembly approved new initiatives to reform public services regulation. On November 27, 2004, the Assembly approved Law 51 1 , which created the Superintendence o f Public Services (SISEP) as a single regulatory agency for telecommunications, water and sanitation, and energy services. This law also gave the Superintendence o f Public Services (SISEP) the mandate to protect consumer rights.13 The adoption o f th is and other laws followed some constitutional changes. A nine- month debate ensued in Nicaragua on whether public utility regulation should be carried out by sector-specific regulators or by a multisector regulator, and on which government branch should appoint the head o f regulatory agencies. These changes were resisted by the Executive, which did not recognize the new regulators named by the legislation, and for a while each sector had two regulators, contributing to great un~ertainty. '~ As a result o f a political truce in 2005, these changes were put on hold until a new elected administration was sworn in. The new administration assumed power in early 2007, but the entry into force o f the SISEP and other laws was soon postponed for an additional year.
41. The entry into force o f the SISEP Law would significantly modify the institutional framework for regulation o f public services. Under Law 5 1 1, SISEP would have one Superintendente and four Intendentes, one for each public service, and a fourth one for consumer protection. All are to be appointed for fixed terms o f five years. The Superintendent would be appointed by the National Assembly from a l i s t o f candidates proposed by the President, but the National Assembly can add candidates to this l ist . This provision defeats the purpose o f finding a political consensus between the Executive and Legislative branches for the appointment o f regulators, a provision which serves as an incentive to appoint the best technical professionals and gives them increased freedom to act as independent regulators. SISEP would create norms and regulations, supervise and control the application o f norms and regulations, and receive and resolve all appeals in a f i rs t instance before going to the judicial system or civil law. Changes to norms and regulations would be decided by the Board o f Directors. Ministries would continue defining the policies for each individual sector.
42. The SISEP Law i s a good attempt to reorganize and improve the quality o f regulation o f public services in Nicaragua. Given the size o f the market for public
l3 Whi le the SISEP law changes the organization o f Nicaragua's regulatory agencies, it does not change or modify the sector laws or specific sector regulations. l4 The law was adopted by the Legislature on November 27,2004. The President vetoed it on December 17, 2004, and the legislature overrode the veto on January 14, 2005, and appointed the Superintendente and Intendentes on February 28,2005.
15
services in Nicaragua in terms o f land, population, and the small number o f companies to be regulated, it would be reasonable for Nicaragua to have only one regulator for the three public services. This scheme has several other advantages: (a) the regulation is l ikely to be more understandable by consumers and regulated companies if only one entity regulates al l public services, and the general pol icy direction and policy priorities o f the government are applied consistently; (b) it would allow the body o f regulators to exchange experiences across al l services and to develop similar solutions to common problems; (c) the quality o f regulatory services in the electricity and water and sanitation sectors could be improved, because the amount o f monetary resources available to the telecommunications regulator in Nicaragua greatly surpasses those o f the energy and water services, while a single regulator would have the possibility o f optimizing these resources and improving the quality o f the overall public services regulation process; and (d) having a superintendent above sector intendentes provides a natural mechanism for a first appeal process.
C. Formal and Informal Decision-making Mechanisms
43 * Regulatory practices in the three public services have been very unstable and discretionary in the past f ive years. The decision-making rules are wel l defined in theory, but both regulated companies and consumers think that their application lacks transparency. The decision-making process has been politically influenced in different directions, a situation that has resulted in numerous appeals, on-going legal demands through the judicial system, international arbitration and a claim o f guarantee by the private electricity distribution company to the Multilateral Investment Guarantee Agency (MIGA).
44. The importance o f informal decision-making mechanisms i s best illustrated by the electricity sector. Although a recent assessment o f regulatory quality15 in this sector based on analysis o f the formal decision-making mechanisms showed that INE has medium levels o f regulatory quality in the Lat in American region and very high levels o f autonomy in decision-making, there are a number o f facts that contradict this assessment, including continuous disputes with the private distributors, disputes that are the subject o f arbitration and claims o f multilateral guarantees, unforeseen subsidies, consumer protests, and the current threats to re-nationalize the industry.
45. In fact, the electricity sector has been in crisis over the last two years, despite the considerable efforts made in separating the generation, transmission, and distribution sub-sectors, and creating an independent regulatory body. The tariff-setting methodologies and market rules in the energy sector are already in place and wel l defined in the set o f regulations issued by INE. The rules are similar to those applied in many countries. The problem in Nicaragua during the past two years has been that the decisions were prepared and implemented without any discussion with stakeholders. This has been due to the opportunistic way in which the regulator has applied some measures, the lack
l5 Regulatoiy Governance Assessment of the Instituto Nicaraguense de Energia (INE), Luis A. Andres and Sebastian Lopez Azumendi, April, 2007
16
o f transparency in the decision-making process, which seems to have responded mostly to political pressures from different sides, and the attention to short-term problems, without a rigorous approach taking into account the long-term effect on investments needed in the sector. The ideal o f regulatory stability could not be applied due to critical and urgent problems faced by the regulator in the tariff-setting area, in light o f rising o i l prices. The result has been no new investments in recent years, increasing power outages, the breakdown o f public confidence in the market, and growing litigiousness between private investors and the Government.
46. INE has tried to solve the problems in the best way to guarantee continuity o f service. However, some companies continued to complain, while at the same time trying to take advantage o f the weak position o f the regulator, amidst a very complicated political environment. This situation has resulted in the opportunity for the distribution companies to avoid some o f their responsibilities, such as reducing losses in the distribution system through investments, and social work with the communities.
47. Threats o f a possible re-nationalization o f the electricity distribution companies were a good political flag during the election period in 2006. But the current authorities have realized the tremendous cost that this decision could carry to the country, and that it would not solve the energy (electricity) sector problems. The Government and the regulator have expressed their commitment to lower the level o f public discussions and consolidate the tariff-setting process with the introduction o f a new methodology to automatically adjust the electricity tari f fs in relation to the fuel costs o f the generation plants. Tariffs were adjusted upward by 32 percent in 2006 and again by 2 percent in June 2007, with promises to increase them again progressively.
48. The automatic adjustment would give a good long-term signal to the market, and i s likely to be a strong incentive for new investments. A new tariff proposal for the next five years i s expected to be presented by the distribution companies Disnorte and Dissur to INE, including a general approach to tariff-setting and a review o f subsidies. Currently, the subsidy to the f i rst 150 megawatt-hours o f consumption i s high and i s not an incentive to save energy and use it rationally. It i s applied to all consumers and i s not directed to poor people, whose consumption i s even lower than this amount. There are no direct subsidies in Nicaragua, and the law prohibits cross-subsidies. The new Ministry o f Energy needs to work more closely with the Ministry o f Finance and the Technical Secretary o f the Presidency to define a subsidies policy that can be enforced and well controlled by all state agencies.
49. Regulatory decision-making mechanisms in the water sector have been even more heavily conditioned by political considerations, probably a natural consequence o f the public nature o f the service providers. INAA has suffered political interference from the Executive, the National Assembly, the Supreme Court, and non-government organizations that prevented the regulatory body from adequately exercising i ts functions o f supervision o f service quality and o f tariff-setting as foreseen in the tariff decree. The problem o f regulating a monopolistic company i s reduced to the tariff-setting process, and issues such as quality o f services are almost impossible to control, especially when the
17
monopoly i s owned by state-owned investors. On the other hand, the new management o f ENACAL, led by a former leader o f the consumers’ association, has personally assumed the operational transformation o f the company in terms o f cost reduction, increased coverage, and operational efficiency, and i s trying to demonstrate that the tar i f fs in place today are adequate and proportional to the quality o f the water and sanitation services provided in the country.
50. Although the telecommunications sector i s probably the least influenced by politically-driven decisions, in 2005 TELCOR suffered the direct consequences o f having two regulators at the same time due to the political confrontation between the Legislative and the Executive powers over the SISEP Law. Th is situation resulted in increased administrative problems and more uncertainty in the regulatory process. The companies waited some time before making new investment decisions and the problem disappeared immediately when a political truce was agreed, as explained in Annex I1 to Chapter 1 o f this report. This is a lesson for preserving the stability o f the regulatory environment.
D. Institutional and Governance Bottlenecks
51. Sector differences and the role of regulators. Due to the different market structures and stages o f development o f the sectors considered, the roles o f the regulators in the three sectors are very different. In the water and sanitation sector, since al l service providers are owned by the public sector and the largest company, ENACAL, has considerably more resources than the regulatory agency, the latter has played a very l imited role. Since this is a case o f a public agency regulating other public agencies, it is probably inevitable that the decisions are mostly influenced by political considerations. In the energy sector, where there is a mix o f public and private service providers, the main bottleneck has been the pass-through o f higher hydrocarbons costs to the electricity tariff.16 This has generated a series o f cross-debts between the generators and the distribution companies, and between the Government (as a consumer) and the distribution companies. Regulation o f the telecommunications sector has faced fewer problems, given the competitive nature o f the market, and its role has been mostly oriented toward protecting the market structure, that is, to uphold the interconnection regime, manage spectrum, assign licenses for mobile competition, assure that competition policies are upheld, and respond to consumer complaints. The particular regulatory bottlenecks o f each sector are discussed below.
5. Water and Sanitation
52. Water coverage is high in urban areas (95 percent), but it is very l o w in rural areas (47 percent), posing a serious sanitary r isk that affects mainly the poor. Sewerage coverage at the national level is only 35 percent, o f which 42 percent i s treated. Service quality and efficiency is in general very poor. Water rationing in urban areas is constant, with only half o f the systems receiving water in an uninterrupted manner. There i s a high degree o f inefficiency regarding water losses; non-revenue water is estimated at 56
l6 About 75 percent o f Nicaragua’s electricity generation i s o i l based.
18
percent, resulting from both technical losses and poor domestic metering and tariff collection. Init ial estimates o f losses show 100,000 sites where superficial and subterranean water escapes due to lack o f maintenance o f the water distribution network in Managua. Labor and energy costs are high. Maintenance and rehabilitation o f the systems has not been done in years.
53. The main problems o f the water companies relate to defining a new tariff scheme for the next four to f ive years. In 2003, Nicaragua had one o f the lowest residential water tariffs in Lat in America (see Table 2.2). INAA has not approved tariff increases since mid-2003 (when a 5 percent increase was implemented) despite large increases in the cost o f fuel, which is a significant element in the cost structure for water services. As a result, in 2006 E N A C A L needed a US$15 mi l l ion subsidy to cover operational expenses. In addition, the existing cross-subsidies lack both transparency and a clear pro-poor focus. INAA is waiting for E N A C A L to propose new tariffs, but the new management o f the company thinks that the problems are more operational and technical than just a problem o f tariffs.
54. On the costs side, one o f the crucial factors for E N A C A L operational indicators i s the company’s ever-increasing energy bill. E N A C A L paid US$3.6 mi l l ion more for electricity in 2006 than in 2005. The company does not pay any taxes. INAA i s awaiting ENACAL’s five-year planning and results exercise before it authorizes a water rate change.
55. INAA is promoting the passage o f a new law for the water sector that will more clearly define the functions o f the regulator and the Government at the national and regional levels. This issue must be addressed along with the new financing requirements to support the expansion o f coverage o f basic services.
6. Energy
56. The main challenge in the electricity sector is to increase coverage and ensure sustainable service provision, at reasonable tar i f fs, Overall electricity coverage ranges between 54 and 68 percent in 2005, depending o n the source. In rural areas coverage is around 36 percent. Service interruptions are frequent and tariffs are high by regional standards, as explained earlier in this chapter. The high cost o f electricity and frequent interruptions lead to high losses in production for f i rms, equivalent to over three percent o f sales.” The effect on productivity i s less robust (significant at only the 10 percent level) but estimates show that f i r m s suffering the average number o f hours in service cuts have lower productivity by 0.5 to 2.8 percent, o n average. These figures are l o w mainly due to the fact that the majority o f large firms (77 percent) have back up generators and so are less affected by service cuts.
l7 “NICARAGUA: Investment Climate Assessment,” Evidence from the Manufacturing Sector, World Bank, 2005.
19
57. This overall situation can be traced to three main factors: low supply, high dependency on oi l and shortcomings in the legal and regulatory framework.18 Nicaragua needs new investments in electricity generation to ensure stable service provision, increase coverage and keep tariffs at a reasonable level. The public sector i s limited by the shortage o f domestic resources and debt-sustainability constraints on the absorption of foreign financing. In order to attract private investment to the sector and take advantage o f Nicaragua’s abundant water resources, the adoption o f a reliable regulatory framework i s paramount.
58. As explained in the recent Energy Sector Policy Note, institutional weaknesses have been evidenced by the confrontation between: (a) the authorities and the private operators, and (b) within the public sector itself. In the former area, the problems arose from the reluctance o f the regulator to pass on to tar i f fs the higher o i l prices, coupled with large losses due to lack o f investments and legal constraints. Within the public sector, the confrontation between the executive and the legislative eventually led to the appointment o f two regulators, and there was also lack o f cooperation between the former policy-maker (CNE) and the regulator (INE).
59. Today the separation o f roles among the policy-maker, the regulator, and the service provider i s clearer. The central government can now concentrate on i t s primary role o f policy-maker and respect the independence o f the regulator in applying the regulatory framework, so as to increase the credibility and stability o f the new rules. The separation o f roles i s also important to establish a leveled and non-discriminatory playing field for private and state-owned companies, improve the investment climate for private capital, and improve the corporate governance o f state-owned enterprises.
60. Another crucial bottleneck for the development o f the electricity sector in Nicaragua i s the lack o f a law on water rights. This partly explains why there has not been more private investment in the generation o f hydroelectric power in a country with vast water resources. Until a couple o f years ago, the law limited private investment in hydroelectric generation to plants o f 5 megawatts. Today the limitation has been raised to 30 megawatts. This legal provision, uncommon in most countries, was approved by the legislature in order to avoid the depletion o f the country’s water reservoirs, given the lack o f regulation on water concessions.
61. A further important bottleneck i s the lack o f punishment o f electricity thefts, which are commonplace. Solving this problem requires the passage o f legislation making the theft o f electricity, as well as o f other public services, a penal offense. But the final outcome will also depend on the will o f the judicial system to enforce such legislation.
7. Telecommunications
62. The main challenges faced by the Nicaraguan telecommunications sector are: extending service to rural and poor areas, reducing tar i f fs for international communications,
l8 These problems are explained in detail in a recent World Bank Policy Note and wil l not be repeated here, except for the institutional and governance challenges.
20
promoting the adoption o f new and accelerated technological advances, and responding to new market demands. The new demands arise from convergence o f cable television and telecommunications service operators that provide multiple services (known as “triple play”, or voice, internet access and video).
E. Policy Options
63. The governance scheme for utility regulation that has shown the best results in achieving the aim o f providing quality services with wide coverage at reasonable cost i s the independent regulator model. l 9 The principal characteristic o f the independent regulator model i s the separation o f roles between policymakers and regulators, giving the later independence in decision making within their legally assigned roles. Achieving this on a sustainable basis requires implementation o f a number o f institutional and legal principles. The most commonly recommended principles are accountability, transparency and public participation, predictability, clarity o f roles, completeness, simplicity and clarity o f rules, proportionality, requisite powers, appropriated institutional characteristics, and integrity.
64. Although the independent regulator model i s a widely accepted “best-practice” model o f regulation that any country should aim for, it i s unrealistic to expect that the model can be adopted immediately in Nicaragua. The current situation in Nicaragua could be defined as a transitional regulatory system that could develop well and give excellent results if the Government makes a real commitment to improve the provision o f public services to the Nicaraguan population. The World Bank and other donors could work together with the Nicaraguan Government to demonstrate to consumers the benefits o f moving toward commercialization with cost-reflective prices to regular consumers and transparent subsidies to the poor. These arrangements can better achieve the goals that the Government i tse l f has set for the improvement in services in the three sectors. The goal i s to achieve a regulatory system that transparently provides investors with credible commitments and consumers with genuine protections.
65. The scheme proposed in the SISEP Law seems appropriate for Nicaragua, provided the institution i s granted legal, institutional, and technical independence. This scheme has shown benefits o f i t s application in other countries o f the same market size and consumer characteristics. However, the mechanism proposed to select the members o f the regulatory agency must be modified to avoid the possibility o f adding names to the l i s t submitted by the Executive, in order to ensure a maximum political consensus.
The Handbook for Regulatory Assessment” provides three principal reasons why this model i s preferable to others. “First, it has become the de facto governance model, at least on paper, in most o f the 200 countries that have created new national or regional regulatory systems in the past 10 years. Second, there i s some empirical evidence that shows that the independent regulator model, when adopted in both law and practice, leads to better sector outcomes. And third, the independent regulator model can accommodate a wide variety o f sector structures and transactions.” More detailed standards needed to make the principles operational in day-to-day practices can be found in Appendix A o f the Handbook, which provides an excellent description and rationale for 15 standards that are designed to move the independent regulator model f iom theory to practice. The appendix could be used as a basic resource document in discussions with Nicaraguan policy-makers about regulatory design and implementation.
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Ultimately, however, the exact structure o f the regulatory system i s less important than the commitment to the ru le o f law.
66. The allocation o f qualified human and financial resources available to the regulatory agencies needs to be improved. The people proposed by the Executive should have the academic and professional qualities, and a minimum o f experience in the sector they are going to regulate, and they should have no family ties or other conflicts o f interest with the regulated companies. Experiences in all parts o f the world show that a high level o f training and personal qualities o f the regulators leads to the highest probability o f obtaining the expected results in economic growth, investment, and improvement in quality o f services. This must be accompanied by the establishment o f competitive salaries to attract the best-qualified professionals, and competitive recruitment to guarantee transparency and independence. In addition, staggered terms o f appointment o f the members o f regulatory bodies are advisable to provide continuity o f decisions. De-linking the terms o f appointment from presidential terms i s also advisable as a means o f decreasing political influence.
67. The level, stability, and reliability o f the budgetary resources available to the regulators are essential to give them more autonomy, and can contribute to the predictability and transparency o f the regulatory decision-making process. The ability o f the regulators to manage their own budget without interference from the Government allows them to undertake the studies or investments needed to improve the quality and opportunity o f the regulatory services, without compromising their independent technical criteria.
68. There are complementary means o f addressing regulatory capacity constraints. Regulators should seek the active participation o f c iv i l society, customers, and regulated companies in the decision making process. The experience in many countries i s that a timely and open discussion and consultation process achieves excellent results. This does not mean that stakeholders should be the decision-makers, because they all have conflicting interests. The regulatory bodies need to implement a mechanism to periodically communicate with all levels o f the population in order to educate customers about their social obligations, while at the same time informing them about improvements in the provision o f services due to advancements in the regulatory process. This mechanism reduces the number o f complaints and increases the awareness o f people and companies about their rights and obligations. A good information mechanism can go a long way toward making sure politicians make credible and feasible commitments. The role o f the Nicaraguan regulator in the medium and long term i s to build confidence and trust between the regulated companies and the general public through an open, timely, and transparent discussion with all parties, while keeping i ts independence through studies and surveys o f very good technical and academic standards and quality. TELCOR has had a positive experience using public consultation processes for proposed changes to regulations and procedures, thus demonstrating that this process can work well in Nicaragua.
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69. The privatization o f the water sector would not be advisable before a thorough debate o f i ts pros and cons among al l relevant stakeholders, and improvement in the general situation o f ENACAL. There are few successful experiences in other countries where the administrations tried to privatize the water and sanitation sector. These experiences have demonstrated that the sector needs a long-term policy. In the current environment Nicaragua should concentrate in improving the managerial capacity and performance o f ENACAL, revise the policy-making role o f CONAPAS -including the possibility o f creating an executive office for policy-making purposes- and develop a framework for the provision o f water and sanitation services in the rural areas.
70. But an adequate regulatory framework for water i s essential at any time, even when there i s no privatization process foreseen. The development o f an independent water regulatory agency is necessary to correctly apply the tariff principles necessary to obtain cost recovery o f the services provided to those that can afford it, thereby guaranteeing continuity, and to make subsidies to the poor more transparent, so as to improve their targeting and financial sustainability. An independent regulatory agency can help address the political problems that arise f rom a decision to increase tariffs or reduce subsidies. And it could also help increase managerial capacity o f state-owned service providers by providing objective analysis o f the quality and coverage o f services, or even monitoring the compliance with a contract plan with ENACAL.
71. Over the longer term, Nicaragua would benefit from regional market integration in al l public services. All countries in the Central America region have the common problem o f small market size relative to the amount o f investments needed to obtain economies o f scale to provide infrastructure and services to lower-income populations. This problem could be overcome with regional service provision. In this case, the region could have a single regulatory entity in each country that follows general market rules and defines the terms o f the cross-national interchanges in terms o f service quality, competitive tariffs, and reliability o f services, and engenders a more rational use o f the natural resources available in the region. Donors could help to promote the transnational agreements needed to achieve this objective.
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CHAPTER I11 SECURITY OF PROPERTY RIGHTS
A. Background
72. Nicaragua has long been characterized by unequal access to land and high levels o f tenure insecurity. According to an index o f property rights calculated by the International Property Rights Alliance, Nicaragua ranks next to last worldwide in i ts protection o f physical property rights.20 The task o f providing secure tenure i s not only complicated, it i s made more urgent by the long legacy o f past expropriations, which has resulted in a large fiscal burden associated with having to compensate landowners who had been the target o f expropriations.
73. The importance o f a functioning property registry for the enhancement o f investment and economic development i s highlighted in a number o f background studies,21 according to which tenure insecurity in Nicaragua affects mainly the rural poor. More than half o f Nicaragua’s small producers report that they lack formal proof o f landownership. This goes hand in hand with strong demand for registered title: 84 percent o f those eligible indicate that having their plot registered would be desirable, but that they lack the resources to do so. Whi le the rich can pay for gate/parcel keepers or t i t le insurance (an alternative to property registry), the most vulnerable groups (for example, poor rural family farmers) cannot and are therefore most affected by tenure insecurity.
74. The above-mentioned studies also investigated the link between registered tit le and investment. There are two ways in which greater tenure security can increase investment. One i s the investment demand effect associated with greater tenure security. The second i s the credit supply effect that can come with formal title. Results from the analysis o f titling and registration o f property in Nicaragua in the last decade (see, for example, Deininger and Chamorro 2002, cited in World Bank 2003:20) illustrate that full registration o f a plot had a significant investment-enhancing impact and increased the propensity to invest by between 8 and 9 percent. The results also suggest that award o f agrarian reform t i t le per se, without accompanying registration, had only minimal effect on investment. Further analysis also showed that having a registered plot does not increase a household’s propensity to invest in other non-registered plots, which suggests that the investment-enhancing effect o f registration i s indeed plot specific.
2o The index for Nicaragua i s 2.7 out o f a maximum o f 10. I t i s calculated on the basis o f both surveys and administrative data. For details, see www.propertyrightsalliance.org. 21 World Bank 2003; Deininger, Chamorro, and Lavadenz 2003; Deininger and Chamorro 2004. These studies were conducted as background to the World Bank-supported Land Administration Project (PRODEP, US$32.6 million, 2003-07), which aims at the development o f the legal, institutional, and technical fi-amework for the administration o f property rights, and at demonstrating the feasibility o f a systematic land rights regularization program through six project components: (1) policy and legal reforms, including a land policy kamework and legal and regulatory changes; (2) institutional decentralization and strengthening; (3) titling and regularization services, including alternative conflict resolution training; (4) demarcation and consolidation o f protected areas; (5) demarcation o f indigenous lands; and (6) an upgrade to an integrated information system.
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75. The analysis also included the examination o f the economic impact o f the investment: Returns to land-attached investments were the highest (about 29 percent), followed by returns on livestock (12 percent), and returns on machinery (3 percent). In line with the hypothesis that marginal returns to land-attached investment are higher than those to mobile capital, shifting resources from capital investment toward land-attached investment will increase the overall economic efficiency o f the sector. This leads to the assumption that, in addition to enhancing overall levels o f investment, the higher level o f tenure security brought about by land titling in Nicaragua will also lead to a more optimal balance in the mix o f investment between moveable and attached goods (World Bank 2003:21). Taken together these results provide a strong justification for programs o f titling and registration from an economic perspective. Contrary to other countries, producers in Nicaragua appear to need a legally clear title, rather than an intermediate substitute to invest. This result was also supported by the qualitative assessment carried out in the context o f the background work for this Review.
76. Finally, the studies also came up with interesting results on the impact o f tenure security on land values. Specifically with respect to the impact o f titling and registration, the analysis found that both formal and informal rights enhance land values. The analysis showed that rights o f possession, as embodied in length o f time during which the plot had been cultivated, provide a marginal increase in tenure security. Each additional year the plot has been held by the current owner increases land values by 1.3 percent. Compared to this, registration o f a plot signifies a quantum jump in tenure security. Using an estimate for the impact o f possession, registration would increase the land values by about 30 percent-equivalent to more than 20 years o f continuous possession (World Bank 2003:23).
77. In summary, the studies showed that the titling efforts o f the past decade had a perceptible economic impact. The Government o f Nicaragua has initially focused on “agrarian reform” lands. However, the policy o f awarding mainly agrarian reform t i t les that stopped far short o f full registration appears to have foregone considerable and relatively immediate benefits. The World Bank analysis (2003) hence suggests that providing fully registered t i t le can greatly enhance the economic benefits to be expected from the current land-titling efforts. Indeed, the Government has recently made plans to systematically register all plots that have undergone the titling process.
78. This chapter presents an analysis o f the current situation regarding real state property rights from the point o f view o f the institutional and governance arrangements o f the system. It describes the institutional and legal Eramework o f the system, i t s major strengths, weaknesses, and governance problems; looks into the processes, formal and informal decision making mechanisms, and governance problems o f the property registry and cadastre systems; discusses the institutional and legal reforms currently under discussion in Nicaragua, including proposed legal changes, the integration o f registry, and cadastre systems, and the role o f municipalities; and offers options for improving the system.
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B. Institutional Framework: Strengths, Weaknesses, and Governance Problems
1. Institutional Framework for Land Administration
79. The overall framework for land administration involves three public agencies, each in charge o f distinct procedures: (a) the Intendencia de la Propiedad (IP), in charge o f land titling and regularization; (b) the Instituto Nicaraguense de Estudios Territoriales (INETER), in charge o f cadastre services; and (c) the Supreme Court, in charge o f property registry services.
80. In order to streamline the institutional framework for land administration, in 1996 through Law 290, the Government integrated a number o f formerly independent and diverse organizations within the Intendancy of Property (IP), under the Ministry o f Finance and Public Credit. Among the entities absorbed were the OJicina de Titulacidn Rural (OTR), the OJcina de Ordenamiento Territorial (OOT), the OJicina de Cuantzjkacidn de Indemnizaciones (OCI), the OJcina de Titulacidn Urbana (OUT), and the State Notary. In a next move, the formerly independent agencies were transformed into five directorates under the mandate o f the Intendente de la Propiedad, and 14 departmental delegations were established throughout the country (see organigram IP 2006 in Annex 1 to this chapter). Irrespective o f a number o f remaining management problems and overlapsY2* these changes-which were supported by the IDA-financed Proyecto de Ordenamiento de la Propiedad (PRODEP) project-represent a significant step toward a more clearly defined institutional framework for land administration.
81. Today, the IP i s the main institution responsible for the decisions concerning regularization o f rural and urban land and property o f the reformed sector.23 The IP i s in charge o f allocating land in the rural areas, granting titles, reviewing the validity o f Land Reform titles, and dealing with a number o f certifications and authorizations for land sales and rentals. It took over the functions o f the Instituto de Reforma Agraria (INRA) and through the OTR (later Directorate for Titling) demonstrated i t s capacity to grant tit les (in the areas o f lesser conflicts). The IP by means o f Law 88-90 i s also responsible for reviewing the legitimacy o f Land Reform tit les granted during the transition period o f 1990 to both individuals and cooperatives, and for the processing o f the indemnification claims o f landowners who lost their properties during the Land Reform.
82. Physical Cadastrellnstituto Nicaragiiense de Estudios Territoriales (INETER). INETER i s an autonomous institution under the Presidency o f the Republic responsible for the seismological and meteorological systems, and for the physical cadastre in both urban and rural areas (that is, mapping o f property location and limits).
22 There continue to be some overlaps with the fimctions o f the Procuraduria de la Justicia (located under the Presidency), which handles the distribution o f land from former state enterprises, and the Judicial Branch, which also grants titles as a result o f civilian processes (titulos supletorios). 23 The reformed sector includes al l beneficiaries o f public land transfers through (i) the agrarian reform o f the Sandinista government in the 80s as well as (ii) through the provision o f land to members o f the resistance and to demobilized members o f the Sandinista army by post-Sandinista governments.
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INETER has a General Directorate for the Cadastre, based in Managua, with offices in the departments o f Chinandega, L e h , Managua, Masaya, Granada, Carazo, Rivas, and Esteli (see Organigram INETER in Annex I2 to this chapter). The remaining eight departments have not yet undergone cadastre, mainly due to financial constraints. The physical cadastre o f INETER i s authorized to verify and approve the topographic plans required in the legalization process for properties in the areas that have undergone cadastre. This information i s the principal base for issuing the cadastral certificate, which legally constitutes an indispensable requirement for the inscription o f properties in the property registry offices in those areas where land has undergone cadastre. So far, the cadastre covers only about 20 percent o f the country, mainly in the Pacific Region, and a large part o f this i s outdated since most land transfers after 1970 have not been reported. USAID-BIDE (2002: 16) estimate the proportion o f the outdated cadastral data to be as high as 40 percent on average. The lack o f integration o f the registry and cadastre systems i s an important problem, because the current system allows several titles for the same parcel.
83. Fiscal Cadastre. The office o f the fiscal cadastre i s responsible for collecting the land transaction tax (Impuesto de Transmisidn de Propiedades) and the General Sales Tax (Impuesto General de Ventas, IGV). This office forms part o f the departmental administration o f the Direccidn General de Ingresos (DGI) o f the Ministry o f Finance and Public Credit. Contrary to the physical cadastre, the public registry, and the IP, the fiscal cadastre office does not manage i t s own data-base on the properties they evaluate. It does, however, carry out checks on the cadastral data with i t s own personnel, partly due to mistrust o f the quality o f the data provided by INETER. The certificate for having paid the land transaction tax i s another indispensable requirement for the inscription o f the properties in the property registry.24
84. The Property Registry: The Property Registry (Registro de la Propiedad Inmueble y Mercantil (RPIM) i s administered by the Supreme Court (see organigram in Annex 11). It i s the task o f the Property Registry to provide legal security to landowners and other people involved in land transactions. This i s done through the inscription o f tit les and other official documents that describe rights and interests in land. Every transaction that involves the creation, transmission, modification, or cancellation o f land rights has to be inscribed in the property registry in order to have effect on third parties. There i s an office o f the public Property Registry in each departmental capital. The legal foundation o f the Property Registry goes back to the Cddigo Civil o f 1904. In spite o f a number o f subsequent laws that regulate the functioning o f the Public Registry, the basic processes s t i l l follow the Cddigo Civil, which does not allow the use o f modern technology in the inscription process. The new Registry Law currently under discussion in the National Assembly, however, would provide the foundation for a substantial modernization o f the Public Property Registry.
85. The Direccidn Alternativa de Conflictos (DIRAC) i s responsible for conflict mediation and arbitration. It was created in February 2000 under the Supreme Court in an attempt to resolve pending conflicts that involve property issues. These are f irst
24 The role o f municipalities with respect t o land taxes is explained in section D o f this chapter.
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addressed by mediators, specifically trained for this purpose, and then go the Tribunales de Arbitraje. Supported by the IDA-financed PRODEP project, DIRAC’s role i s to support the process o f developing alternative conflict resolution through civi l society actors, and to train the communal mediators and negotiators that the project will put in place.
86. Private Sector. The system also has several private sector intermediaries. There are about 5000 notaries throughout the country, certified by the Supreme Court to carry out the property registry process on behalf o f their clients. The Supreme Court does not only certify the notaries, but regulates their activities and has the power to sanction them in case o f irregularities. Similarly, in order to elaborate the cadastral map o f their property which i s required for the inscription process the interested party has to commission a private topographer, authorized by INETER. There are about 300 o f these, as well as about 10 companies providing topographic services. As in the case o f the notaries, INETER also establishes the norms that regulate the surveyors’ activities.
2. Legal Framework
87. The comprehensive restructuring o f the institutional framework for land administration goes hand in hand with a number o f changes in the legal framework. Some o f these changes relate to the overall reform o f the land administration framework, such as the Ley 290 o f 1996 creating the Intendency o f Property (IP), and the Ley Creadora del Instituto de la Propiedad Reforma Urbana y Rural (Ley INPRUR) o f 2004. Other laws or draft laws aim at reforming various elements o f the institutional framework, such as the cadastre law and i ts regulations (enacted in 2005), the new property registry law (under discussion in the National Assembly PA]), and the regularization law (bill presented to the NA in 2005). The promotion o f these legal initiatives i s part o f the agenda o f the IDA-supported PRODEP project.25
Changes Relating to the Overall Framework
88. Both Law 290, creating the Intendency o f Property (IP), and the law which creates the Instituto de la Propiedad Reforma Urbana y Rural (INPRUR) aim at streamlining and integrating the formerly dispersed land administration institutions. Whereas Ley 290 o f 1996 integrated various functions related to titling, compensation, and land use planning in the new Intendency o f Property, the INPRUR Law approved by the National Assembly on 25 November 2004 goes one step further. The INPRUR law integrates (a) the IP (as created by Ley 290), (b) some functions o f the General Administration (Procuraduria General) relating to the legalization o f public properties, and (c) the Comisidn Nacional de Revisidn (CONAR), created in 1990 (Ley 11-90) for the revision and supervision o f the processes related to the confiscation o f properties by the Nicaraguan State. However, in the aftermath o f political conflicts in connection with a number o f new laws aiming at constitutional changes (one o f which was the INPRUR law), the NA-after mediation through the Organization o f American States (OAS)-on 20 October 2005 enacted the Ley Macro para la Estabilidad y Gobernabilidad del Pais,
25 For details o n the laws discussed in t h i s section, see Annex 3.
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which suspended the implementation o f all laws aiming at constitutional changes until the beginning o f 2007 when the new elected Government was to take power (now extended until the beginning o f 2008).
89. The conflicts basically referred to the controversial attribution o f functions to different segments o f the Executive and Judiciary, politically dominated by the strongest forces in the NAY the Sandinistas and the PLC. According to PRODEP staff, the implementation o f Ley INPRUR (even in 2008) i s not very likely, mainly for political reasons. There are, however, also technical reasons “against” the implementation o f Ley INPRUR. Despite the further integration o f land administration functions, which i s regarded as positive, INPRUR in i ts current form integrates only the land administration functions related to the reformed sector (as i s known in Nicaragua, see footnote 23), and thus does not include the legalization o f private properties. This would make it more difficult in the future to also integrate the property registry and the cadastre functions that relate to both the reformed and the private sector.
Changes Relating to Specific Land Administration Functions
90. O f the more specific laws, the Cadastral Law and i t s regulations were enacted in 2005. The Cadastral Law i s a big step forward in the modernization o f the national cadastral system by establishing and reforming the national cadastre on three levels: (a) the national cadastre with i ts legal and administrative functions on the national territory through INETER, (b) the fiscal cadastre through the Direccidn de Catastro Fiscal o f DGI, and (c) the municipal cadastre with i t s legal and administrative functions on the municipal territory through the municipal governments. In addition, the Law creates the National Cadastre Commission (Comisidn Nacional de Catastro) under the Presidency with the objectives o f defining policies and strategies for the development o f the national physical cadastral system, and organizing, coordinating, and harmonizing the different cadastral activities o f the organizations participating in the commission. The Law also regulates coordination with the property registry, including the establishment o f the Sistema Integrado de Informacidn Registral y Catastral (Initiating the Integration o f Registry and Cadastre, SIICAR). Finally, the Law lays the foundation for a broader integration o f the municipal cadastres into the national cadastral system, by not only making them responsible for the maintenance o f the national physical cadastre (within their boundaries), but also by allowing their integration as service providers in ongoing land regularization activities if they prove that they have the required capacities.
91. Probably the most important and also most controversial o f the more specific legal changes i s the new Draft Law on the Property Registry (Ley General de Registro Pziblico). This Law aims at modernizing the public property registry. Through establishing the basis for a more efficient and transparent property registry process, (to a large extent by allowing the use o f modern information technology), the new law has the potential to overcome major bottlenecks o f the current property registry process, which has been widely criticized for being costly, non-transparent, and prone to abuses. Due to the importance o f this Law for the objectives o f this Review, i t s implications are discussed separately in section 1II.D o f this document.
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92. Finally, the Draft Regularization Law (Ley de Regularizacidn de la Tenencia de Tierra) elaborated by the Property Intendency (IP) aims at simplifying and accelerating the regularization processes carried out under the responsibility o f the IP. The law introduces a methodology for massive regularization processes in the rural and urban areas and creates the legal basis for their accelerated implementation. Land regularization i s a systematic process to identify and clarify property rights to land that includes mapping, cadastral surveys, demarcation, titling and adjudication o f rights, registration and record-keeping and resolution o f conflicts, combined with wide communication campaigns, publicity and legal assistance to ensure the participation o f all beneficiaries and stakeholders and institutional strengthening. The law was presented to the NA in 2005, but has not yet been approved by the legal commission o f the NA before it can be discussed in the Plenary.
3. Strengths, Weaknesses, and Governance Problems
93 * related to the overall institutional framework:
Notwithstanding recent improvements, there s t i l l remain a number o f problems
0 Despite the efforts to streamline the land administration institutions by creating the IP, the overall land administration framework i s s t i l l fragmented, with individual institutions linked to different ministries or government agencies. Whereas the IP i tse l f i s positioned as a General Directorate Ministry o f Finance and Public Credit, the property registry i s under the Supreme Court; INETER, an independent agency, i s under the Executive; and the fiscal cadastre i s under the DGI o f the Ministry o f Finance and Public Credit.
0 None o f the agencies directly involved in the public registry system (physical and fiscal cadastre, public registry) i s administratively and financially autonomous, but i s dependent on i ts respective “mother organization” (Ministry o f Finance and Public Credit [MFPC], Supreme Court, INETER). MFPC, the Supreme Court, and INETER pursue a number o f goals outside the land administration sector. Consequently, the budget allocations are provided in competition with the other sub-sectors. This i s particularly worrisome in the case o f the registry-related activities which-in spite o f their income-generating potential-are not operating on a financially sustainable basis; rather, the income i s used to cross-finance other sub-sectors. The administrative and financial dependence often goes hand in hand with a lack o f physical infrastructure and human resources.
0 Earlier efforts to reduce the fkagmentation and to homogenize the institutional framework o f land administration have failed due to political considerations and power issues. This was also true in the case o f the proposed institutional integration o f the public registry and cadastre, as will be discussed in section 1II.D. Experience shows that if proposals for change intervene in the results o f political bargaining processes, this has to be considered in the design o f the reform options. This i s particularly true if income-generating agencies such as the
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public registry are at stake. Another issue is that the administrative function o f the registry is mixed with the judicial function o f the Supreme Court, so when there are disputes this can lead to conflict o f interest situations.
Land-related institutions are s t i l l overly centralized. Though there are some advances, as for example, documented in the case o f the IP, the potential lying within the decentralization o f service provision is st i l l underexploited. Transferring services (for example, cadastral services) to the municipalities would significantly lower the cost to the clients. Even though past efforts to strengthen the capacity o f municipalities for service provision have proven more cumbersome than originally expected, there i s no promising alternative, and the past results are sufficient to justify the further pursuit o f this path.
Women Lack Equal Access to Land Title. A legal recent study undertaken by the Bank found out that Nicaragua has a number o f discriminatory provisions in its legal framework regarding land and family laws related thereto. The study found that women in general, are facing de jure (due to the text o f the law itself, its inconsistency with Constitutional provisions and international commitments entered into by Nicaragua) and de facto (in practice during the enforcement or dispute resolution process) discrimination, whenever land titling i s registered. According to Instituto Nicaragiiense de la Mujer (INIM), in 2005 only 13% o f al l land titles were held by women, either individually or joint ly (mancomunada).26 This remains true despite the fact that, in many cases, goods and land owned by a family were acquired through the combined efforts o f both the husband and wife. However, where the land i s only titled in the name o f the husband and the relationship ends, the wi fe i s often left without claim to that land. Article 49 o f Nicaragua’s L a w 278 o n Urban and Agrarian Property Reform (Ley 278 Sobre Propiedad Reformada Urbana y A g r ~ r i a ~ ~ ) addresses this issue by allowing married women --whether married “formally” (matrimonio) or “informally” (unidn de hecho estable) -- to register land joint ly with their spouses/partners. Yet only 7.85% o f land titles have been jo int ly (Le. under mancomunada title) issued to women and their partners/spouses.28 Indeed, confusion related to the issuance o f jo int title under Art. 49 o f L a w 278 (i.e. mancomunado title) has resulted in more land (25.03%)29 being jo int ly titled to others in other family relationships (such as fathedson), than to the women it was intended to benefit.30 The Law’s lack o f clarity, as wel l as the lack o f a corresponding mechanism to implement the joint title has, in practical terms, left women without sufficient legal recourse and mechanisms to claim their rights to land.
26 Ocon, Tierra y Propiedad
27 Ley 278, publicada en la Gaceta no. 239 de 16 diciembre 1997. 28 Lastarria-Cornhiel et a1 (2003): “Titulacih mancomunada en Nicaragua, Indonesia y Honduras,” the land tenure center at the University o f Wisconsin-Madison, p. 20 29 Sistema de la Propiedad OTR 1992-2000 30 I d at 7.
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C. The System of Property Registry: Processes, Formal and Informal Mechanisms, and Governance Problems
94. The Property Registry (Registro de la Propiedad Inmueble y Mercantil, RPIM) i s administered by the Supreme Court, which i s responsible for appointing the registrars in each RPIM office, and likewise, may remove them for just cause. In each RPIM, a registrar runs the daily operations and acts independently in approving registries. The authority o f each RPIM office registrar, however, i s relatively limited. The Court administers the RPIM’s budget, publishes the regulations and policies, and monitors the RPIM’s day-to-day operations. Each Supreme Court Magistrate i s assigned supervisory responsibility for at least one registry office and i t s registrar.
1. Structure and Organization of the RPIM
95. Currently, the RPIM includes 16 offices, one in each department o f the country. While, as indicated, the RPIM system as a whole i s administered by the Supreme Court, each office functions independently. In each office the registrar i s the chief official. The registrar i s responsible for deciding whether applications may be processed, processing accepted applications, signing processed documents, and establishing internal office rules and procedures. RPIM staff i s organized into departments that correspond to the stages o f the inscription process.
96. Since 1904, Nicaragua has employed the Folio Real system.31 Accordingly, three separate books or registries are maintained by the RPIM: the Diario, the Folio Real, and the Registry of Persons. The Diario tracks each document that enters and leaves the registry, noting the name o f the person who submits it, the time and date o f submission, the assigned document number, an abstract o f the document’s content, i t s disposition, and the time and date it leaves the registry. The Registry of Persons records all births, deaths, marriages, and so forth. The Folio Real i s the key registry and tracks all rights and interests pertaining to real property, including ownership, services, usufructs, and leases.
97. In some cases, the same parcel has two or more independent records, and several parties claim in good faith to possess good title. This i s a key problem, due in part to the lack o f integration between registries and cadastres. Further, the accuracy o f information i s doubtful, even in the best RPIM offices. Most registry books are maintained manually. Geographic information about property i s provided by registry users and i s often neither tied to a physical cadastre nor independently verified. Other information may be out o f date. Because the system lacks internal controls, even good faith users may present false information that they received from others, thereby maintaining and perpetuating errors.
31 Previously, the Registro Consewador was organized by the Folio Personal system by which land transactions are tracked according to the parties involved and not the parcel. This system i s inferior to the Folio Real system because al l rights and interests pertaining to a particular tract are not immediately obvious to a third party (see, for example, Trackman, Fisher, and Salas 1999).
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98. The physical condition o f the records in many offices i s poor. A central focus o f recent reform efforts has been the conversion o f paper records to microfilm and partial scanning o f books. The degradation o f the RPIM books and documents i s attributable not only to their age, but also to the fact that a central tenet o f Nicaragua’s registry system has been that registry records are public documents. Even after the advent o f photocopying technology, people who requested registry documents or information were permitted to examine the originals, raising concerns about record security. In some areas, registry records have been lost, stolen, or destroyed. Despite efforts to recreate lost registries, the accuracy and completeness o f current records i s suspect.
99. The budget o f the RPIM i s prepared and approved by the Supreme Court. The money i s part o f the Court’s general budget, which i s appropriated by the National Assembly and legally guaranteed to be no less than 4 percent o f the general national budget. Monies allocated to the RPIM are then divided among the 16 offices. The total annual budget i s approximately US$750,000. Most o f this money i s used for salaries and for the day-to-day operations o f the registries. The RPIM also collects fees for the services it provides. All fees are determined by the AranceZ de Zos Registros, which i s set by the National Assembly. All o f those revenues currently go to the National Treasury.
2. Process Times and Costs
100. The RPIM i s charged with inscribing rights and interests pertaining to real property. In addition, the RPIM provides certifications and responses to inquiries relating to land status, ownership, and encumbrances. The RPIM also cooperates with other government agencies to inscribe newly granted t i t les issued as part o f land regularization efforts.’
10 1. The processes required to inscribe a property in the Property Registry intimately l inks three organizations: the Property Registry, the physical cadastre, and the fiscal cadastre, which are involved at different stages o f the process. In principle, the registry process for any property transaction follows the rules described in Annex 1 to this chapter, though with some internal variations, for example, in cases with or without prior cadastre or in case o f divisions o f property (desrnernbra~iones).~~ To initiate the process, an interested party must f irst prepare an inscription application to be submitted to the RPIM. Depending on the circumstances, this process can be more time-consuming and costly than the inscription process at the RPIM itself. To open the inscription process RPIM requires four documents:
0
0
0
A notarized affidavit o f the previous owner inscribed in the RPIM The original and a copy o f the new contract describing the parcel o f land and the beneficiaries A cadastral certificate issued by the Physical Cadastre o f INETER A fiscal evaluation certificate issued by the Fiscal Cadastre o f DGI.
32 There is, however, one important alternative procedure, the so-called titulo supletorio, which, due to i t s widespread (and controversial) use, wi l l also be presented in detail below.
33
102. Time. The time required to issue the cadastral certificate varies from office to office, but i s approximately 7 to 10 days. The time to obtain the fiscal evaluation certificate i s approximately 4 days. The lengthy wait i s in the process o f registering the t i t le at the RPIM itself, which i s about 6 months, on average; although in some cases it can be done in 100 days.
Process Element
103. Costs. Table 3.1 presents the typical costs for the legalization o f a land purchase transaction in different municipalities. This does not include the costs for the topographical services, if a topographical plan has to be elaborated (in case this does not exist or in case o f separation o f properties). The latter, if required, usually accounts for a large portion o f the overall costs, slightly below the honorarium for the lawyer.
Cardenas Las Flores Sn. Pedro Wadala Esteli S. Tomes N. Guinea Rvas Masaya Chinand. Matag. Esteli Chontal RAAS
104. The total costs for legalization ranges between US$147.74 in San Pedro del Norte in Chinandega and US$401.24 in Las Flores in Masaya. The data show that the costs for the legalization o f a property transaction usually are much higher if the property i s located closer to the bigger cities o f Nicaragua, as i s the case o f the properties in the municipalities o f Esteli, Masaya, and Santo Tomas Chontales. On average, these costs represent around 5 percent o f the market value o f the property.
105. There i s also a widespread culture o f bribes in many o f the public organizations that participate in the legalization process. Bribery i s common for clients who need a timely response to their request for registry. Many lawyers include the amount required for bribes in their fees. This can easily mean an increase o f between 10 and 30 percent o f the total cost for the legalization o f a small property. In addition, the costs for landholders who live far from the departmental capitals tend to rise over-proportionally due to the extra costs involved in transport to the capital and the extra payment for topographic services by authorized service providers who have to travel far if the plot i s located in a remote area.
106. Another informal mechanism to secure property rights has emerged recently, and i s mainly being used for tourism-oriented property purchases along side the south Pacific coast. This i s t i t le insurance and the service i s provided mostly by foreign
34
companies. However, t i t le insurance does not work in the same way as in the United States, where the process involves a search o f tit les in the public records and the insurance guarantees that the property being sold has good t i t le and i s debt-free. In Nicaragua, t i t le insurance can not guarantee the legality o f the property, but functions more as common insurance does: if the buyer eventually loses the property to a legal dispute, the issuing company reimburses the loss.
3. Other Mechanisms of Legalization and Governance Issues
107. The Nicaraguan law foresees a number o f additional mechanisms that can lead to the legalization o f properties, o f which the titulo supletorio (supplementary title) i s not only the most relevant but also the most controversial. The titulo supletorio can be requested by anyone who i s in possession o f a property without a t i t le that supports his or her rights. The law requires that the candidate must have possessed the property uninterruptedly, peacefully, and publicly for at least 10 years. In this case, the candidate can approach a public court and request the initiation o f a process leading to the inscription o f the titulo supletorio in the RPIM. Upon verification o f possession through three witnesses from the same municipality and a public announcement to check that there i s no opposition to the issuance o f the title, a civil judge will grant such a certificate. The municipality and the Procuraduria also have the authority to intervene to verify that no public interests are affected. However, this intervention often does not take place. Supplementary tit les are regulated by the Civil Code.
108. In practice, the process i s seldom carried out appropriately, basically for two reasons. First, in areas in which INETER possesses cadastral information (20 percent o f the country); i t i s possible to trace prior registry inscriptions through the cadastral number associated to the property. In areas where th is i s not the case, it i s practically impossible to trace prior inscriptions, which creates the danger o f multiple inscriptions. Secondly, the law actually requires the three witnesses to be people living on properties directly neighboring the applicant’s property. Since this, in practice, i s very often impossible (among other reasons, because the neighbors themselves usually also do not possess legal documents regarding their own properties) judges-especially in areas without cadastral maps on the part o f INETER-have come to accept any “respected” person in the municipality as a witness, even if he or she does not fulfill the legal requirements mentioned above. In recent years this has led to repeated cases o f double (or triple) titling, partly because o f lack o f due diligence, inadequate coordination among government agencies, and institutional weaknesses such as lack o f upgrading o f the registry records, but very often also due to abuse. Currently, the percentage o f property inscriptions in the RPIM on the basis o f this mechanism i s estimated to be around 30 percent o f total property inscriptions.
109. There are further mechanisms similar to the titulo supletorio, such as adverse possession and judicial sales (ventas judiciales), but they are not o f major relevance. The discussions regarding the titulo supletorio, on the other hand, are controversial and have played a central role in the discussion o f the new Registry Law in the National Assembly.
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4. Institutional and Technological Integration (and common databases)
1 10. The fragmented inscription process increases the time and costs for the end user. Even though the offices o f RPIM and the physical and the fiscal cadastre are all located in the capital o f the department, they are not necessarily located near each other. As the internal processes again are subdivided, this amounts to a long process o f waiting, queuing, paying o f fees and taxes, and then continuing the same procedure at the next location. Further, the fragmentation i s also reflected in the procedures, mechanisms, tools, and databases developed by the three organizations involved. The tools and software used by, for example, the physical and fiscal cadastre (and also the cadastre o f the municipalities) are incompatible. Because cadastral data were not available electronically (and because the registry i s restricted in the use o f modern information technology), RPIM has to rely on the complicated and lengthy process o f obtaining the paper version o f the cadastral certificate described above.
11 1. An automated process integrating the cadastral and the registry process with access to one joint cadastral database would simplify the procedure tremendously. Similar processes are ongoing in other Central American countries (Guatemala, Honduras, Panama) and haven already been accomplished to full use in El Salvador. In Nicaragua th is process has been initiated through PRODEP and the development o f the SIICAR program. However, the institutional implications o f such an integration process are immense, since the rigidity o f the processes and the resistance to change i s due not only to the complexity o f introducing a new technology, but also to the threat o f an automated system to end systematic abuse.
5. Financial Sustainability, Physical Infrastructure, and Trained Manpower
112. As mentioned, none o f the agencies directly involved in the public registry system i s administratively and financially autonomous. RPIM’s current annual budget i s allocated out o f the Supreme Court’s budget. In general, the allocations are not sufficient for efficient service provision. Moreover, according to various sources, the low salary levels in the RPIM make the officials prone to bribes and corruption. The situation i s not much different in the physical cadastre o f INETER. Here, the low levels o f budget allocation seriously restrict the options o f modernizing the physical infrastructure, and thus the extension o f the national cadastral coverage. In both cases all the revenues collected through fees are transferred to the National Treasury.
113. Experiences in the region clearly demonstrate that the registry systems have the potential to be financially self-sustainable on the basis o f the income they generate. Pipe (2004) has shown this for the Nicaraguan property registry and finds that the income generated could easily self-finance the registry’s operations (Table 3.2). What i s more, the income generated could help to cross-finance the cadastral services in an integrated, administratively and financially autonomous system.
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Table 3.2: Revenues and Costs of the Property Registry in Nicaragua (in Cbrdobas)
Revenues 32,485,027
costs I 15.462.234 Personnel Services 11,557,554 Other Servicesd 2,191,124 Materials and Supplies 575,449 Goodsd 834,680 Transferse 303,427
Balance 17.022.793
- 33,292,580
17,185,054 13,655,5 17 2,22 1,949 3 18,489 739,901 249,198
16,107,526
mmm 36,974,899
17,888,756 14,5 12,248 1,821,656 456,457 822,682 275,713
19,086,143 a. Includes Property and Trade Registry. b. Projected based on data until 3 1 October 2003. c. Costs as budgeted, income estimated. d. Computing equipment, f i r n i twe , air-conditioning. e. Counterpart hnds for foreign-financed projects. Source: Pipe (2004:30).
40,433,557
19,063,867 15,100,698 2,584,869 351,282 821,828 205,190
21,369,690
Rmm 43,668,241
24,723,868 22,947,054
972,7 10 247,869 451,645 104,590
18.944.373
1 14. Due to the high dependence o f the property registry on a functioning cadastral system, the institutional integration o f cadastre and registry would represent an important step forward. The experience o f the Centro Nacional de Registros (CNR) in El Salvador shows that not all o f the institutions that form part o f the national land administration system have to be financially self-sustainable. The operational costs o f the physical cadastre in El Salvador are higher than the income it generates, just as in the case o f the physical cadastre o f INETER. Even if cost-saving procedures are introduced in the cadastral process, the cadastral activities will s t i l l have to be subsidized through the Property Registry. The worldwide average subsidy for a modern, independent cadastre i s 25 percent o f i t s budget.
6. Client Orientation
1 15. Practically all potential clients o f the Property Registry interviewed complained about the difficult access to information and the lack o f transparency o f the procedures. In fact, neither the physical cadastre nor the Property Registry offers online information to their clients. Only recently, the property registry in Managua has microfilmed a considerable part o f i t s registry books, which are now available online for consultation. However, this process was stopped due to the shortage o f financial resources. Under these circumstances the implementation o f the SIICAR can signify a quantum leap in terms o f client orientation. Like in El Salvador and Honduras, where similar computerized systems have been fully or partly installed, once implemented, the SIICAR wi l l not only significantly simplify the registry process itself, but will also allow the customers to follow every step o f the registry process online, a measure that will by i tse l f significantly increase transparency.
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D. Reform Proposals: Options and R i s k s
1. Creating the Legal Basis for a Modern Property Registry System (Ley de Registro)
116. In 2001 the Supreme Court presented a proposal for a new Registry Law (Proyecto de Ley General de Registro Ptiblico) to the National Assembly. The proposal was revised and commented on by the legal committee o f the National Assembly and approved for revision in the Plenary in November 2004. In 2005, the Plenary started the final process o f revision, article by article, and introduced a series o f changes in the new law. Until November 2005 about 70 o f the total o f 114 articles were revised. Since then no further action has been taken in the National Assembly.
1 17. registry by:
The proposed law creates the conditions for the modernization o f the property
Establishing the National Registry System (Sistema Nacional de Registros, SINARE) under the new General Directorate o f Registry (Direccidn Nacional de Registros, DNR);
Laying the foundations for the future financial autonomy of the registry by prescribing that the revenues generated by the public registry will be directly allocated to the SINARE (additionally to the 4 percent o f the national budget allocated to the Supreme Court); and
Enabling the DNR to use modern information technology (exchange of electronic information, electronic signature).
118. These three innovations represent a major step forward in the establishment o f a modern, client-oriented property registry. The proposed law, however, does not yet lay the foundation for the institutional integration o f the cadastre and the Property Registry. Even though a study tour to the Centro Nacional de Registros (CNR) in El Salvador in 2004 generated considerable enthusiasm among the participating government officials and legislators, in the end no consensus was reached on this issue. The main reason for this was that the Government did not want to give the Supreme Court additional power in land related issues. This would have been the case because the Supreme Court would de facto have absorbed the cadastre under the model presented in the new law. Subsequently, the idea o f introducing the integrated system already in the law was dropped.
119. The proposed law has a number o f further limitations. It does not create the Public Registry as an autonomous agency, but as a General Directorate o f Registries (DGR) under the Supreme Court, and the Supreme Court will continue to exert major functions in the operation o f the National Registry System (Sistema Nacional de Registros, SINARE), such as the selection and appointment o f registrars. This significantly reduces the administrative authority o f the future General Director o f
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Registry. Also, the new law i s not very precise about what institutions belong to the SINARE. Even though the law foresees the reflow o f the income generated to the SINARE, it does not clearly define whether the funds will be allocated directly to the DGR or to the Supreme Court (and for which purposes).
120. Two more controversial issues considered in the National Assembly were: (a) the overall character o f the inscription o f the properties as declarative (declarativo) or constitutive (constitutivo), and (b) the supplementary titles. Regarding the first, if the inscription o f t i t les i s considered to be “declarative,” this means that property tit les do not necessarily have to be inscribed in the property registry, whereas if it i s considered “constitutive,” all property tit les by law will have to be inscribed in the property registry. Even the current legislation on this point i s interpreted differently. Whereas some parties maintain that the Civi l Code o f 1904 and subsequent legislation declare the overall character o f the inscription process as declarative, others say it i s constitutive. The decision on this issue i s o f major relevance. At the moment it appears that the majority o f the involved (including the Supreme Court, which presented the law), want to see the law define t i t le inscription as “constitutive.” This would improve the conditions for a more transparent and dynamic land market, but on the other hand-as the opponents maintain-it carries the risk o f bringing to the fore additional and “unnecessary” land conflicts. With respect to the “supplementary titles,” the discussion has also been difficult, and at some point it was even considered not to explicitly treat th is issue in the law. I t was, however, in the end decided to maintain the option o f supplementary titles, but to strictly regulate their implementation in order to avoid further abuse. The proposed law was finally amended in that sense.
121. Despite these limitations, the approval o f the new Registry Law i s a necessary, urgent, and important step forward in the creation o f a modern public registry. The SIICAR and the associated software package are currently being designed. The first test version i s expected to be ready in June 2007, and after a trial run the final implementation i s planned for 2008. As long as the new registry law i s not approved by the National Assembly, this will not be possible. Already the installation o f the trial run will be more difficult without the enacted law.
2. Initiating the Integration of Registry and Cadastre (SIICAR)
122. From a technical point o f view, the institutional integration o f the registry and cadastre in one administratively and financially autonomous agency supported by a jointly used information system would be the best way to guarantee the modernization and sustainability o f the services in the medium and long term. Since this was politically not feasible, PRODEP, in consultation with the Supreme Court and INETER, has opted for a stepwise procedure that would (a) first develop a joint information system (Sistema de Informucidn Integrado Catustro y Registro, SIICAR), (b) implement th is software as a pilot in one or two departments, and (c) promote (on the basis o f the experience o f the pilot project) the integration o f the two registries under one roof and the implementation o f the reformed systems in the rest o f the country.
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123. The first step will allow the simplification o f the inscription procedures once the new Registry Law i s adopted. The consulting firm responsible for the design o f the SIICAR i s already working on this issue, taking into consideration the terms o f both the Civi l Code o f 1904 and the new legislative proposal. In this context, the Nicaraguan authorities plan to reduce both the individual steps to be taken by the applicant by about 70 percent and the time required for the inscription o f a property, from 6 months to 16 days.
124. The integrated use o f the common software by two separate agencies, however, bears some risks. Currently, it i s foreseen that the responsibility for the SIICAR and for the maintenance o f the databases will remain with the Supreme Court. Both the cadastre and registry agencies, though, will have the right to access the system under a joint sharing agreement. It remains to be seen whether this i s sufficient to overcome past deficiencies regarding the security o f the registrykadastral data or whether an institutional integration o f both functions under one authority i s a necessary precondition for this. The present system, furthermore, will not allow a cross-financing o f the cadastre to improve i ts physical and human resource infrastructure. For this and for the expansion o f i t s national coverage, INETER will continue to depend on external support. In the past, however, this has not proven to be a promising strategy for providing institutional stability and sustainability to INETER.
125. Another issue o f concern to private sector clients regarding the future SIICAR i s the security o f the data. A modernized, electronic system creates the conditions for improved data security, but by i tse l f does not guarantee it. The private banking sector, though strongly in favor o f the changes envisioned (new Registry Law, SIICAR), warns o f the complexity o f the security issue after i t s own painful experience with the introduction o f online services, and has offered support through i t s own expert software security team. In addition to a solid software solution, data security requires adequate internal controls. The currently foreseen legal and institutional framework (fragmentation o f hierarchical power among and within the participating organizations) will surely not simplify the task. Though the new law introduces a number o f improvements, such as (a) the establishment o f the DGR as the entity in charge, (b) the creation o f a Special Registry Commission (Cornisidn Especial de Registro) with a minimum o f three Magistrates as members to oversee and control the DGR, and (c) a provision that makes registry officials legally accountable for errors (which was not the case hitherto), the persisting institutional separation (between cadastre and registry) and the s t i l l blurred boundaries in the definition o f the functions o f the DGR and the Magistrates (as described above) reduces the power o f the Director o f Registry to exert authority, for example, in cases o f abuse.
3. Decentralization o f Land Administration Functions (Cadastral Services)
126. Although in the long term Nicaragua would benefit from having a single agency, under the Executive Power, with administrative and financial autonomy, responsible for cadastre and registry procedures, in the interim, the hitherto underused
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potential o f the municipalities can come to play a major role. The new Cadastral Law adopted in 2006 and i t s regulations not only foresee the municipalities as the entities responsible for the maintenance o f the national cadastral data, but they also allow their integration as service providers in ongoing land regularization activities if they prove that they have the required capacities.
127. The successful integration o f the municipalities into the SNARE, specifically in the provision o f cadastral services, will largely depend on the dynamics o f the municipalization process in this decade. The Ley de Transferencia Presupuestaria a 10s Municipios o f 2003 guarantees the transfer o f up to 10 percent o f the national tax receipts to the municipalities. The amount received by each individual municipality, however, i s linked to a number o f criteria, two o f which are “efficiency” criteria, referring to (a) the efficiency o f tax collection, and (b) the efficiency o f the implementation o f municipal policies. The f i rs t provides a strong incentive for the collection o f the municipal tax on local properties (IBI). For this, however, the municipalities need to have their cadastral services in place.
128. In the past, despite the right to collect the IBI, municipalities, in general, have been reluctant to expand the collection o f th i s tax, largely because it i s locally very unpopular. Furthermore, the members o f the municipal council, who are in charge o f creating the conditions for the collection o f the IBI, have l i t t le incentive to do so, especially since they themselves will represent the most strongly effected. Thus, in spite o f broad support through international aid projects, the results o f past efforts to strengthen the municipalities have been rather meager. This, however, seems to be changing, at least regarding the capacities o f the municipalities to collect the IBI. Some municipalities have made considerable improvements, partly due to the countrywide implementation o f a software program (SISCAT). One o f municipalities that has strongly profited f iom the strengthening and modernization o f i t s cadastre office i s the municipality o f Managua, which has increased i ts IBI revenues from 32 mill ion C6rdobas in 2001, to over 70 mill ion C6rdobas in 2004, to 100 mill ion C6rdobas in 2006.
129. Under these circumstances (and in view o f the institutional problems regarding the integration o f cadastre and registry at the national level), the alternative o f relying more strongly on the municipalities as partners in the establishment o f functioning cadastres (and not only in maintaining them) might prove to be an attractive option. This could also be politically feasible given the clear commitment o f the new Government to a more pronounced municipalization process in the coming years.
E. Conclusions
130. The long-term aim o f Nicaragua should be the integration o f cadastral and registration services in one institution, under the Executive power -given the purely administrative nature o f these services- with administrative and financial autonomy.
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Given the political sensitivities involved, a few measures can be implemented in the next few years, which would pave the way for this longer-term objective.
13 1. The approval o f the new Registry Law i s crucial for the implementation o f the institutional reforms initiated by the Nicaraguan authorities and supported by PRODEP. The information system SIICAR represents a first important step toward the integration o f the cadastral and registry services o f the country. The need for a faster, cheaper, and more transparent system o f property registry in Nicaragua i s evident, and the expectations that the SIICAR will provide this are high. The private banking sector has offered support in technical issues and in promoting the new law in the National Assembly.
132. Another important step would be the increased involvement o f municipalities in cadastral-cum-registration services. The legal fiamework already allows them to perform these functions and this should be to their own advantage, allowing them to increase collections o f municipal property taxes.
133. wide and completed as soon as possible.
The cadastral and titling process already initiated needs to be extended country
134. Finally, the authorities could work more closely with the private sector (real estate agents, notaries, banks) to improve the system through training and modernization, in parallel to the strengthening o f the public land administration services. The idea i s to introduce a strategic quality standards to all land administration services providers ( I S 0 like), moving toward a result and client oriented approach.
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CHAPTER IV: OVERSIGHT AND ACCOUNTABILITY MECHANISMS
A. Background
13 5. Nicaragua has advanced significantly in developing and implementing modem core public sector management reforms. The computerized public financial management system (SIGFA) i s currently processing all Central Government financial transaction and about 70 percent o f total public sector expenditures. The recently approved Financial Administration Law (Law 550) sets the rules to govern sound financial management procedures for all public institutions and establishes the grounds for the implementation o f effective accountability mechanisms. More modest advances have been observed in the area o f public procurement. Although the SIGFA system has developed automated modules to process procurement transactions and most o f them are openly published, the necessary normative framework i s s t i l l to be approved and modern e-procurement practices are s t i l l to be developed and implemented.
136. In the area o f human resource management, the country has also made significant progress. A Civil Service Law was approved in 2004 and, although it s t i l l needs to be improved and i t s implementation has been slow, it has initiated a comprehensive reform to professionalize and institutionalize the government’s civi l service. As part o f this program, a merit-based accreditation process was initiated and well advanced during the outgoing administration. Some 5,000 public sector employees have already been accredited under this system as an initial step toward a comprehensive professionalization program.
137. The Nicaraguan Government has also started some practices to promote a more transparent public administration. The Government initially implemented a voluntary disclosure policy, while the Access to Public Information Law was being discussed in the National Assembly. This led to increased accountability in some key areas o f the public sector. The Access to Public Information Law has recently been approved by the National Assembly giving further legal strength and institutional coverage to those initial efforts.
138. Despite progress made in these areas, government effectiveness continues to be the lowest rated among the six dimensions o f governance tracked by World Bank Institute’s governance indicators (see Annex 1 to chapter I). There are serious problems affecting the institutional foundations to promote effective checks-and-balances mechanisms that would lead to adequate control and performance in the public sector.
139. The purpose o f this chapter i s to present the institutional roots o f deficiencies affecting control and accountability mechanisms at two levels: (a) the role and performance o f the Comptroller’s Office, and (b) complementary social accountability mechanisms. Sections B and C deal with each o f these. The analysis o f accountability focuses on their governance and institutional aspects rather than on their technical or procedural dimensions. The idea i s to identify how political and other governance-related
43
problems might be affecting and limiting the independence o f control and oversight institutions in order to identify areas o f reform.
B. Control Systems
1. Background
140. Nicaragua’s control systems for the use o f public sector resources are based on the legal framework and the particular responsibilities assigned to each entity. Operationally, the most important institution in charge o f these responsibilities i s the Comptroller General’s Office (Contraloria General de la Repziblica, CGR). The purpose o f this section i s to ascertain the efficiency o f the control system and i ts transparency to citizens, which i s the key to the system’s credibility. Since it i s citizens’ taxes that mostly finance public expenditures, and at the same time they are the direct or indirect beneficiaries o f such expenditures, the question i s whether the system i s capable o f satisfying citizen expectations. If the answer i s yes, as a whole, they can trust it, meaning that the governance structure will ensure the public sector’s capability o f implementing public policies, especially those that are pro-poor.
2. The Legal and Governance Framework of the Control System
141. The core legal framework o f the Control System comprises two main legal bodies: the set o f laws related to the CGR33 and the Law o f Public Finance Management and Budget Regime.34 Since the foundation o f the Republic o f Nicaragua in 1838, constitutional provisions o f external controls on the incomes and expenses o f the State have been a common prin~iple.~~ The creation o f the Comptroller’s Office in 1979 changed the nature o f the institution from one having a judicial approach to one having an administrative approach. Whereas Decree No. 86 established that the General Controller was to be designated by the Executive, and Decree No. 612 added the figure o f a Sub-Controller, designated by the Executive as well, the amended Political Constitution o f 2000 changed the governance structure o f the institution. After the Constitutional amendments o f 2000, the maximum authority o f the CGR i s i t s Board o f five permanent members and three replacements, elected by the National Assembly (NA) for five years. The CGR has administrative and h c t i o n a l independence, and responds only to the National Assembly. The amendment gives some prerogatives and responsibilities to the Board, although it did not change other articles to adjust the institution’s performance to the new governance structure.
33 The most important are the Law o f creating the CGR (Decree-Law No. 76 dated September 20, 1979), CGR’s Organic Law (Decree 625 dated December 22, 1980)) and the Law o f Reform o f CGR’s Organic Law (Law 361 dated March 21,2001). 34 Law No. 550, dated August 24, 2005. The enactment o f this Law i s the result o f efforts to modernize Public Financial Management in order to improve control o f the financial resources using the formulation and execution o f the budget as the ordering mean. The International Development Association has contributed heavily to these efforts and to the enactment o f this Law. 35 See Annex 1 for a brief history o f the institution and the models o f external control.
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142. The introduction o f the Board and the selection o f i ts members was a result o f a political pact between the two major political parties From the perspective o f the governance scheme, the existence o f a Board means that the decision-making process, even for administrative matters, has to be concerted, and therefore i s slower than in the case o f one authority. Although legally accountable to the NAY in practice it i s not clear to whom the Board i s accountable, since the relationship with the NA i s only related to the nomination mechanics and the presentation o f the annual report.36 Moreover, the Board has been involved in some cases o f a highly controversial political nature, even suggesting the removal o f the President o f the Republic.37
143. The CGR i s part o f the constitutional order o f the Republic. The Constitution establishes that the CGR i s the “lead agency for the system o f oversight in public administration and the stewardship o f State property and resources.” I t s constitutional mandate vests it with the authority to: (a) establish a control system ensuring the due and proper use o f government funds, (b) conduct continuous budget management audits with respect to the nation’s general budget, and (c) oversee, examine, and evaluate the administrative and financial management o f government agencies, state-subsidized agencies and organizations and public or semi-public enterprises. The CGR’s Board and i ts President have the responsibility to report annually to the NA on their activities and findings. However, the Constitution does not say anything about the content o f the information and what the NA should do with it. The CGR has no jurisdictional prerogatives, meaning that, in cases o f presumption o f criminal responsibilities, the CGR has to send the case to the judicial system for prosecution.
144. The Organic Law o f the CGR regulates i ts functions, which are: (a) regulatory; the CGR has chief responsibility for formulating and updating policies and technical standards related to internal control systems for government agencies or institutions; (b) audit; this i s the major activity o f the CGR and i s primarily concerned with compliance audits, including audits o f consistency with laws and regulations, and financial audits; (c) legal; the CGR determines administrative and civil responsibilities and makes presumptions o f criminal responsibility based on i t s findings from the corresponding audits; and (d) anticorruption; this involves the examining and reviewing declarations o f assets by incoming and outgoing government officials and employees.
145. In February 2004, the CGR presented a new draft law to the NA, aimed at: i) giving CGR financial autonomy by assigning to it 1 percent o f the annual public sector budget and ii) strengthening the legal provisions needed to improve the government’s control system. At the time o f this report this draft law i s under review and public consultation by the Ethics and Probity Sub-Commission o f the NA.
Besides, the destitution mechanism i s confusing. In November 1992 the NA tried to remove to the General Controller based on i t s administrative legislation but did not succeed due to a Judicial Resolution which stated that the NA had exceed i ts functions. 37 On October 7,2004 the CGR’s Board enacted a Resolution through which they accused the President o f the Republic o f public fund misuse, established a fine o f 12 months’ salary and suggested his destitution. See, Garcia Omar (2006).
36
45
146. The control system i s complemented by internal controls in each public entity, supported by the external control o f the CGR. The audits’ objective i s to assess the degree to which the entities and public servants have acted in accordance with their functions and responsibilities. In addition, the CGR recommends actions to improve the operations and activities o f the public sector, including public enterprises, public-private enterprises, the National Institute o f Social Security (INSS), the Central Bank (BCN) and others. The system gives responsibility to each public entity to develo ex ante controls, and to the internal audits offices and the CGR to do ex post controls. 38)
147. Law 550 adopts a system o f Public Finance Management (PFM), in order to strength the internal control, efficiency, effectiveness, and transparency o f the use o f public financial resources. The Law regulates all the processes related to the formulation, approval, execution, control, and evaluation o f the General Budget o f the Republic (PGR), as well as the information processes o f public entities’ budgets. The Law clearly recognizes external control as exogenous audits executed by the CGR on the public entities. The Law establishes four sub-systems to implement the financial management system: (a) budget, (b) treasury, (c) public debt, and (d) public accounting. Within the sub-systems, the evaluation o f the annual budget execution i s done by the Ministry o f Finance and Public Credit (MHCP) and the CGR. The role o f the MHCP i s to elaborate and present quarterly and annual reports to the National Assembly (NA) and to elaborate an annual report on the budget execution, including the financial statements o f the public sector, and send it to the NA and the CGR, no later than March 31 o f the new fiscal year.39 On that basis, the CGR has to express i ts opinion no later than end-September. Up to now, the MHCP has been dutifully elaborating the reports, sending them to the NA and publishing them on the internet. Until very recently, the CGR had never conducted a proper audit o f budget execution and the NA had not enforced the CGR’s legal mandate in this respect.
148. The first audit report o f budgetary execution following national government audit norms -which in turn incorporate important aspects o f international audit standards- corresponded to fiscal year 2005 and was sent to the National Assembly in May 2007. At the same time, the CGR issued 19 partial reports on an equal number o f institutions subject to the public budget regime. These reports have been published in CGR’s webpage. This effort was financed by the international cooperation. It i s fundamental that the annual audit exercise be financed on a sustainable basis and concluded according to the timing provisions o f Law 550, in order to contribute to the formulation o f the next annual budget. In addition, the scope of the annual audit needs to be improved by including a single auditor’s opinion over the situation o f the saving-investment account,
38 In the literature about the approach o f the system control, internal control objective i s the provide tools to the management on the achievement o f the institutional objectives, part o f i t s framework are the policies and procedures are established and implemented to help ensure the risk responses are effectively carried out. In some countries internal control i s associated mainly with the existence o f ex-ante controls. Internal Control i s defined by the COS0 report as: “Anything which supports people in their efforts to achieve the objectives o f the organization” 39 In Nicaragua the fiscal year begins in January and ends in December.
46
which should consolidate in a single account the financial situation o f the overall non- financial public sector.40
149. Concerning the auditor’s findings in the 2005 budget audit report, despite the fact that the CGR sent the audit report to the legislative branch, the latter has not used it to improve budget formulation and control over the executive branch. This might be explained by the significant time lag between the report’s delivery and the formulation o f the next budget. Since the executive branch has no indications from the legislative branch, based on the CGR’s recommendations, about possible deviations from legal mandates by executive agencies, it does not have incentives to improve i t s internal control mechanisms. Therefore, the system has not been fulfil l ing i t s purpose o f improving the quality o f overall budget formulation and execution based on audit work. Regarding the audits o f the 19 institutions, the CGR sent to the principal authorities o f the audited entities a Board Resolution indicating a term o f 90 days to comply with the recommendations, mostly concerning improvements in the internal control systems. In this sense, the exercise has been positive, promoting an analysis, discussion, and solutions to the shortcomings o f the control systems within the affected institutions, as well as at the CRG.
3. The Execution of Internal Control Functions
150. Regulatory Function. Although the internal control procedures are an internal responsibility o f each public agency, it i s up to the CGR to establish procedures for coordinating and evaluating the operations o f internal auditing units, allowing for the presentation o f relevant recommendations to audited agencies. Up to the end o f 2006, 57 entities had advanced to various degrees in adopting international audit norms, o f which 26 entities had finished this task. On the other hand, out o f 153 municipal governments, 145 were certified, o f which 68 had complied 100 percent o f the requirements and eight municipalities had not sent any certification report. This level o f compliance (even under the indulgence o f a self-assessment methodology) implies that the preventive control system falls short and there i s s t i l l a wide scope for discretionary decision-making, in spite o f the relative stability o f the internal audits units.41
151. Since the executive authorities o f each agency decide the budget amounts for the internal audit unit, they can guide i ts work. Empirical evidence shows that budget allocations are generally poor and the approval o f the operational plans i s only valid for the current administration and not in the case o f political changes. Generally, the executive authorities consider that the internal audit un i t s have no clear functions and are viewed more as obstacle that as support un i t s to improve institutional development.
40 In spite o f progress in the implementation o f PFM reforms, the information system (SIGFA) s t i l l does not allow to get the consolidated saving-investment account. Addressing this i s a priority for the MHCP and the CGR. 4 1 Article 59 o f the Organic Law o f the GCR states that any auditor o f the internal audit unit o f any agency cannot be removed without CGR’s authorization.
47
152. The audit function. The main function o f the CGR i s to plan, implement and supervise audits o f public entities. The CGR has an annual audit plan, which i s based on geographical terms rather that on risk analysis. This i s one aspect o f the problem. Another aspect i s that the plan i s not followed. Table 4.1 shows the distribution o f executed audits included or not in the plan, during the period 2003-2005.42
Table 4.1: NICARAGUA-CGR Total Audits included in The Annual Audit Plan in 2003-2005 (in numbers and percentages)
~ o t a i Total Other Annual Pian Other Annual
Type Pian Year
*/The operational audit (OP) was on the Bank's Superintendence about the bankruptcy of four private banks. SP: Special audit ... SOURCE: Bank's Staff estimations on CGRs data.
153. The law gives CGR enough flexibility to deviate from the annual plan and rather to respond to accusations, non-programmed special audits, emergencies and other situations. In fact, most o f CGR's audits originate in accusations and media scandals. Table 4.1 and Figure 4.1 show the source o f CGR's audits for the period 2003 to 2005. Even though Table 4.1 seems to show that the importance o f the audit plan has been growing, in 2004 and 2005 there are some audits that were planed in previous years, so the planed audits for those years are inflated. In fact, the main sources o f CGR audits are accusations and Board resolutions, and the later often have accusations and media scandals as i ts main source too.
Figure 4.1 NICARAGUA: CGRs Audits Origin Sources in 2003-2005
Evaluation of External internal control Audit Firm
* P / o Accusations 18% 37%
UIA Report Board Resolution 13% 30%
SOURCE Bank's Staff estimations on CGR Data.
154. A serious efficiency problem arises when the leading trigger for audits i s accusations. The problem i s that the institution assigns i ts resources in cases that are
42 See Annex 3 for the Planed Audits not performed.
48
weak related to potential results, leading to economic loses as well as loss o f ~redib i l i ty .~~ This i s illustrated in Figure 4.2, which presents the relationship between number o f audits and amount o f fines in 2005.
Year
Figure 4.2: Correlation between Number of Cases and Amount of Fines Collected in 2005
Public TY pe of Derived Offences Amounts Type Servants Responsiblllty Involved Civil Criminal
Total
C P C8P A W C$ I US$ C$ I US$ SP, 1 OP I 3332
92% 90%
80%
70%
60%
50%
40%
30%
20%
10%
0% PUBLICSERV MUNlClPALlM CENTRALGOV PUBLENTPRISE BANKRUPTCY AUTONOMOUS UNIVERSITY SPTnDA' I lnlPl
REGION IOAmounts QCases SOURCE: Bank's Staff estimations on CGR Data.
155. The CGR i s trying to strengthen the planning process, basing i ts audit sample on risk factors and giving greater weight to planned audits. For example, the special audits for 2007 have been selected according to the seriousness o f the problems with the internal control systems found during the implementation o f the 2007 budget audit
Table 4.2: CGR Results o f Audits by Legal Responsibility in 2003-2005 (In numbers of audits and amounts in millions)
SOURCE: Bank's Staff estimations on GCRs data
43 There are some cases where the amount o f fines collected i s less that US$4,000.
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156. The audit process ends when the audit report i s sent to CGR’s Legal Department, which provides legal fimdamentals to the auditor’s opinion and validates the types o f responsibility concluded (i.e. civil, criminal and admini~trat ive).~~ Table 4.2 shows the types o f responsibility that the CGR’s established during 2003-05. As the table shows, most o f the findings relate either to administrative faults or find no responsibility (66 percent in average), another indication o f the weakness o f the planning system.
157. The final result o f CGR’s work depends on the Judicial Power, which has the authority to prosecute people suspected o f wrong-doing and collect effectively the amounts owed. The sad story i s that today no resources have been recovered by the State and there i s nobody in prison as a result o f this control system. The recovery o f the amounts i s the responsibility o f the Attorney’s General Office, who has brought some cases to court, but judges have ruled that CGR’s Resolutions are not “Executive Titles,” and therefore not valid for forceful collection. According to those rulings, i t would be necessary to ask the Ministry o f Finance to confirm CGR’s work, which would require a new investigation. This has not been done to date.
4. Conclusions
158. The impact o f the CGR in the accountability system i s marginal both because o f the way it chooses what audits to conduct and i t s l i t t le ability to pursue crimes against the State. Internally, at the CGR, the lack o f concrete results also causes low morale, because even if the CGR had the best risk-based systems to choose audits, the final result depends on the judicial power. Therefore the problem i s not the sole responsibility o f the CGR, rather i s a problem that needs to concurrence o f three State powers (Executive, Legislative and Judicial) to be solved. The State i s confronting a high opportunity cost in waiting for the recovery o f resources, deter crimes and improve both public policies and the public’s credibility in the political and institutional system. The improvement in the system requires a broad agreement and understanding o f CGR’s objectives among all branches o f government and civil society.
159. Nevertheless, the CGR could improve the preventive system monitoring and training public institutions to implement international audit norms and standards to have better internal controls. The Executive Power could also contribute to this effort by strengthening internal control un i t s in various government agencies, preparing them to provide advice and recommendation to the authorities on how to comply better with regulations, improve the efficiency o f public operations and prepare accurate and reliable financial reporting. Conversely, the highest authorities o f executive agencies need to perceive their internal audit reports as tools for a better administration, so a n awareness campaign within the public administration to understand the added value o f the internal control function would be needed.
160. Since CGR’s mandates are multiple and the institution i s weak, it needs to focus i t s resources and efforts on i ts most important tasks and the ones that are most likely to
44 The CGR’s Organic Law (article 10, number 17) allows it to determine three types o f responsibility: administrative, civil, or presumptively penal.
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yield control improvements. From this perspective, the emphasis needs to be on the annual audit o f execution o f the national budget. The CGR’s annual budget should be approved with the inclusion o f sufficient and predictable resources for this purpose.
C. Social Accountability Mechanisms
1. Introduction
161. The Constitution establishes the right o f Nicaraguan citizens to know how public resources are used and to receive any information they request about public matters. Nicaragua, as a democratic country, has been promoting the participation o f civil society in the policy making processes to reinforce the democratic system and improve the governance o f the country. Nicaraguan Civil Society Organizations (CSOs) have focused their efforts on two main issues: (a) debate and approval o f a Freedom o f Information Law (FIL); and (b) the design and implementation o f social accountability processes, especially at the municipal level.
162. The objective o f this section i s to describe the institutional arrangements for these social accountability processes and their effectiveness. Three areas are discussed: (a) the legal context for civil participation, (b) a summary o f the actions that CSOs engaged in to secure passage o f the FIL, and (c) the most significant social audit initiatives. A few conclusions are then presented.45
2. The Legal Context for Civil Participation
163. According to i t s Constitution, Nicaragua i s “a representative and participative democracy.” 46 This means that Nicaragua’s Constitution mandates that the country’s style o f democracy i s beyond the democratic practice to vote to elect authorities from time to time, and states the right o f citizens to request and interact with different government authorities and institutions. Civi l participation i s meant to be the social process by which the organized population mobilizes, interrelates, and influences public policies. Several laws refer to civil participation as a right, o f which the most important are summarized below.
Constitution of the Republic of Nicaragua (1987 and amendments)
164. Several articles o f the Constitution provide for various forms o f civil participation, ranging from the democratic principles o f the nation, to specific processes such as plebiscite and referendum, the right to be informed, to petition, to make accusations, to participate freely in the political process, to create organizations, to present bills, and to be included in consultative councils such as the Economic and Social
45 Unions, although an important influence on governance and policy decisions, are not covered. They are, however, an area for k t u r e study. 46 Arts. 2 and 7 of the “Constitucidn Politica de la Repziblica de Nicaragua” (1987 and amendments). At: http://www.asamblea.gob.ni.
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Council (CONPES).47 Although the articles might appear general, the Constitution recognizes and emphasizes civil participation as fundamental to the development o f the nation. The provisions embody the principles that are developed in specific laws.
Law of Civil Participation (2003)
165. The Law o f Civil Participation comprises principles and procedures for participating in the formulation o f bills at the local, regional, and national level. It also regulates civil participation in the formulation o f public policies at various stages, civil consultations at the local level, and citizen participation in the formulation o f the Municipal Investment Plan and Development Strategy. The legislation establishes that these rights do not limit the development o f new forms o f participation. Furthermore, it states that when new governmental entities are created, they have to establish civil participation processes related to their functions. This law also mentions the right o f citizens to report irregularities committed by public servants.48
Municipalities Law (1997)
166. Citizens are seen as the cornerstone o f the Municipalities Law. According to the Law, the Municipal Government, “guarantees participative democracy with autonomy,” and emphasizes civil participation for the creation o f and membership in the Municipal Development Councils.49 The Municipalities Law provides the opportunity for citizens to participate individually in public councils, or as groups o f individuals through different entities. I t also includes provisions for creating another form o f citizen participation by requesting periodic reports on the execution o f projects. The law mandates the recognition o f the formal and traditional authorities o f indigenous communities. Article 40 o f the Law prescribes the procedure a citizen can follow if he or she feels wronged by the action o f a Municipal authority and wishes to take action against him or her. The principle o f “positive silence” applies: if the Administration does not question the claim, it i s considered resolved in favor o f the claimant.
Law of Organization, Jurisdiction, and Procedures of the Executive (1 998)
167. The Law o f Organization, Jurisdiction, and Procedures o f the Executive defines the general structure o f State Power, authorizes the President to create sector cabinets with the option o f including members o f civil society, and defines the membership o f the Economic and Social (CONPES). The Law allows citizens who feel wronged by a decision o f any authority or institution within the Executive to pursue legal recourse through two processes: review and appeal. The law also allows suspension o f the administrative decision or action in order to initiate the correspondent appeal for legal protection or administrative litigious procedure.
47 A r t s . 2, 7,48,49, 50, 52, 55, 66,99, 140, and 150 o f the Constitution.
2003. A r t s . 82 and 83, Ley de Participacidn Ciudadana, La Gaceta: Diario Oficial, No. 241, December 19,
Arts. 3 and 28, Ley de Municipios, La Gaceta: Diario Oficinal, No. 162, August 1997.
48
49
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3. Freedom of Information Law
168. This Law was approved in May 2007, after considerable work by the Grupo Promotor to generate a general consensus among the governmental and civil society spheres. The Grupo Promotor, led by the Violeta Barrios de Chamorro Foundation, organized at least 20 seminars to consult and disseminate the draft law. Throughout this process, the Judicial Commission o f the National Assembly objected that the provision on personal information regarding assets o f public employees was risky and contrary to citizen’s rights to privacy. The Commission pointed out that sensitive information regarding asset declarations o f public servants would be fully disclosed if the draft FIL was approved. The Grupo Promotor disagreed with the Commission’s opinion, arguing that one o f the most important objectives o f the draft law was that it be used as a tool to fight against public officials engaging in corruption, as provided by the Inter-American Convention against Corruption (ICAC).”
4. Social Monitoring of Public Goods and Public Services
169. Since 1999, several Nicaraguan CSOs have been systematically applying social accountability processes at the municipal level, especially in small communities.” One o f the reasons for the municipal focus i s that at this level it i s easier to promote the participation o f citizens because public actions affect them directly. The main concerns o f citizens are: (a) the provision o f public goods, such as paved streets, public parks, markets, security, and so forth; (b) the quality o f certain public services, such as education, health, and waste management; and (c) the participation decisions regarding allocations o f the municipal budget. There are at least nine significant experiences on social accountability mechanisms in the country, some triggered by public sector programs and some by CSO initiatives, each with i ts own methodologies and results. The following paragraphs describe them.
Social Emergency Investment Fund (FISE) Programs
170. The FISE finances public investment projects in rural communities. Accountability processes are integrated into FISE’s projects based on a model o f Community Driven Projects (CDP), which promote civil society participation at each stage o f the project’s identification, formulation, and execution. The initial initiatives were the Patronatos Escolares, to supervise the construction o f educational infrastructure. The CDP methodology includes community organization, training, technical assistance to the community to deal with technical and administrative factors, resource transfers to the communities, local government involvement to ensure the
~~~ ~ ~
The ICAC was signed by Nicaragua in 1996 and endorsed by the National Assembly in 2003. 51 The most relevant experiences in the recent past were: (a) monitoring o f urban and rural municipalities in the aftermath o f Hurricane Mi tch in 1999, (b) a more or less systematic monitoring in 2001 at the municipal level, and (c) processes led by the Coordinadora Civil and Red de Desarrollo Local to monitor and oversee the Poverty Reduction Strategy in 2002 to 2003.
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financial resources for further maintenance o f the investments, and community counterpart financing o f 5 percent o f the total cost o f the project. This model allows communities to oversee project execution through a direct relationship with the contractor selected by FISE to build the project.
17 1. A characteristic o f this model i s that community participation ends once the project investment stage finalizes. However, this mechanism has allowed rural communities to have a voice in the decisions on how their priorities should be included during the projects’ cycle. Results show that under this methodology, social infrastructure -schools, health centers, public parks- has achieved better quality standards without significant delays. However, this model can be improved by enhancing the way the supervision committee i s selected, which i s currently subject to collusion risk, and by ensuring broader participation o f the committee not only in the supervision phase, but also in the decision making phase about project selection vis-a-vis community priorities, as well as during the operational phase.
Ministry of Education (MOE) Programs
172. The MOE initiated a reform process in 1993 with the objective o f improving the quality and coverage o f education in the country. The process i s based on the assignment o f certain responsibilities to parents, teachers, and students in the school management through the Consejos Directivos Escolares (CDE). To make the reform permanent, the Nacional Assembly approved the School Autonomy Law, which formalizes the decentralization process. The participatory model i s based on two pillars: (a) the institutional pillar composed o f the Centros Escolares Autonornos (CEA) and Municipal delegations o f MOE, and (b) the participatory level to implement social accountability processes through CDEs and the Municipal Education Committee (MEC), which in turn i s part o f the Municipal Development Committee (MDC). Both mechanisms determine all the activities to foster quality education.
173. The new government has expressed concerns over this system, on the grounds that parents in some school districts are being asked to make financial contributions whereas public education should be free. There are also concerns that parents have too much power over academic themes. Both issues put in question the governance structure o f the CDEs. Also, i t i s important to update teachers and school directors on school management issues, and to design and implement better communication tools among the executors, controllers, and beneficiaries. Despite some governance weakness, the involvement o f parents and students i s considered very positive for the general improvement o f educational services.
Ministry of Family (MOFL) Programs
174. The MOFL i s implementing the Program o f Integral Attention for Children (PAININ) to promote the participation o f poor famil ies in order to improve the education and health services for vulnerable children. The program i s executed by nongovernmental
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organizations (NGOs) under the supervision o f parents, who implement social accountability mechanisms in the planning processes as well.
175. PAININ’s objectives are: (a) to improve the quality o f the integral services for children under age 6; (b) to permanently improve the quality o f the program; and (c) to strengthen the institutional framework o f the program. The institutional arrangements are based on two actors: (a) the Municipal Committee for Children, composed o f the MOE, the Ministry o f Health (MOH), and NGOs, all responsible for program development; and (b) the involved families. Both actors have functions manuals and receive training on supervision, participatory methodologies, and administrative management. The results are good because the program assists very poor people and helps parents improve the quality o f l i fe o f their children. Moreover, parents have more time to spend looking for better economic opportunities to increase family income.
Ministry of Health (MOH) Program
176. The MOH, based on the Health Sector Law, promotes social participation to improve the quality o f the services that the health system provides to citizens. The law establishes the responsibilities o f civil society actors like the Municipal Health Committees (MHC) and Departmental Committees. The model o f participation i s based on: (a) the constitution o f focal groups to conduct social accountability processes to evaluate the quality o f the health services at the municipal level; (b) a survey to learn about customer perceptions o f service delivery; (c) systematization o f the survey; and (d) monitoring and evaluation o f activities o f the work o f the health brigades.
177. One aspect that weakens the initiative for the community i s the lack o f access to budget sector information to improve the planning and supervision processes. Also, the institutional weakness o f the M O H to take into account the results o f the social accountability processes reduces the motivation o f the participants. Both aspects affect the levels o f ownership, thus increasing sustainability risk.
Economic and Social Council (CONPES)
178. The CONPES i s a constitutional entity, chaired by the President o f the Republic. The Council members include representatives o f many organizations, such as labor unions, the private sector, autonomous regions, social organizations, and other CSOs. Government participation in CONPES depends on the discussion area. CONPES i s represented in five sector cabinets: production, infrastructure, social, governance, and economics. The main role o f CONPES i s to express opinions on the reform processes that are part o f the government program, such as the Poverty Reduction Strategy (PRS). One o f the main contributions o f CONPES in the context o f social accountability was the monitoring o f expenditures o f the HIPC resources in 2001. One o f the most important areas for civil society impact on future policy decisions through CONPES i s the decentralization strategy.
The Coordinadora Civil Experience
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179. The Coordinadora Civil (CC) i s a group o f about 300 CSOs with various aims that i s active in Managua and in other departments o f the Nicaraguan Republic. The CC promotes various accountability processes using different methodologies. A good example i s the case o f municipal monitoring through store-cards in 21 municipalities. This initiative has involved several member organizations o f the CC and has received IDA support. Further, with the assistance o f NGOs, the communities have conducted training courses on social auditing. The results o f the application o f the store-cards are scant in terms o f quantitative evaluations, because the CSOs have not processed the data they collected during the application o f the methodology. Therefore, it i s not possible to conclude whether this social audit mechanism based on store-cards has had an impact on public policies to improve the provision o f public services.52 This experience illustrates that the process o f modernization o f the State requires effort and sharing o f information not only from the public sector but also from CSOs.
The Etica and Transparencia Experience
180. Etica and Transparencia i s the local chapter o f Transparency International. I t s main objective i s to monitor elections and promote electoral participation through a network o f volunteers. Lately, i t has started an initiative to oversee the competitive processes o f acquisition o f goods and services o f the Ministries o f Education, Health, Transport and Infrastructure, and a few municipalities, and to promote social controls o f acquisitions and hiring by the public institutions. The initiative seeks to achieve six results: (a) to have a more transparent public sector, especially in the Ministries o f Education, Health, Transport and Infrastructure, and municipalities; (b) to improve the institutional knowledge on the quality o f the transactions and processes o f purchases o f the State; (c) to improve the acquisition o f works and services with higher quality; (d) to foster social control; (e) to increase citizen participation in the pursuit and denunciation o f irregularities described as corrupt actions; and (0 to apply the results and methodology in other organizations at the national and international level. The initiative recently signed cooperation agreements with the mayors o f North Santo Tomas, San Marcos, Diriamba, Rosario, and Masatepe.
5. Conclusions
181. Civil participation in social audit mechanisms in Nicaragua i s high. There are several participatory movements and institutions that are concerned with government accountability, both at the local and national level. However, the participatory processes are not strong enough to influence national policy decision-making, Therefore, the results depend on the quality o f the intervention and on the political will o f the authorities to use
52 In the Municipality o f Malpaisillo, 424 people completed the application o f the scorecard in the second semester o f 2004. The methodology used a scale o f 1 (very bad) to 5 (excellent) to assess the evaluation o f education and health services. The results show that in education the variables o f (a) learning capability received 3.29, close to average; (b) infrastructure received 2.75, between poor and average; and (c) social participation received 2.85, between poor and average. However, it i s unknown if policies or implementation methodologies changed after the social audit processes o f 2005 and 2006.
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the results o f the various social accountability initiatives to improve public policy-making and implementation o f public programs.
182. Despite the fact that the prior government developed and implemented a voluntary Freedom o f Information initiative, until now civil society has confronted problems understanding the implications o f available public information, particularly related to budget execution and i ts distribution. Clearly, the lack o f access negatively impacts the accountability process, which, in the end, affects the quality o f the public policy intervention and the services provided. The recently approved Freedom o f Information Law could constitute a major step to ensure the accountability o f the Government to any interested citizen. Regular publication o f poverty reduction indicators and MDGs in a simple format would be an advisable f irst step. Further, the efforts to reform and modernize the State now have a potential feedback mechanism to improve their scope and results, through the use o f consultation mechanisms prior to adoption o f policies. These consultations can and should be undertaken both by executive and legislative agencies.
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Chapter I - Annex 1 Monitoring Governance: Indicators and their Use
1. Nicaragua i s a country with numerous institutional and governance challenges. Figure 1 shows progress in the six dimensions o f Governance regularly monitored in “Governance Matters. ” 53
Figure 1: Nicaragua, Evolution of Governance Indicators (1996-2005) NICARAGUA (2005)
Government Effectiveness
Regulatory Quality
Rule o f Lau
Control o f Corruption
e 25 i e 75 : ie Conparison betueen 2885, 2884, 2883, 2082, 2888, 1998, 1996 {top-botton order)
Country‘s Percentile Rank (8-188)
Source: “Governance Mutters V,” World Bank Institute (2006).
2. As the chart shows, there was significant progress in most dimensions o f governance during the early 2000s and Nicaragua i s no longer among the lowest 25 percent o f the 213 countries surveyed, in any o f the six dimensions. Further, while the aggregate data masks some important details, it i s fair to say that there has been notable progress on issues related to public sector management, in particular public financial management. Nevertheless, overall performance in most o f the six dimensions i s weak and progress in some o f them has been either stagnant or deteriorating lately. The weakest dimensions o f Nicaragua’s governance are government effectiveness and the ru le o f law. The former has several components but the most notable i s probably related to the effectiveness o f poverty reduction programs and the low quality o f public services. These
53 The latest Global Monitoring Report 2006 (GMR) chooses a different set o f 14 indicators to measure various dimensions o f governance. We have chosen the WBI indicators instead because historical data and regional averages for the GMR indicators are not immediately available. The main IGR w i l l further explore various governance data sources.
58
issues will be examined in the PER and PA. These IGR examines a few areas where the situation has deteriorated considerably in recent years, l ike the regulatory environment, or has not advanced sufficiently quickly, l ike the system o f protection o f property rights (an important component o f the sub-indicator “rule o f law”).
3. It must be borne in mind that these indicators are mostly based on perception surveys and hence are not intended to point into what policies should be implemented. Nonetheless, they are useful indicators o f the major areas o f attention. Furthermore, the WBI indicators are based on other indicators, which are used for important decisionmaking purposes by international organizations and the private sector. Some o f these decisions include the amount o f aid resources to be assigned to the country, the country’s investment risk and interest rates charged by some industrialized countries on loans made to Nicaragua. For th is reason, the country would benefit from constant monitoring o f these indicators. With this purpose in mind, Table 1 attached to this Annex provides the detailed l i s t o f indicators used to construct the W B I governance indicators, their definition, where can they be found and their evolution in the case o f Nicaragua in the past few years. Table 2 o f this Annex presents the decision-making process and the governance indicators used by 3 international organizations, including the International Development Association, in determining aid amounts or investment decisions regarding Nicaragua.
59
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Chapter I - Annex 2 Country Governance Background
A. The Political System
1. Basic features
1. The formal lines o f Nicaragua’s political-institutional system are clear-cut. Most notably, the country’s democracy i s constitutional, presidential, and repre~entative.’~ But while unambiguous in i t s formal design, l ike in many other countries, the system i s in practice a complex hybrid o f informal and formal relationships. In presidential systems, although the executive enjoys extensive prerogatives, the various branches o f government remain independent. In Nicaragua, the system functions as a mix o f presidential and parliamentary systems. Also, in representative systems, citizens elect and eject their leaders from office, and leaders in turn both make binding decisions on behalf o f their constituencies and are accountable to them. In Nicaragua, the electoral principle i s much weightier than the accountability principle.
2. The country’s political and institutional degree o f consolidation remains unclear. Consolidated formal systems are typically stable, even predictable. Moreover, when formal systems are closely entwined with robust institutions, even if these are informal, it i s the resilience and legitimacy o f the hybrid i tse l f that i s tested over time. Nicaragua’s hybrid system i s characterized by a duality o f political power, but this duality i s subject to frequent renegotiation and contestation. Moreover, when observing reforms that alter: (a) the structure or functions o f the state, (b) the rules o f the game (regime), andor (c) the distribution o f resources and power; the Nicaraguan political system exhibits a strong propensity to reform and institutional volatility. The number o f major institutional reforms in recent years -covering a range o f administrative, electoral, judicial and political domains, and instituted through changes to the 1987 Constitution and the Electoral Law No. 33 1 - i s striking.
2. Electoral Politics
3. In the electoral process, Nicaraguan political parties, pressure groups, civi l society groups, and the electoral branch (Supreme Electoral Council, SEC) fulfill their roles relatively well. Elections are competitive and binding. That is, candidates wage vigorous electoral campaigns, the press provides ample coverage, political parties get out the vote, voters are free to cast their ballots, the tallying proceeds without gross irregularities, and the losing side accepts the outcome. O f course, the degree o f anxiety and mistrust among contenders varies from one electoral cycle to another, and complaints are lodged with the SEC. But no deliberate misconduct sufficiently serious to de-legitimate an election has been established since the transition to democracy. All four major elections held in the last decade and a half -1990, 1996,2001, and 2006- have been regarded by international observers as generally fair. Among those that have given their seal o f approval
54 The Nicaraguan Constitution establishes four constitutional branches: Executive, Legislative, and Electoral.
are the
Judicial,
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Organization o f American States (OAS), the Carter Center, and the European Union (EU). As a result, four different administrations (Chamorro, 1990-1 997; Alemh, 1997- 2001 ; Bolaiios, 2001-2007; and Ortega, 2007-) have been duly installed, incrementally establishing a solid record o f electoral continuity and peaceful transfers o f power.
4. Other functional aspects o f Nicaraguan elections deserve note. The emergence o f new and effective contenders, for example, points to considerable organizational and adaptive capacity on the part o f the country’s political class. The performance o f all the major contenders suggests that the electoral landscape, though apparently polarized, includes a sizable mixed middle. Two electoral poles became discernable in the 1990s, FSLN loyalists at one end and the hard opposition at the other. But opinion surveys also have shown the persistence o f a multi-class segment that holds ambivalent and/or intermediate views, and identifies with neither pole. Waves o f surveys conducted by CID/-Gallup (November 1997 to March 2004) indicate that the FSLN and the PLC jointly capture the loyalty o f 45 to 60 percent o f voters during periods between elections, while a sizable 40 to 55 percent o f the electorate remains undecided. Partly in response to this unmet demand (and partly because defeated presidential candidates that garnered at least 1.1 percent o f the national vote were entitled until recently to a seat in Congress), political parties proliferated. Twenty three parties and coalitions in addition to the Sandinista and Liberal contenders participated in the 1996 elections. But these small, disparate groupings failed to reach undecided voters with a compelling alternative, and by election time most o f the undecided chose to align with one o f the two poles.
5. Similarly capabilities were subsequently deployed by internal challengers against the traditional leaders o f the two major parties. Their respective splinter parties and coalitions-the Movimiento de Renovacion Sandinista plus i ts smaller allies (Alianza MRS) and the Alianza Liberal Nicaraguense (ALN)-both made their presence felt during the 2006 electoral campaign (Table 1.1). The 2006 results suggest that the prospect o f catching this floating mixed middle i s a realistic goal. From a systemic perspective, however, the results also show a fragmented electorate.
. , , Party not yet formed, already dissolved, or not important in terms o f votes received. * Guillermo Osorio o f Camino Cristiano received 4 percent, Noel Vidaurre o f the Partido Conservador (PC) received 2.26 percent, and a group o f about 20 candidates wi th under 1 percent o f the votes each collectively took 4.9 percent o f the total.
Source: Consejo Supremo Electoral.
** Electoral reforms show their consolidating effect.
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6. Congress presents a similar picture. The National Assembly seats 92 deputies. O f this total, 90 are elected from party lists. The other two places are reserved, one for the outgoing president, the other for the runner up in the presidential race. In the most recently installed National Assembly (January 2007), the FSLN holds 38 seats, the PLC 25, the ALN 24, and the MRS 5. Hence, no single bloc i s strong enough to legislate effectively without the cooperation o f another. This has important consequences for legislative recommendations arising from the substantive chapters o f th i s Review, as well as other legislative decisions, but at the same time the need to reach political consensus to approve legislative measures can be regarded as a welcome sign o f their staying power.
7. A salient characteristic o f contemporary Nicaraguan politics i s that the parties situated at either end o f a left-right ideological spectrum, though presumably separated by the greatest ideological and partisan distances, are better able to cooperate with one another than with those that stand closest to them. This suggests that Nicaraguan politicians do not fit the “normal” pattern -European or American style- o f ideology- based norms and behavior. Furthermore, the PLC and the FSLN appear to have established a power duopoly, but one that i s both renegotiable and contestable, with the corollary o f a high reform capacity.
3. Dual-party Politics and Propensity to Reform
8. The origins, mechanisms, and consequences o f two-party dominance are closely tied to an identifiable set o f informal roles, norms, and practices that blend with formal democratic institutions. In the case o f Nicaragua four stand out: long-standing leadership, politics by institutional means, pact-making, and extra-institutional arbitration.
Long-standing Leadership
9. Nicaragua’s political leadership i s not subject to regular renewal. An important consequence i s that election battles are generally not fought on the basis o f programmatic proposals. Rather, influence and connections are the basis o f political leadership. The FSLN has been a strong political contender in all past elections, with the same candidate. In the case o f the PLC, i t s leader has been able to retain the prerogative to select the presidential candidate in the past four elections. This situation may be starting to change with the emergence o f splinter parties from both the PLC and the FSLN. In both cases the emerging political forces were assembled by former party members that were expelled from their respective parties.
Politics by Institutional Means
10. Conflicts between the executive and legislative branches o f government have been recurrent in Nicaragua. A months-long stalemate between the Executive and the Legislature brought the country to the edge o f a constitutional crisis in 1995. The f irst years o f the next administration (1997-2001) were rocked by clashes between the FSLN and the PLC in Congress, and related rioting on the streets. Confrontation between the
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two branches was keen during the previous administration (2001-07). The sitting president (Bolafios), who had served as Vice-president in the previous administration, accused the former president (Aleman) o f corruption. Uncooperative at first, the Assembly, which was headed by the former president, eventually lifted the immunity o f the former president in the face o f public mobilization, and the former president was convicted and sentenced to 20 years in prison, which was commuted to house arrest.
11. The confrontation between the two branches o f government started after those events. Indeed, PLC deputies entered into an agreement with FSLN deputies. This renewed FSLN-PLC alliance was cemented in 2005 by a new set o f proposed constitutional reforms, which aimed to increase the prerogatives o f the legislative branch at the expense o f the executive and to pursue impeachment o f the president. The result was a paralyzing standoff between the Administration and the Congress. Under severe pressure to resolve the impasse, the executive and the opposition reached an agreement to dismantle the impeachment machinery being assembled in Congress against the president in exchange for new constitutional reforms during the next electoral cycle.
Pact-making
12. Pact-making i s a clearly recognizable informal institution o f Nicaragua’s politics, entailing distinct roles, goals, and norms and typically involving a very limited number o f partners. Partnership status shifts with the correlation o f forces, which in turn depends on the partners’ negotiating leverage. Pacts, it should be noted, can have unintended consequences. However, recent Nicaraguan pacts suggest that a pact’s short-term efficacy may be prolonged, at least partially. These recent pacts have been engineered to afford the partners a modicum o f governmental effectiveness, and to do so in ways that enhance and/or consolidate their own power.
13. Partners do not necessarily obtain equal benefits, but power balances are not ruled out. The simplest i s the allocation o f power quotas. This typically involves the parceling o f state institutions among partners, including those that should be o f a technical nature, such as the regulatory agencies, property registrar, or internal audit offices. This largely explains the institutional problems and governance bottlenecks in these areas indicated in the following chapters. A more delicate but potentially more flexible and rewarding approach involves the remaking o f the rules o f the game. Either way, pacts can be renegotiated, and partners can change. Norms o f partnering allow aggrieved or abandoned partners to adjust and to seek alternatives.
14. Since the beginning o f the 199Os, pact-making has been a consistent part o f the political landscape and have altered the rules o f the game and redistributed institutional power in ways that have been beneficial to the partners. The most important o f these was the 1999 pact between the FSLN and the PLC, which was partially codified into law through the constitutional reform o f 2000, and subsequently expanded in 2005.
15. On the electoral front, some o f the crucial reforms resulting from this pact included: (a) the proportion o f votes a presidential candidate must garner to win in a f irst
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round was reduced from 40 to 35 percent, provided that the second-place candidate receives at least 5 percentage points less, (b) political parties that previously failed to obtain at least 4 percent o f the vote were denied standing, (c) registration o f a new political party would now require i t s organizers to present notarized signatures o f at least 4 percent o f the last electoral roll, and (d) municipal electoral councils were to be created with the understanding that their presidents and vice-presidents would alternate between the two parties that came in first and second place in the previous election. 55,56
16. The constitutional reforms also legalized the following changes: (a) the number o f Supreme Court Justices was increased from 12 to 16 magistrates, and the number o f magistrates on the Supreme Electoral Council was increased from five to seven, (b) the maximum authority o f the Comptroller General was increased from one person to five board members, (c) the presidential candidate who receives the second-most votes i s entitled to a seat in Congress,57 (d) former presidents are entitled to a seat as well, and (e) the removal o f presidential immunity requires two-thirds o f the congressional votes.
17. The pact’s 2005 expansion and attendant constitutional reform created an Instituto de Propiedad to resolve long-standing property disputes involving vast amounts o f land and millions o f c6rdobas in compensation. The pact’s expansion also called for the creation o f the Superintendencia de Servicios Publicos (SISEP) to regulate public service uti l i t ies (electricity, water and communication). The partners to the pact, through congressional deputies, appointed heads o f these new regulatory and arbitration institutions, 58
Other Key Actors
18. Three hallmarks o f democratic modernity are the separation o f Church and State, an apolitical military, and an independent press. Deviations f iom these roles and norms do occur, o f course, even in the advanced democracies o f Europe and the United States. But the degree and frequency o f such deviations matter, as does a system’s capacity to self-correct.
19. In the case o f Nicaragua, the Church has been and important extra-institutional mediator in the past. During the 1980s Pope John Paul I1 elevated the bishop o f Managua, Miguel Obando y Bravo, to the College o f Cardinals. Crucial consequences followed from this decision. In 1988, Obando y Bravo served as mediator between the FSLN government and the National Resistance (CONTRAS), and in 1990 he helped negotiate the latter’s disarmament. In 1995, he played the role o f impartial mediator between the
” As mentioned at the outset electoral law No. 33 1 o f 2000 has been characterized as the most restrictive in Latin America. In 2002, the Supreme Court struck down some o f i t s provisions, but the majority remains in effect (Dye). 56 In the 2006 elections President Ortega was elected in application o f the electoral ru le o f 35 percent minimum plus a 5 percent difference rule. 57 The outgoing vice-president and the vice-presidential candidate o f the runner-up are designated substitutes. ” Ley No.520, Reforma Parcial a la Constituci6n (passed in January o f 2005, and published in the Gaceta Ojcial on February 18).
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feuding Executive and Legislative branches. Three combined factors made possible the peaceful resolution o f that constitutional crisis-the army’s non-interventionist stance, foreign donor pressure on the disputants, and the Cardinal’s authority. This episode serves to illustrate how the Nicaraguan Church’s authority - traditional in character but non-political in nature- can serve as an effective extra-institutional moderator.
20. Regarding the military, the Nicaraguan Army begun to struggle for institutional autonomy during the regime’s latter years, and since the early 1 9 9 0 ~ ~ the top brass have shunned all manner o f political imbroglios. The army’s institutional identity, in fact, now appears to be tied to a professional code o f conduct and a neutral posture. From a historical perspective, Nicaragua’s military, as well as i ts policy force, has modernized considerably in the last decade and a half. Moreover, the army appears relatively effective at containing non-state violence.
21. Press freedom i s quite strong in Nicaragua, in spite o f isolated events in the mid- 2000’s that resulted in a decline in the corresponding indicators (see table 1 in annex 1). Nevertheless, dissent i s allowed and access to information i s expected to improve with the recent passage o f the Access to Information Law.
4. Concluding Remarks
22. The two predominant political parties, the PLC and the FSLN, are strong political-electoral machines, with broad territorial reach, considerable capacity to get out the vote, and functional patronage distribution systems. Both parties, however, continue to find it difficult to reinvigorate their leadership and democratize their power structures. Relations between the Executive and Legislative branches oscillate between keen confrontation and pact-making intimacy (the latter generously described by some as a de facto quasi-parliamentary system). It i s quite possible that all this contributes to the results o f a pol l conducted by Latinobardmetro in 2005, showing that 45 percent o f Nicaraguans can conceive o f a properly functioning democracy without a Congress or political parties. This perception o f Nicaragua’s National Assembly can be partly due to i ts weak exercise o f i t s oversight and control functions over other branches o f government as pointed, for example, in the chapter on Oversight and Accountability Mechanisms o f this Review.
23, In summary, the Nicaraguan political system remains vulnerable to clashes within the National Assembly or between the Assembly and the Executive. Regarded as partial even by those who assembled it, the judiciary i s not seen as an effective framework to settle serious institutional conflicts. Nonetheless, the current administration i s the first to begin i t s te rm in office without serious opposition in any o f the other branches o f government. This may help to advance reforms, but may also help solidify future opposition. In the short term, the country’s political-institutional hybrid o f formal and informal institutional arrangement may continue to generate i t s characteristic low- intensity turmoil, with players continuing to readjust alliances.
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B. The Judicial System’’
1. Institutional Framework
24. provide judicial services in several ways:
The Nicaraguan judicial system i s built on several independent institutions that
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The Judicial Power (JP), exclusively responsible, according to Article 159 o f the Constitution, for the jurisdictional powers o f judging and establishing sentences. The head o f the Judicial Power i s the Supreme Court o f Justice (SCJ). The Attorney General’s Office (AGO) i s an independent organization to which prosecuting attorneys o f different levels belong. I t s function within the administration o f justice i s to represent society in general and the victims o f criminal offenses, initiating criminal lawsuits, and conducting investigations. The National Police (NP) acts as Judicial Assistance in the investigation o f crimes and misdemeanors. The National Penitentiary System (NPS), which according to Article 39 o f the Constitution has the fundamental purpose o f transforming inmates in order to reintegrate them into society. The Nicaraguan model indicates that the sentence should re-educate and re-socialize the individual. The Department o f Law (Procuraduria, DL) i s responsible for, among other things, the legal representation o f the State’s judicial interests. The Human Rights Advocacy Office i s the institution in charge o f the defense o f human rights. The task o f fostering and defense o f human rights entails monitoring violations o f rights due to actions or omissions by state authorities.
Relevant fundamental changes have taken place in recent years in the Nicaraguan judicial system. However, it s t i l l shows a low citizen trust index, thus revealing the existence o f a set o f issues and dissatisfactions, o f which the most important are the politicization o f the Supreme Court, the slow pace o f rulings, and a lack o f access to justice for a large portion o f the population.
2. Judicial Situation
General Situation
26.
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The Nicaraguan judicial system has seen relevant changes in recent years:
In 1998 a new judicial organization was approved by the Organic Law o f the Judicial Power (Law No 260). The Attorney General’s Office was established in May 2000. A new Criminal Procedure Law (Act No 406) was passed in 2001.
s9 This section, as wel l as the Annex to this chapter was contributed by the European Union, a contribution gratefully acknowledged.
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27.
123 Houses o f Justice were established to bring the justice system outside the nation’s capital. Several judicial buildings were constructed throughout the 1 9 9 0 ~ ~ and the Public Advocacy office and the Forensic Medicine Institute were created. A new Penitentiary Regimen and Sentences Law passed in 2003 (Act No 473). All judge positions are now filled by lawyers, whereas until 1991, 90 percent o f the judges were not professional lawyers. A Legal Profession Law was approved in October 2004. The Mediation and Arbitration Law was passed in 2005 (Act No 540), which can greatly improve the pace at which lawsuits are handled in court and assist people in solving their problems through out-of-court settlement.
These changes represent fundamental steps that evidence the transformation o f the justice system. Despite this progress, however, the Nicaraguans’ t rust index in their judicial system i s s t i l l low,6o reflecting several problems. Access to judicial services i s limited, and excludes mostly poor and culturally diverse segments o f society. But it also i s the result o f justice service providers not being sufficiently trained to provide minimum levels o f service, plus the fact that there are very few lawyers’ offices. In addition, neither operational conditions nor the existing technological level i s satisfactory.
28. However, there are other issues in the background that explain this lack o f trust, such as the politicization o f justice, corruption, justice’s indifference toward social problems, the corporatism o f judges and magistrates, lack o f transparency, and absence o f accountability o f judicial officials, among other factors. In a situation where judicial institutions do not yet have a systemic vision and there i s virtually no tradition o f coordinated work, it i s very complex or almost impossible to properly and comprehensively address common problems.
29. One traditional problem faced by all judicial systems i s the poor allocation o f resources. Although there i s a constitutional provision that guarantees a minimum level (4 percent) o f budget revenues for the Judicial Power, a budgetary analysis shows a concentrated allocation o f funds at the highest levels and in administrative items, to the detriment o f lower-level jurisdictions. The largest allocation i s for the Judicial Power and the smallest allocation i s for the Human Rights Advocacy office. The Attorney General’s Office allocation stands out because it neither matches i ts workload nor the institutional functions conferred by law, especially within the framework o f the new Criminal Code. Hence, there i s a need to conduct a revision o f budget management in order to achieve a more rational and efficient use o f funds.
Independence and Transparency
30. Judicial bodies at all levels are mostly questioned for their political dependence. Although the passing o f the Legal Profession Law could represent the starting point for
Among Latin American countries the satisfaction and trust index i s only around 14 percent, according to 60
a survey conducted in Nicaragua in March 2005 (IADB-INPRHU-CINASE survey).
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the professionalization and institutional consolidation o f Judicial Power, the legal periods for i t s implementation have elapsed and the necessary legal instruments for effective enforcement have not been authorized. Among such instruments are the Legal Profession Promotion Scheme, the implementation o f the Judicial Training and Documentation Institute, the Retirement Benefits Fund, the general regulations o f the law, and performance assessments. The absence o f these regulations affects the enforcement o f the Legal Profession Law and weakens independence, a situation that could be solved by merit-based hiring procedures for judges and magistrates.
3 1. Another sensitive topic i s corruption. Surveys show a widely held perception o f the existence o f high levels o f corruption. Undoubtedly, progress in the eradication o f these practices i s a fundamental condition to improve the public administration o f justice. In this same regard, at the institutional level, l i t t le progress has been achieved. The N P has an Economic Investigation Directorship and the Department o f Law has an Anti- corruption Unit. In addition, the AGO recently established an Anti-corruption Unit within i ts Specialized Units. More important, there i s a need to strengthen the work o f the internal control units in these institutions to reduce internal corruption.
Infrastructure
32. Judicial system entities show an uneven infrastructure development. Although the JP, NPS, and National Police (NP) have physical infrastructure in many areas o f the country, the situation i s different for the other institutions. In the case o f the JP, infrastructure improvement has taken place thanks to international cooperation through the execution o f important projects such as the Houses o f Justice and Judicial Complexes, and Managua i s expected to have a new Judicial Complex very soon.
33 . The lack o f proper infrastructure, especially affects the AGO. In 2002, there were 96 prosecutors. Currently, there are 259, but due to infrastructure limitations they do not serve the entire country. The AGO, which i s mandated by law to operate nationwide, i s present in only 65 o f the country’s municipalities and in 108 o f the 269 o f the country’s existing criminal courts. In many o f those places they operate out o f police delegations, while the rest operate in the so-called itinerant prosecutors’ offices. These are prosecutors that serve several municipalities by visiting the locations for hearings and to consult with the police about investigations under their jurisdiction. These prosecutors lack resources, use public transportation, and bring their f i les with them, risking both their integrity and the safekeeping o f the information.
34. The NP, in i t s Judicial Assistance task, also operates under poor conditions due to a lack o f proper equipment, tools, vehicles, and supplies to efficiently carry out i t s investigative duties. A recent report by the N P states that 30 percent o f the investigation offices are in poor condition. On the other hand, there are infrastructure issues in most o f the NPS’s prisons that demand immediate attention, since they do not provide proper safety conditions (for example, the Tipitapa prison, prisons in Chinandega, the Women’s Prison “La Esperanza,” and Bluefield’s’ prison). Budget limitations have prevented the construction o f a special prison for adolescents.
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35. Lawyers’ offices are outdated, as i s the poorly structured administrative platform that supports common judicial services. Information systems and the reliability o f data are limited. Judicial system institutions lack the structures to generate statistical data that would enable the implementation o f judicial policies over the use o f traditional intuition- based mechanisms.
36. The level of development o f information technologies in the Nicaraguan judicial system i s extremely low. There i s no policy for information technology development, equipment i s obsolete and lacks maintenance, some systems are non-existent or unable to meet the needs o f key staff, and infomation systems’ technical teams are atomized. There i s no follow-up system to track lawsuits to enable other systems to operate, such as monitoring, statistics, and so forth. Although the AGO has a system in place, it i s not yet operational. The topic i s viewed as l i t t l e more than the replacement o f typewriters, leading to multiple disarticulated information systems, information system duplication, limited internal networks, and lack o f connectivity among and within institutions. Existing systems basically provide services to administrative areas, with marginal operation in the judicial area. The NP performs i ts investigative work mainly using typewriters.
Human Resources
37. Judicial services have improved considerably in recent years with the appointment o f more judges, magistrates, public prosecutors, and defense lawyers. However, the number i s clearly not enough. The country is ranked among the countries with the lowest number o f judicial employees, with 5.8 1 ‘udges, 4.72 prosecutors, and only 1.35 public defense lawyers per 100,000 inhabitants!’ By contrast, the neighboring country o f Costa Rica has 7.16 prosecutors per 100,000 inhabitants, and Guatemala has 6.87; and in the case o f public defense lawyers, Costa Rica has 5.7, El Salvador 4.2, and Honduras 3.1 per 100,000 inhabitants.
38. Sector policies are nonexistent in several areas. Human resources, training, infrastructure, and information technology and systems are treated differently by the institutions although they share the same problems. For instance, in the case o f human resources, there are different career systems in the judicial system (JP, AGO, NP, PS, DL), which entail different staff training mechanisms, different disciplinary systems, different planning structures, different incorporation requirements, different training goals, and different remuneration schemes, among other differences. Under these circumstances, it i s very difficult to structure a homogeneous human resources policy for the judicial sector. This i s not to deny, however, the possibility o f creating conditions that would enable the setting o f framework policies that, acknowledging singularities and independence, would establish fundamentals such as work incentives, remunerations, and training systems, among others, in order to bring institutions closers.
61 “Justice in Nicaragua. A Diagnostic o f the Nicaraguan Judicial System,” PA1 NIC/CE Program, Managua, Nicaragua, October 2006.
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39. There are 5,135 employees in the judicial system and the Judicial Power employs almost half o f them. Currently, there are 73 magistrates, o f which 16 work in the Supreme Court o f Justice and 57 in the Appeals Courts. There are 319 judges, o f which 134 work in District Courts and 185 in Local Courts. In the Attorney General’s Office (AGO) the situation i s critical. The agency employs 517 people, o f which 259 are prosecutors distributed in 17 departments or provinces and Autonomous Regions, implying that there are 4.72 prosecutors per 100,000 inhabitants. The situation i s critical in areas such as the South Atlantic Autonomous Region (RAAS), Jinotega, Chinandega, and Lebn, which are considerably below this average. The human resources picture i s complete with 78 public defense lawyers, 259 prosecutors, 46 procurators (at the DL), and 86 1 policemen that provide judicial assistance.
40. Women play a prominent role in the Nicaraguan judicial system, both in numbers and the type o f positions they occupy. At the Judicial Power, two women have presided over the Supreme Court and currently, a woman i s Deputy Attorney General. Their most prominent role i s in the Judicial Power and AGO, where most positions are held by women. This situation i s different, however, in other entities such as the NP and the DL.
Jurisdictional Load and Yield, and Access to Justice
41. Nicaragua does not show a large number o f litigations, with 2,300 cases per 100,000 inhabitants. Costa Rica, in contrast, has over 22,000 lawsuits per 100,000 inhabitants. Hence, in terms o f procedural load, Nicaragua shows manageable indicators compared with other Central American countries, with an average o f 395 lawsuits per judge, while Guatemala has 3,959 lawsuits per judge, Costa Rica 2,061 lawsuits per judge, and even Chile has more than 3,000 cases per judge. But this could also indicate the existence o f access-related issues. Regarding the procedural load in judicial system entities, the JP i s responsible for handling more cases than the rest o f the institutions, which i s natural, since justice i s centrally served. On average, based on 2004 data, each judge hears 395 cases annually, which i s a totally manageable number. In the case o f the AGO, this indicator i s only 181 cases annually per prosecutor, while for the NP, the indicator i s 102 complaints per judicial officer.
42. Regarding yield rates, just l ike the rest o f Latin America, judicial services in Nicaragua do not properly and in a timely manner meet the increasing demand related to the resolution o f conflicts filed for i ts consideration. The workload normally shows backlogs, representing a general problem, as shown in Table 1.6.
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Table 1.5: Judicial System’s Effectiveness
Judicial Power Attorney General’s Office National Police Human Rights Advocacy Office
126,126. 60,773 48%’. 46,939’** 38,363 82%
2,425 1,029 42% 88,5 19’” 43,115 49%
43. In a district analysis, the area with the largest workload i s Managua, with 39,969 cases, which implies 799 cases per judge. The eastern region’s rate i s 448 cases, the second-highest rate o f cases per judge in the country. Instead, areas such as the North Atlantic Autonomous Region (RAAN) or the Autonomous Region o f the South (RAAS) that have only 191 and 91 cases, respectively, imply that there i s an access issue. It i s noteworthy that women show a significant presence in civil processes, since they are party to 41 percent o f the cases, men are party to 44 percent, and legal entities are party to 21 percent.
44. Poverty i s the first barrier to effective access to justice. The country’s Central District has 9.8 judges per 100,000 people, but Managua has the lowest indicator with 3.6 judges per 100,000 people. Nationwide the numbers show an uneven and heterogeneous growth o f these services. The largest supply o f judicial services relates to criminal justice. Approximately 73.8 percent o f district courts are criminal courts. In addition, o f the 185 local courts, 32 are criminal courts, but 127 are non-specialized courts, which also hear criminal cases. At any rate, the existing courts have limited operations.
45. Regarding public defense, despite progress made in recent years, such efforts have been unsatisfactory. The 78 public defense lawyers do not seem to meet the needs o f the poor or o f the entire population, since on average there i s one defense lawyer per 70,300 people, equal to 1.4 public defense lawyers per 100,000 inhabitants, which i s a very low indicator compared to other countries. On a nationwide basis, the average i s 11,661 extremely poor people per each public defense lawyer, and this number i s even worse in certain areas o f the country, such as the North District where there i s one defense lawyer per 30,197 extremely poor people, followed by the R A A S with 27,703, and Las Segovias with 22,580. From an access perspective, the Rural Judicial Facilitators (RJF) program i s a good practice, benefiting almost 347,000 people in 71 rural municipalities.
46. In i ts function o f Judicial Assistance, the N P has 25 investigative units in an equal number o f territorial delegations that are part o f the institution, in addition to the Central
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Directorship. A total o f 861 officers form these units, but this organization does not meet the demand and this situation i s represented by effectiveness indexes that hardly reach 49 percent. At the same time, the NPS has eight prisons, with the capacity to hold 5,446 inmates. Since there i s no special prison for adolescents, special cells have been adapted in the Tipitapa prison. A significant access-related issue occurs in prison treatment and internal services, since there are only 13 medical doctors, 21 psychologists, and 10 social workers to care for inmates’ health.
47. Finally, one topic that needs to undergo extensive review i s competencies. In the current model, protection lawsuits are brought to Courts o f Appeal and filed in the Supreme Court, with ruling by a single office. This imposes a geographic access barrier; the centralization created by litigating such cases only in Managua does not seem a reasonable option for the defense o f basic rights o f the population. The reason i s that it implies that less-significant cases have more access, because the population can litigate in almost all cases in their own jurisdictions.
Specialized Justice
Civi l Matters
48. Civil proceedings are regulated by a code that dates back from 1907, which explains among other things why these laws are slow and written in an exaggeratedly formalistic fashion. Civil lawsuits include proceedings that need to be reordered and suppressed, because o f their futility or time consuming characteristics. There i s a severe accumulation in civil offices, produced not by the ordinary process load (44,559 new civil lawsuits in 2004), but by the 116,033 processes and other proceedings (seizures, sequestrations, marriages, birth certificate replacements, and so forth) nationwide, and which shall follow different procedures.
49. These situation leads to the need o f making a deep procedural reform o f civi l laws, in order to make the system more efficient. Based on the experience o f the criminal reform, initiated by the passing and implementation o f a new procedural code, the judicial system would surely make a significant leap forward by the implementation o f a civi l procedural reform.
Family Matters
50. An issue s t i l l pending regarding Family laws i s the creation o f specialized courts to address family related issues, which are already expected considering the especially sensitiveness required to address this types o f conflicts. Two Family courts are expected to be established in 2007 with support provided by the Spanish Agency for International Cooperation (AECI), and this will be a pilot experience to be replicated in other parts o f the country.
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51. During 2004, Local Courts and Civi l District Courts addressed 13,318 family related cases, accounting for 29.9 percent o f the cases in those jurisdictions (the total number o f civil lawsuits that include family affairs was 44,559). This shows that family related matters are prominent in civ i l lawsuits, although there are numbers that denote low litigation and which could conceal an access issue to the judicial system for women.
52. Several judicial system institutions have structured special entities to address jurisdictional-family matters: the JP has created a Family Unit within Public Defense offices; the AGO has a Special Unit on Deliberate Omission and Contempt and a Unit specialized in domestic violence; the NP has Women’s precincts. However, this lack o f mechanisms to promote inter institutional family related capacities i s questionable since that would allow the proper coordination o f such important efforts.
Labor Matters
53. There are Labor District Courts and Local Labor Courts. However, there are only three o f the latter: two in Managua and one in Le6n. For the rest o f the country, civil judges hear and ru le on labor disputes. In Nicaragua, according to the household and employment survey conducted by the INEC (November 2004), the working population i s 1.97 mill ion inhabitants, with the largest number working in the informal sector (63 percent), a sector without good labor options since labor rights are often violated. In spite o f this labor matters significance i s very limited since it only accounts for 2.3 percent o f the annual number o f lawsuits handled by the JP. This represents 11,502 proceedings during the 2001 to 2004 period. This data, compared to the general labor situation, may indicate the existence o f access to justice issues for people working under poor conditions and whose labor rights are violated.
Constitutional Matters
54. The unconstitutionality recourse (constitutional control authority o f the Supreme Court) faces a series o f issues, and one o f them i s i ts use as a political instrument in many cases. In addition, the term to pronounce judgment on this type o f actions i s not complied with. In 2004, 28 recourses o f this type were filed and only one was ruled on, and rulings were issued that year on nine other recourses accumulated from previous years.
55. Regarding protection recourses, since the Protection Law (1989) came into effect up to the year 2000 (eleven years), 1,661 protection recourses were filed and 1,072 (64 percent) were ruled on. More recently, 2002-04 (three years), 1,519 cases have been received, and 481 (32 percent) cases have been sentenced. Although currently a higher number o f new cases are filed each year, the cumulative trend on rulings i s maintained.
56. Likewise, habeas corpus recourses filed in the Criminal Chamber o f the respective Court o f Appeal account for a significant number o f cases. In 2001 the number o f cases was 5,378, and in 2004, the number was 3,197. This reduction i s the result o f the application o f the Criminal Procedure Code, although the number i s s t i l l significant accounting for 32.53 percent o f the cases received by the Courts o f Appeal.
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57. Regarding protection proceedings, an access issue has been identified because the Nicaraguan constitutional rights protection model places this responsibility on the Courts o f Appeal (entity that receives the lawsuit) and the Constitutional Chamber o f the SCJ, with limited results. I t would be easier and faster to claim a right included in an ordinary law than to seek protection o f a constitutional right because in the latter citizens are required to go the provincial capital city to f i le their lawsuit at the Courts o f Appeal and then to Managua, for litigation at the Supreme Court.62
Administrative Matters
58. In Nicaragua, this area o f administrative law has the problem that currently there i s only one office in the Administrative Chamber o f the SCJ. This situation i s detrimental to the right to have access to justice for those who wish to contest administrative acts o f public entities, either central or decentralized levels, since it constrains those offended because they need to go from any place in the country to the Court’s office located in Managua.
59. Probably this situation i s responsible for the low number o f cases. During 2002- 06 only 47 lawsuits o f this type were filed. This procedure needs to be revised, as well as the appropriateness o f having one Chamber at the Supreme Court to see such small number o f cases (it only received 11 cases in 2004 and 14 in 2005), which shows that this i s one o f the jurisdictional body with the highest cost per case in the country.
The Criminal Procedure Reform
60. A criminal procedure reform i s recognized as the most important judicial transformation in recent years since it has meant a true restructuring in the way criminal justice develops. However, this journey has not been easy and the international support for this purpose has been intermittent. The Inter-institutional Coordination Commission and the Technical Commissions created by the Criminal Procedural Law (CPL) have operated in a limited way, and thus no solutions to the multiple coordination problems were found. This situation has demanded a greater institutional effort from the JP, the AGO, and the NP.
61. The implementation o f the CPL lacked the required administrative and financial support. Although significant efforts have been made by all institutions, the lack o f resources has prevented the development o f key matters such as the reengineering o f support services for the judicial function (forensic medicine, expertise, notifications, parties’ tables, general common services), and prompted a lack o f proper technical support for the reform (this process was not accompanied by the necessary technology information assistance for processes automation). Despite infrastructure adaptation in certain areas o f the country, more infrastructures i s needed, including the redesign o f
Protection proceedings are filed at the respective Court o f Appeal, which w i l l try the f i rst actions including until the suspension o f the action. The main issue i s ruled by the Constitutional Chamber o f the SCJ.
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judicial offices, to define the administrative support to the work performed by judges; such task has recently started through an IADB project.
62. Despite the progress, certain problems persist such as the lack o f a modern Criminal Code according to the CPL; the lack o f prosecutors and district and local judges to apply the Criminal Procedure Code; the lack o f public defense lawyers; the precarious conditions o f hearings’ infrastructure; the lack o f technical equipment; more training i s needed because an inquisitive mindset st i l l persists; the NP i s only 49 percent effective in investigative tasks, and a bottleneck needs to be overcome; most evidence deposits and custodian locations that exist in the country lack the proper storage and safekeeping conditions, and so forth.
3. Challenges for Judicial System Reform
63. The Nicaraguan judicial administration system faces significant challenges, but three o f them stand out. First, reforms are needed to improve judicial system effectiveness in order to provide timely, modern, and quality services. These reforms would entail some changes to the institutional judicial model with the purpose o f improving capabilities and increasing efficiency. There i s a need for enhanced coordination between the Judicial and Executive powers, and the establishment o f common policies in the judicial system, including: (a) improved governance through greater political independence o f the system; (b) better management based on reliable statistical information; (c) establishment o f common human resource, infrastructure, and information technology policies; (d) coordinated work in the fight against corruption; (e) coordinated strategies among all judicial system institutions; ( f ) improved capabilities and use o f institutional planning; (g) clear differentiation o f administrative and jurisdictional matters; (h) present alternatives to improve institutional revenues through judicial rates systems; (i) improved community services (notifications, parties’ tables, expert reports, forensic medicine, and so forth); (‘j) appointment o f professionally and ethically capable employees, and training o f judicial workers and improved teaching at law schools; and (k) improved jurisprudence o f the Supreme Court o f Justice to increase predictability and guarantee compliance with the principle o f equality under the law. Together with the above, a fundamental and urgent step i s the prompt and effective enforcement o f the Legal Profession Law.
64. Second, access to justice needs to be expanded and improved, aimed at eliminating the current barriers that prevent such access (economic, cultural, social, geographic, and so forth) and promoting and guaranteeing free defense services to those excluded. Youth, adolescents, women, and indigenous communities need special attention because o f the particular difficulties these groups face regarding access to prompt and effective justice. Closely linked to service access and improvement i s the issue o f balancing the allocation o f resources, based on the territorial characteristics, demand, and population. Other important topics are the current limitations of the penitentiary treatment, the effectiveness o f the Courts o f Appeal and the Chambers at the Supreme Court o f Justice and the impact o f the so called “other proceedings” in civ i l issues that are overloading the work o f civil courts (see Annex 1 to this chapter).
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65. Third, current laws need to be amended and systematized in order to update certain provisions such as o f the Civi l Procedural Code, the Commerce Code, the Family Code, the Criminal Code, and the Administrative Litigation Law, and criminal procedural reform needs to be consolidated (see Annex 1 to Chapter I). Updating the Civi l Procedure Code and the Commercial Code i s extremely important, since they date back to 1904 and 19 14, respectively. Equally relevant i s the topic o f constitutional justice, both for political independence and for the delays in rulings.
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Chapter I11 - Annex 1 Summary Process f o r Registration o f a Property T i t le
1. In order to be able to issue the cadastral certificate the Physical Cadastre of INETER requires a topographic plan o f the property which if it doesn’t exist has to be elaborated by qualified technical service providers authorized by the General Directorate o f Cadastre o f INETER. The physical cadastre o f INETER i tse l f will later verify the topographic plan comparing the specifications with INETER’s cadastral map o f the zone in which the parcel i s located. If the data does not coincide INETER has to carry out a supervision mission in situ.
2. Also, in all cases o f divisions o f properties new topographic plans have to be prepared for the new properties. The cost for the elaboration o f the topographic plan varies according to a number o f factors, such as the size o f the plot, type o f plan (complete plot or subdivision), the convenience o f the access to the plot and the distance between the office o f the service provider and the location o f the plot. The times required for issuing the cadastral certificate vary from office to office. In Chinandega, the process takes between 7 and 10 days (USAID-BIDE 2002:20).
3. With the cadastral certificate the applicant can go to the office o f the Fiscal Cadastre o f DGI to request the fiscal evaluation certificate. In order to evaluate the property, DGI often carries out an inspection in the field and subsequently issues the fiscal evaluation certificate. Upon receiving the fiscal evaluation certificate the applicant has to pay the s u m o f 1 percent o f the total value o f the property as stipulated by DGI as transmission tax. This process usually takes up to four days.
4. Once the applicant has all the documents required, he submits the application to the Property Registry RPIM office in his department. The RPIM employee who receives the application performs a perfunctory check to determine whether the legal formalities have been met. Chief among these i s proof o f payment o f the appropriate registry fee (Trackman, Fisher, and Salas 1999). If the document passes the pre-presentation check, i t will be officially accepted in the registry. Depending on the office, an automatic time/date stamp will be used to mark the document and assign it an official document number. The applicant receives a receipt o f submission with a similar time/date stamp and document number. After acceptance into the system, documents are sorted according to their subject matter and distributed to registry operators who examine them thoroughly for validity. The operator in charge o f each case also conducts a t i t le search for the relevant property, checking to see that no reason exists to prevent the inscription. In most o f Nicaragua, this process i s s t i l l not automated. If deficiencies or errors are noted, the document i s returned to the submission window, where the applicant may pick it up. Errors may be mending. The former may be fixed by the applicant without forfeiture o f the document’s priority number.
5. Once the initial review i s completed, the operator will record the size and location o f the property. Notations indicating that old mortgages have been paid in full and the corresponding liens cancelled inscriptions o f new mortgage interests, as well as persisting
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servitudes and other interests will also be made as appropriate. Once completed, a corresponding notation i s entered o n the original application. This notation includes the time, date, document number, and location (book, folio, and page) where the transaction i s officially recorded. Fol lowing the inscription, the book where it is made must be presented to the Registrar who reviews it and, by signing, dating, and stamping it with the RPIM seal, give the inscription final approval. The application document i s also stamped with the RPIM seal and signed by the Registrar. Next, the registry indexes are updated. During the last years, Nicaragua has been successful in bringing many o f these indexes up to date. Many departments now have digitized indexes, which can be searched by the parcel number or name o f the property owner.
6. The application is then returned to the submission section where a notation o f the inscription i s made in the Diario. The interested party retains this stamped title as a receipt o f registration and proof o f ownership. In Managua, the inscription process typically lasts between 30 and 60 working days.
7. However, the times for registry services vary significantly f rom one departmental registry office to the other, depending basically o n the management procedures established. Since there are no binding rules, each register is free to establish the procedures he prefers for the different services. The same accounts for the duration o f the cadastral services. USAID-BIDE made an enquiry with lawyers in Chinandega carrying out the registry procedure o n behalf o f their private clients (who however mostly did not have full legal documents in support o f their claims). Results show that the whole procedure f rom the first contact up to the reception o f the certification o f the inscription for a plot o f up to about 20 hectares would usually take between 100 and 200 days depending on the complexity o f the transaction and the availability o f the required documents (USAID-BIDE 2002: 13). Similarly, the representatives o f the private sector, interviewed in this assignment, estimated the time o n average required for the inscription o f a property in Managua at six months.
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Chapter I11 - Annex 2 Organ grams (Corte Suprema de JusticiaDNETER)
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Chapter 111 - Annex 4 List o f S I I C A R Beneficiaries and their Roles
Direct Beneficiaries
Indirect Beneficiaries
Name Movable Property
Owners
General Director of Physical Cadastre
Updates Director
Maintenance Director
Physical Cadastre Delegations
Lawyers and Notaries
Cadastral Agents (Lawyers, Notaries,
and Agents)
Topographers or surveyors
Town Halls
Property Superintendent
Town Halls
Description Holder o f a Property Right Title
National Cadastre Management.
Function o f analysis and update o f cadastre.
Function o f quality analysis and control o f cadastral services.
Function o f public services and approval o f cadastral transactions.
Public person authorized by the Supreme Court o f Justice to testify, according to the law, in contracts and other acts. Intermediaries between the interested parties and the Cadastral offices, responsible for carrying out procedures at the cadastre on behalf o f the interested party. Licensed by the Physical Cadastre General Directorship to carry out land surveys.
Municipal government
MHCP Office in charge o f solving property problems caused by the laws 85, 86, and 88.
Municipal government
Role 0 Performs real estate operations 0 Exercises rights and duties on
their immovable property. 0 Manages, coordinates, and
executes cadastral policies at department and national levels. In charge o f centrally updating the graphic and alphanumeric cadastre.
topographic blueprints, quality control o f cadastral procedures. Supervision o f physical cadastre delegation offices. In charge o f public services and approval o f cadastral transactions at department level. Authorizes immovable property transactions.
0
0 In charge o f reviewing
0
0 Arranges cadastre formalities.
0 Performs topographic surveys o f locations, to the request o f owner.
0 Titleholder o f municipal land.
Works with cases related with the laws 85 and 86 (urban plots) and the law 88 (rural land); delivering, rejecting or annulling property titles.
development within i t s municipality.
0 Responsible o f urban
0 Municipal tax collector (IBI)
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Indirect Beneficiaries
Interested Institutions
Chapter I11 - Annex 4 (cont.) List o f S I I C A R Beneficiaries and their Roles
Name Town Halls
Judicial Sector
Property Superintendence
General Revenues Directorship
National and foreign investors
Banking system and mortgage agents in
general
Real Estate Agencies
Property Register
Deputy Registrar
Alternate Registrar
Register Technician
Description Municipal government
In charge o f administering justice
MHCP Office in charge o f solving property problems caused by the laws 85, 86, and 88.
MHCP Structure in charge o f tax collection.
Economic agents that invest in productive enterprises.
Agents that engage in real estate sales transactions for commercial mmoses.
Administrative head office o f the territorial office o f the Register at department level.
Register’s administrative authority in charge o f a part o f the registration process in the Register’s office wi th high demand. Second administrative authority in the Register’s office. Register’s staff that performs registration operations.
Role 0 Responsible o f urban
development within i t s municipality. Municipal tax collector (IBI)
0 Receives and solves property litigation cases.
0 Consults the Cadastre and the Register to gather information on property subject to a resolution.
0 Collects taxes on immovable property operations.
0 Invests part o f i t s capital in productive enterprises in the immovable property field.
0 Finances loans secured with land as collateral.
0 Shall protect i t s clients according to the legal situation o f the property. Responsible for the Register office (subordinate staff and document safekeeping)
0 Authorizes and sets registration procedures. First authority in those cases where the interested parties do not accept a certain classification recorded in their property documents.
registration procedures in the assigned area.
0 Authorizes and signs
0 Acts as Registrar in i t s absence.
0 Performs registration operations.
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Chapter I11 - Annex 5 (cont. Current registration procedure
1) The seller, the buyer, and the notary gather to sign a sales contract on a property. Once the terms are agreed, the notary transcribes the deed using as reference the data on the sellers’ deed.
2) The buyer o f the property goes to the Immovable Property Public Register (RPPIM, Spanish acronym) to request the registration o f the property to hisher name, where i s informed the following requirements must be fulfilled:
a) Deed under seller’s name previously registered in the RPPIM. b) Original and copy o f the Testimony o f the new sales contract. c) Cadastral certificate issued by the INETER Physical Cadastre, and d) Fiscal appraisal certificate issued by the DGI Fiscal Cadastre.
3) The agent following the procedure goes to the INETER Physical Cadastre to request a cadastral certificate, where i s informed the following requirements must be fulfilled:
a) Deed under seller’s name previously registered in the RPPIM. b) Original and copy o f the Testimony o f the new sales contract. c) Cadastral blueprint o f the property.
4) The agent fu l f i l l s requirements o f the INETER Physical Cadastre. 5) The INETER Physical Cadastre verifies the location o f the cadastral blueprint in i ts
cadastral maps (if the property i s located within a cadastral area), otherwise schedules a field visit.
6) The INETER Physical Cadastre verifies the data included in the deed against cadastral f i le and, if no inconsistencies are detected,
7) Issues a cadastral certificate in three parts keeping the same lot number. 8) After several days the agent returns to the INETER Physical Cadastre to get the
requested certificate, which receives in two parts. 9) The agent goes to the DGI to request a fiscal appraisal certificate, where i s informed
the following requirements must be fulfilled: a) Background o f the Property Public Register on the property b) Original and copy o f the Testimony o f the new contract. c) Cadastral certificate issued by the INETER Physical Cadastre
10) The agent f u l f i l l s requirements o f the DGI Fiscal Cadastre. 11) The DGI initiates research process on the owner; area, boundaries, and registration
data with the purpose o f making changes and updating data, and then 12) Schedules a field visit to inspect and appraise the property, y subsequently 13) Issues the Cadastral Appraisal certificate for the payment o f 1 % IT on the appraisal
14) After several days the agent returns to the DGI to get the requested certificate and pay
15) The agent f u l f i l l s requests o f the RPPIM, which sends himiher to the corresponding
16) The Town Hall estimates the IBI tax payment and the agent pays such amount. 17) The agent returns with all the documents and RPPIM payment receipts. 18) The RPPIM estimates the appraisal on the property to be registered and issues a
value amount.
the IR tax amount.
Town Hall to pay the IBI municipal taxes.
payment order to the agent.
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Chapter I11 - Annex 5 (cont.) Current registration procedure
19) The agent pays the appraisal and goes to the journal section to formally initiate the
20) After one month the agent returns to the RPPIM to confirm there are no mistakes to
21) The RPPIM performs the registration in the absence o f errors. 22) The RPPIM registers the farm [ 11 under the name o f the new owner, possibly in a
new volume and page, indicating the number assigned to the plot by the INETER Physical Cadastre, and
registration procedure.
be corrected and prevent a registration denial.
23) Updates the Table o f Owners. 24) After several months the agent returns to the RPPIM to get the requested registration. 25) The DGI updates in i ts f i les the name o f the new owner o f the property, through i ts
26) After several months the RPPIM sends to the INETER Physical Cadastre the
27) The Cadastre issues the change order type D 1 - Change o f name o f owner, and
own mechanisms, and
cadastral certificate with the new registration data.
records the new registration entry.
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Chapter I V - Annex 1 External Control Models and Their Application in Nicaragua
A. Models o f External Controls in Public Accounts
French or Judicial Model
1. The “Cow des Comptes” i s the French model o f an institution that performs external controls in public accounts. The creation o f the Cow de Comptes (1807) was inspired by the principles o f responsibility, honesty, integrity and public morality.
2. The institution i s currently composed o f 250 magistrates with personal autonomy who therefore cannot be removed from office. 64 The Cow de Comptes i s independent from the government and the parliament even though it assists them in the control o f financial laws. I t s nature i s mainly jurisdictional since the control o f public accounts i s done after their expenditure and the Cows de Comptes then has to decide about the personal responsibility o f the public functionary.
3. and expenditures such as the opinion about the use o f credits.
Currently, the legislator has added other functions besides checking the incomes
United Kingdom or Westminster Model
4. The external controls in England are done by the National Audit Offices directed by the Comptroller General o f the Receipt and Issue o f Her Majesty’s Exchequer and Auditor General o f Public Accounts, also known as Comptroller and Auditor General.
5. The pillars are the Public Accounts Committee as Parliament control and the Comptroller and Auditor General as technical control. The cycle o f the control start when the House o f Commons authorized the general budget, the Comptroller and Auditor General controls the emission o f the public funds, the accounting i s performed by the different departments which are revised later by the Comptroller and Auditor General. However, the control i s done after the expenditure o f public accounts. The results are examined then by the Public Accounts Committee.
6. National Audit Office i s subordinated to the Parliament. For this reason, the controls o f the Comptroller and Audtor General are done under supervision o f the House o f Commons. The Comptroller works under the premise o f “value for mone audit” and i s totally independent from the Executive and only respond to the Parliament . However, it does not have jurisdictional attributions only administrative ones.
s
Some magistrates are selected by Decree f iom the Minister Council, others are selected by public exam and by the President o f the Republic. See Omar, Garcia. “La Contraloria General de la Repziblica y el Control Extern0 en el Estado Democrritico Nicaragiiense” U C A (2006) Page 28 65 The control i s more oriented to economical criteria than legal. Op. Citpage 32
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7. The Comptroller i s selected by the Queen under recommendation o f the Prime Minister who previously consulted with the person responsible for the Public Accounts Committee66 the independence o f the Comptroller i s visible by the fact that he cannot be removed from his post without the approval o f two thirds o f the House o f Commons and House o f Lords.
B. Historical Evolution o f External Controls on the Public Accounts o f Nicaragua
8. The control on the Public Accounts in Nicaragua can be divided in three historical periods: Parliamentary control (1 824-1 893) Court o f Accounts (1 893- 1979) and the Comptroller Office period (1979 to the present).
Parliamentary Control (1 824-1 893)
9. After the independence o f Central America from Spain (1821) it took some time for Nicaragua to become an independent country (1838). In the first Constitution (which was mostly a copy o f the previous Central American versions) mentions that “the Legislative has the faculty to request to the government the income and expenditures from all or part o f the rents and any other useful information” 67 The Constitution o f 1858 has a similar provision in this matter.
Court of Accounts (1 893-1 979)
10. The Constitution o f 1893 (also known as “Libhima”) outlined the principles o f external controls in the public accounts and created the “Court o f Accounts” that ruled from that year until 1979. The legislator also created four secondary laws and regulations for the operation o f the institution.
11. The main attribution was to examine the accounts that use public funds and the Court was independent from the Executive until the Constitutional reforms o f 1896 that changed that. The regulations also allowed the Court o f Accounts (in 1930) to make previous controls as well as posterior controls in the execution o f national budget and the formality to present each year the execution to the Congress. In the next Constitutions they were minimal changes that relates mostly to the dependency to the Executive.
Comptroller’s Office (1979 to the Present)
12. After the Sandinista Revolution o f 1979, the government enacted the Decree No. 86 o f September 20th o f 1979 that created the Comptroller’s Office giving functional autonomy and independence but without jurisdictional attributions.
13. The Comptroller’s Office was initially presided by a General Comptroller and a Deputy one elected by the National Assembly (Constitution o f 1987) from a l i s t provided by the Executive. However in the Constitutional reforms o f 2000, the legislator changed
66 Normally this person i s a prominent member o f the opposition. Omar, Garcia. Op. Cif. page 3 1 67 Omar Garcia. Op. Cif. page 60
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the impersonal composition o f the Comptrollers’ Office to a Board o f five directives who annually elect themselves a President to head the chair.
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