DOT) From Theory to Practice. Editors Mila Freire and John Petcrsem with Marcela Huiertas amd Miguel Valadez

Transcription

1 DOT) From Theory to Practice Editors Mila Freire and John Petcrsem with Marcela Huiertas amd Miguel Valadez c A copublication of the World Bank and Oxford University Press

2 Preface Acknowledgments Abbreviations and Acronyms Executive Summary xvii xxi xxiii xxix Chapter 1 Introduction 1 Political, Legal, and Financial Framework 9 John Petersen and Mila Freire Chapter 2 Fiscal Devolution 11 Chapter 3 Market Setting and Legal Framework 29 Borrowing Instruments and Restrictions on Their Use 47 John Petersen and Miguel Valadez Chapter 4 Subnational Governments as Borrowers..49 Chapter 5 The Nature and Design of Debt 63 Chapter 6 Debt Instruments and Methods of Sale...77 Chapter 7 Restrictions on the Issuance and Use of Subsovereign Debt 87 Characteristics of Financial Market Regulation and Disclosure 111 John Petersen Chapter 8 Financial Market Structure, Regulation, and Operations 113 Chapter 9 Disclosure and Financial Reporting

3 vj Contents IV Evaluating, Monitoring, and Assisting Subnational Governments 139 John Petersen and Marcela Huertas > Chapter 10 Credit Analysis and Credit Ratings Chapter 11 Monitoring and Intervening in Subnational Government Finances 155 Chapter 12 Designing and Implementing Credit Assistance to Subnational Governments 173 V Policy Guidelines 203 John Petersen and Mila Freire Chapter 13 Concluding'Observations and Policy Guides" 205 VI Country Case Studies 21 7 Latin America and the Caribbean Chapter 14 Argentina,..219 Rodrigo Trelles Zabala Chapter 15 Brazil 261 Rodrigo Trelles Zabala and Giovanni Giovanelli Chapter 16 Colombia 279 Rodrigo Trelles Zabala Chapter 17 Mexico 299 Steven Hochman and Miguel Valadez Sub-Saharan Africa Chapter 18 South Africa 313 Matthew Glasser and Roland White Chapter 19 Zimbabwe 337 Roland White and Matthew Glaser Middle East and North Africa Chapter 20 Morocco..355 Samir El Daher

4 vii Chapter 21 Tunisia 365 Samir El Daher Asia Chapter 22 People's Republic of China 375 John Petersen Chapter 23 Republic of Korea 399 John Petersen Chapter 24 India 413 Pryianka Sood Chapter 25 Indonesia 443 Robert Kehew and John Petersen Chapter 26 The Philippines, 461 John Petersen Eastern and Central Europe Chapter 27 Bulgaria 487 Peter D. Ellis and Kremena Ionkova Chapter 28 Czech Republic 503 Joao C. Oliveira and Jorge Martinez-Vazquez Chapter 29 Hungary 525 Pryianka Sood Chapter 30 Poland 545 Miguel Valadez and John Petersen Chapter 31 Russian Federation 571 Asad Alam, Stepan Titov, John Petersen Bibliography 593 Index 607 Boxes 2.1. Devolving Responsibility for Elementary School Teachers' Salaries in Romania Rio and the International Marketplace 23

5 viii Contents 3.1. Banks and Securities Markets: Are Both Needed for Development? Brazilian Banks' Excessive Concentration in Government Securities Defining and Controlling Public Debt China: Off-Budget Finance and the Transmuted Bond Restructuring Subnational Government:, From Few to Many (But How Many?) Importance of the Rate-Setting Pledge Intergovernmental Transfer Payments as Collateral Importance of Feasibility Reports: The San Pedro Sula, Honduras, Sports Complex Selecting an Underwriter through Competitive Negotiation Rigging a City's Bond Sale The Philippines: How Political Risks Can Inhibit Municipal Credit Markets Examples of Language on the Binding Nature of Financial Obligations The City of Cebu in the Philippines Considers a Deal Johannesburg Comes Up Short Example of Language Denying Central Government Responsibility for Municipal Debt Example of Language on Securing Debt with Own Revenues Commercial Banking in Transitioning Economies The Bank for International Settlements' Reserve Requirements and Capital Rules What Is a Security? 121

6 8.4. After 60 Years, Municipal Bonds Return to Romania Disclosure over the Internet Accounting for Accounting Differences Why Did Czech Municipal Debt Grow So Fast? Emerging Market Ratings and Bond Insurance Example of Information Provided in the Debt Annex of French Subnational Government Budgets In Argentina Trustees Make a Difference Debt Adjustment and Subnational Insolvency in Hungary Financial Stabilization to Address Subnational Bankruptcy in Latvia ' The Subnational Government Retreat from the Private Credit Market in the Czech Republic Moving from Soft to Hard Credit through Enforcement of Loan Collections: South Africa's Experience The Philippine Local Government Unit Guarantee Corporation The Tamil Nadu Urban Development Fund, India Assisting Small Bond Issuers: The Bond Bank Option : A Brief Illustration of Grant-Loan Integration: An Example from Indonesia A South African Parable Recent Projects Financed by the Tamil Nadu Urban Development Fund...' Basis for the AA+ Rating of the Madurai Municipal Corporation Bond Issue 438

7 Figures 3.1. Market Structures and Sources of Capital for Local Government Borrowing Stages of Development in Credit Market Access General Government Obligation Government Limited Obligation Public-Private Project Financing Matrix of Subnational Government Financing Capacity Debt Service Structures Retail On-Lending by the Government Financing Institution Wholesale On-Lending by the Government Finance Institution Securitization of a Loan Pool Mechanics of a Liquidity Facility Distribution of Shareable Taxes under the Coparticipation Scheme, Argentina Relative Fiscal and Debt Situations of Provinces, Argentina, Provincial Indebtedness by Type of Debt or Lender, Argentina, December Impact of the Devaluation on Provincial Debt, Argentina Disbursement of Coparticipation Revenues, Argentina Provincial Bond Debt Outstanding by Type, Argentina, End of Flow of Funds for the Salta Hydrocarbon Royalty Trust Bonds Selected Debt Indicators, Salta and All Provinces, End Selected Debt Indicators, City of Buenos Aires and All Provinces, End

8 xi Selected Debt Indicators, BuenOs Aires and All Provinces, End Distribution of the Debt Stock in Bonds by State, Brazil, End Subnational Debt as a Share of GDP, Brazil, Fiscal Balance as a Share of Total Revenue by Department, Colombia, Direct Subnational Debt, Colombia, Allocation of Credit from Findeter Debt Stock, Capital District of Santa Fe de Bogota, Borrowing by Three State Governments, Mexico, : Outstanding Municipal Debt, South Africa, / Outstanding Municipal Debt by Form, South Africa, Typical Cooperative Joint Venture Arrangement for Expressway Development Funding Approvals and Disbursements by the Tamil Nadu Urban Development Fund by Sector, as of 31 March Value of Capital Works Executed by Municipalities with Funding from the Tamil Nadu Urban Development Fund, 1993/94 to 1998/ Simplified Flow of Funds in the Pooled Financing Scheme Local Government Expenditure as a Share of GDP, Selected Countries, Various Years, Municipal Debt Outstanding, Czech Republic,

9 xii Contents Tables Local Fiscal Deficits, Czech Republic, Composition of Municipal Debt Outstanding, Czech Republic, Average Composition of Municipal Debt Outstanding, Czech Republic, Sources of Local Government Revenue, Hungary, Own-Source Revenue as a Share of Total Revenue, Szczecin, Local Government Debt by Source, Poland, Concepts of Surplus from Operating Revenues as a Source of Funds for Capital Spending Structure of Operating Revenue, Wroclaw, 2001 ; Budget and Debt, Wroclaw, Structure of Operating Expenditure, Lodz, Budget and Debt, Lodz, Debt Burden as a Share of Operating Revenue, Lodz, Budget Balance and Debt, Szczecin, =...', Debt and Debt Service as a Share of Operating Revenue, Szczecin, Budget and Debt, Krakow, Administrative Structure for Executing the Debt Strategy, St. Petersburg Municipal Debt Limitations in Selected Eastern and Central European Countries Credit Rating Volatility in Asia: Selected Standard and Poor's Long-Term Foreign Currency Sovereign Ratings 149

10 xiii Allocation of Responsibilities among Levels of Government, Argentina Terms and Conditions of the Typical Consolidation Bond, Argentina Provincial Bond Issues in Domestic and International Capital Markets, Argentina, Features of the Bond Issue by-the Salta Hydrocarbon Royalty Trust Debt by Source, Salta, , Key Features of the Bond Program of the City of Buenos Aires Main Characteristics of the Bond Issues by the City of Buenos Aires Debt by Source, City of Buenos Aires, : Access to the Bond Market by the Province of Buenos Aires, : Debt by Source, Province of Buenos Aires, Municipal Sources of Funds, Brazil, The "Traffic Light" System for Regulating Subnational Borrowing, Colombia Potential Borrowers frdm Findeter Terms and Conditions of Findeter Loans Features of the Bond Issue by the Capital District of Santa Fe de Bogota Revenues and Expenditures, Capital District of Santa Fe de Bogota, Debt Service, Capital District of Santa Fe de Bogota, Spending and Own-Source Revenues as a Share of GDP by Level of Government, Mexico, Selected Years, Subnational Bond Issues, Mexico, Assets of Deposit-Taking Institutions, Zimbabwe,

11 xiv Contents Local Government Revenues by Source, Zimbabwe, Gross Public Debt of Local Authorities, Zimbabwe; Bond Issues by Local Governments, Zimbabwe, Subnational Revenues and Expenditures, 1993 to ; Market Capitalization, Bonds, and Domestic Bank Credit as Percentages of GDP: Outstanding Domestic Bonds and Issuance in : Debt and Capital Spending of the Seoul Metropolitan Government, Republic of Korea, Fiscal Years Third Tier of Government, India, Fiscal Decentralization, India, 1997/ Finances of Local Bodies, India, 1990/91 and 1997/ Terms of the Bond Issue by the Ahmedabad Municipal Corporation Estimated Gap in Urban Infrastructure Financing, Tamil Nadu, Infrastructure Investment Requirements by Type of Urban Local Body and Sector, Tamil Nadu, Lending Terms of the Tamil Nadu Urban Development Fund since 1998/ Terms of the Bond Issue by the Madurai Municipal Corporation Financial Indicators for the Tamil Nadu Urban Development Fund as of March Terms of Issue of the Water and Sanitation Pooled Fund 441

12 xv Central Government Lending to Local Governments, Indonesia, Selected Years, Banking Sector Assets by Type of Bank, Indonesia, End of March Local Government Loans and Deposits with Selected Financial Institutions, Philippines, Financial Performance Indicators for Sofia, Credit Ratings of Selected Local Governments, Public Debt Outstanding, Czech Republic, Municipal Bonds Issued, Czech Republic, Equity and Debt Markets, Selected Countries in Central and Eastern Europe, End Terms of the Bond Issue by the Municipality of Budapest Terms of the Bond Issue by the Municipality of Pecs Current Structure of Subnational Government, Poland ;! Standard & Poor's Credit Ratings of Subnational Borrowers, Russian Federation, Debt by Type, St. Petersburg, Structure of Debt, St. Petersburg, Debt Indicators, St. Petersburg, Credit Ratings, St. Petersburg,