Snipping the SNIP

16 October 2016

The Kuzynski government has announced that it will be getting rid of the Sistema Nacional de Inversión Pública (SNIP), the system by which the Ministry of Economy and Finance controls the selection of projects to be implemented by sub-national tiers of government.

Since its establishment at the end of the Fujimori government in 2000, the SNIP has long been a bone of contention for regional governments since it limited their ability to select projects and fund them according to their own preferences. It has widely been seen a means of imposing the agenda of central government, notwithstanding attempts to decentralise the way Peru is administered. As a bureaucratic hurdle, the SNIP also has the effect of slowing down the speed of carrying out public investment in much-needed infrastructure.

The rationale for the SNIP, however, was that it provided a filter for the selection of projects, weeding out those that made little economic sense or, worse, involved corruption.

Getting rid of the SNIP is primarily a political move. Lacking support in Congress (where Kuzcynski’s PPK party has only 18 out of 130 seats), the new president needs to build friendships and alliances at the sub-national level, particularly among the presidents of Peru’s 25 regional governments. Since many of those elected to Congress for the opposition Fuerza Popular hail from the regions outside Lima, building such alliances has a restraining effect on those elected as FP congressmen for the regions.

Also, the amount of cash now being disbursed to the regional governments has undergone a substantial reduction. The fall in minerals prices has undercut the amount of tax receipts available for distribution, particularly through the canon system. The canon involved half the proceeds generated from extractive profits, mainly minerals and hydrocarbons, being siphoned off to sub-national government for infrastructure projects. At the height of the mining boom, this involved huge quantities of cash being channelled to local government, often for highly questionable purposes.

It remains unclear what exactly will replace the SNIP. Economy Minister Alfredo Thorne has said the emphasis in public investment will now be to reduce social divides (brechas). Announcing its demise on 11 October, President Pedro Pablo Kuczynski said that there would be a more decentralised system of resource distribution, but with due financial controls as to the efficient use of funds. Plus ca change...?


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