By World Bank
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There are no satisfactory short-term solutions, only palliatives. One option that should be considered is to quantify the operating subsidies provided through banks to the most "strategic" enterprises (defined using appropriate criteria) and to fix these subsidies in the budget as an explicit expenditure item. The banks should be encouraged to take responsibility for their short-term lending to SOEs, in exchange for limited access to a PBC rediscount facility. Access to this facility would be restricted for purposes of funding debt workouts of "strategic" enterprises.
While decentralization has undermined the mobilization of budgetary revenues subject to sharing with the central government, it has encouraged local governments to increase their control over resources through a variety of extrabudgetary levies. Such fiscal extrabudgetary funds have grown from an estimated 2 percent of GDP in 1978 to over 4 percent in 1992, impairing the central government's control over local government expenditures. Apart from difficulties with containing extrabudgetary expenditures, procedures for managing within-budget expenditures too have been deficient.
On the other hand, the experience of the past decade also confirms that local governments cannot be expected to be concerned about the negative externalities of their actions on the national economy. Primary responsibility for maintaining macroeconomic control must reside clearly with the central government. Some administrative recentralization, or recentralization of administrative authority, is therefore warranted. But, unlike in the past, this recentralization ought to be undertaken as part of a wider effort to develop national consensus on a delineation of the economic responsibilities of central and subnational governments.