OECD Reviews of Regulatory Reform

ISSN :
1990-0481 (online)
ISSN :
1563-4973 (print)
DOI :
10.1787/19900481
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This series presents the results of country peer reviews of regulatory reform in OECD countries. They present an integrated assessment of regulatory reform in framework areas such as the quality of the public sector, competition policy and enforcement, and market openness. They also contain chapters on sectors such as telecommunications, electricity, road and rail freight, and an assessment of the macroeconomic context for reform. The policy recommendations present a balanced plan of action for both short and longer term based on best international regulatory practices.

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OECD Reviews of Regulatory Reform: Brazil 2008

OECD Reviews of Regulatory Reform: Brazil 2008

Strengthening Governance for Growth You do not have access to this content

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Author(s):
OECD
Publication Date :
29 May 2008
Pages :
328
ISBN :
9789264042940 (PDF) ; 9789264042933 (print)
DOI :
10.1787/9789264042940-en

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The debate on a market-based economy has now entered a new phase in Brazil, addressing the broader context of quality regulation and the reduction of regulatory risk. The improved macroeconomic situation and the progress made by the sectoral regulatory agencies have paid off, and there is also wider social participation in the improvement of the regulatory framework with a stronger consumer engagement. But Brazil still needs to further improve its capacities for regulatory quality and increase transparency and accountability in the system to reinforce regulatory performance.

This review analyses the challenges of strengthening regulatory governance in Brazil to improve economic growth, with appropriate regulatory frameworks for core infrastructure sectors. Improved institutional capacities would also enhance support for regulatory policy across various government areas. Setting up an appropriate architecture for sectoral regulatory agencies and balancing autonomy with accountability will contribute to improved governance. Challenges include consolidating the autonomy and status of Brazilian regulatory authorities, reinforcing the strategic organisation for planning and decision making, increasing social accountability mechanisms, and improving co-ordination with competition authorities. Regulatory reform will help Brazil boost growth opportunities, and improve the quality and value of core services provided to its citizens.

Brazil requested this broad review by the OECD of its regulatory practices and reforms. The review presents a general picture of the overall frameworks to assure high quality regulation with a special focus on four core infrastructure sectors: power, private health insurance, land transport and telecommunications. 

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    Executive Summary

    Brazil has now entered a more advanced phase of economic development, with the need to strengthen the institutional foundations for a market-based economy. After a long period of state intervention, the country experienced a move towards liberalisation and privatisation in the early 1990s. The Real Plan (Plano real) created a more favorable environment for regulatory reform with greater economic openness, institutional reforms and stable inflation. The competition framework was modernised with the 1994 Law. In this context, a number of regulatory authorities were established.

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    Introduction
    The debate on regulatory agencies in Brazil emerged in the second half of the 1990s as part of the reforms then under way. Talks on regulatory reform focused mainly on governance issues, such as achieving a proper balance between independence and accountability. One issue that has been viewed as being in contradiction with core aspects of the Brazilian state is that of delegating regulatory competencies, especially at a time of significant macroeconomic fluctuations and a lack of consensus on the exact role of the state in the economy.
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    Government Capacity to Assure High-quality Regulation in Brazil
    In the past 25 years, few reforms of the public sector in OECD countries have received more attention than those made to regulation making and regulatory management. Today, all 30 member countries have regulatory management programmes. These programmes are focused on the regulatory management system in place and on ensuring the quality of new as well as existing regulation (Box 1.1). Regulatory policy, as with other core government policies, such as a monetary or fiscal policy, is dynamically focused and founded on the view that ensuring the quality of the regulatory structure is a permanent role of government. This means that governments are taking a pro-active role in implementing regulatory quality assurance systems.
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    The Power Sector
    Brazil has set itself the ambitious goal of developing a national power system that can reliably meet growing demand, is environmentally sustainable, and supports social justice. Its current large and modern power sector, centralised regulatory management, and reforms of the last decade that have disaggregated the industry and introduced competition, all combine to give it a solid basis for meeting these objectives.
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    The Private Health Insurance Sector
    Private health insurance (PHI) refers to diverse health funding arrangements in different national contexts (Colombo and Tapay, 2004a). It is distinguished from public coverage programmes primarily by its funding through non-income-related premiums – usually paid on the basis of a contract between a private party and an insurance entity – as opposed to taxes or social security payroll contributions. It is generally, but not always, of a voluntary nature, although participation may be set forth by the conditions of employment (OECD 2004a).
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    The Telecommunications Sector
    The telecommunications sector is characterised by the mutual interaction between rapid technological change and a constantly evolving regulatory framework. In the case of Brazil, the strategy for the sector was to implement a "big bang" restructuring in the mid- 1990s: dismantling the former TELEBRÁS state-owned system, liberalising the market, allowing entry of additional players, expanding the existing network and supporting fast emergence of additional communication paths, while also setting up a state-of-the-art regulatory authority. On the whole, the Brazilian reform process was exemplary and has enabled the sector to signal the country’s commitment to open trade and investment policies while expanding its telecommunications network. Today Brazil accounts for 43% of all telephone lines in Latin America and has the highest teledensity (OECD, 2007). Thus, at the current stage, transition to a private system has already been accomplished. While from a comparative perspective the Brazilian regulatory structure followed international best practice in general terms, the hurdles of implementation in a large middle-income country facing macroeconomic crises and significant external exchange rate fluctuations were significant. The definition of universal service goals remains at the heart of the policy debate, because the regulatory framework has not fully caught up with technological advances such as the diffusion of broadband Internet and the rapid expansion of access to mobile phones. While the structure of the regulator is relatively solid, the pathway to transition highlights complex socio-political challenges derived from rapidly fluctuating exchange rates and a certain lack of attention to consumers’ concerns. Hence, ANATEL currently faces a situation where additional regulatory action is needed in order to prevent and solve market bottlenecks, facilitate universal access in the context of modern technologies, and better integrate the consumer perspective.
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    The Land Transport Sector
    Transport is a key means by which public investment can contribute to overall economic growth. Infrastructure services, including roads and railroads, are critical to the operation and efficiency of a modern economy. Major inputs in the provision of goods and services, they have a significant impact on the productivity and competitiveness of the economy. This is why adequate investment and increased efficiency in this sector are crucial to improving the living conditions of the population at large, particularly in a middle-income and geographically vast country such as Brazil. A potential lack of longterm investment in this sector could have negative implications. Indeed, this sector is part of the main objectives of the Brazilian Growth Acceleration Programme – PAC.
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    Independence and Accountability of Regulatory Authorities
    The institutional autonomy of administrative bodies is a controversial and political issue in Brazil. It is difficult to build consensus around this issue across such a wide and highly diverse country. Setting up and operating independent sectoral regulators has involved significant challenges. Autonomy at technical level has, however, progressively strengthened with a more balanced equilibrium, facilitated by the general macroeconomic stabilisation experienced by the country in recent years, with sustained economic growth.
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    Horizontal Institutional Architecture
    Regulatory authorities are part of an overall regulatory system that needs to be considered as a whole. This means that account must be taken of transversal institutional architectur, in terms of relations with other agencies and across levels of government, and the definition of the role of authorities and their relationship to the institutional environment. Included in that environment are the Brazilian competition authorities, consumer protection bodies and regulatory agencies at the state level.
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    Powers for High-quality Regulation
    Regulatory authorities are distinct from other decentralised agencies, as they are granted specific powers, often through the law that establishes them. This allows authorities to issue opinions, set out rules, monitor and inspect, enforce regulations, grant licences and permits, set prices and settle disputes. The range of these powers may vary substantially among agencies in the same country, as it has to reflect the different realities of the different sectors. A one-size-fits-all approach may therefore not be adequate in that respect. Agencies can receive direct powers, but they also often have a significant advisory function, based on their expertise. These regulatory powers that are devolved to regulatory authorities need to be considered from a whole-of-government perspective, as they have to contribute to high-quality regulation. Therefore, a quality regulation perspective can serve as an analytical basis on which to assess the transparency and reliability of regulation made and enforced by the agencies.
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    Assessing the Performance of Regulatory Authorities
    The use of performance assessment is crucial in order to improve the quality of regulators’ decisions and actions. This entails determining the impact of the regulators’ acts. Performance assessment may be carried out a priori or a posteriori. A priori analysis consists in a Regulation Impact Analysis (RIA), as analysed in the chapter on capacity for quality regulation. A posteriori analysis includes the evaluation of the regulators’ achievement of objectives through assessment of their economic and social impact with regard to the powers and resources assigned to them. This is essential for institutions financed by public funds that have the obligation to be accountable. The process calls for a need to find a balanced approach, as too rigorous an evaluation could be used to weaken the independence of regulators, thus undermining their action, and the lack of evaluation could raise doubts over their legitimacy and restrict their influence.
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    Conclusions and Recommendations
    Brazil faces the challenge of establishing a regulatory framework that will facilitate and accelerate its long-term economic growth. The country has made progress towards addressing its broader economic and social imbalances. OECD work shows that there is a clear link between the long-term economic performance of a country, and the quality of its overall regulatory framework. In Brazil, much of the recent debate has focused on regulatory authorities, which have been analysed in this report. However, the economic and policy implications of the regulatory framework extend beyond these agencies. Improving the overall regulatory framework, paying attention to quality, impact assessment and simplification, will also contribute to long-term growth. Significant aspects of the regulatory framework were not addressed as part of the current report, at the state and municipal level. While improvements can be discussed at the federal level, they will need to be matched by similar attention at lower levels of government. The sectors analysed here show many positive signals and achievements, even if significant bottlenecks persist in some areas. A governance approach that takes into account the link between institutional structures and economic development can help achieve social and economic goals, while responding to policy priorities. Brazil is confronting the challenge of increasing social inclusion, and broader social participation may also help to address the challenges of reforming public services in such a large and diverse country.
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