The ILD’s Major Reforms in Peru
By the mid-1980’s, the ILD was transforming itself from a group of part-time researchers into a well-known Peruvian institution with the internal capacity to design and implement legal reforms. Beginning as early as 1984, the ILD proposed, developed, implemented, and ran a significant number of initiatives over the next decade that transformed the economic map and society in Peru.
Peru’s First Ombudsman
In 1984, to further increase the odds that the government would pay attention to the real needs of the people, the ILD mounted a campaign for an independent national “ombudsman” to represent the interests of citizens, no matter how poor they might be. Though there was no provision in the constitution for such a position, it authorized the Attorney General to “defend the public interest.” The ILD petitioned the sitting Attorney General who agreed that he, too, thought that an ombudsman would improve the quality of Peruvian lawmaking. In July 1984 and December 1985, the ILD signed two agreements with the Office of the Attorney General to design the legal mechanisms for Peru’s first “Office of the Ombudsman” --El Defensor del Pueblo.
In February 1986, the ILD launched the ombudsman project: A special team from the institute set up several offices in downtown Lima to receive and process grievances. During the first month, more than 153 grievances representing 300,000 individuals were received either in person or by mail. More than half of the complaints were about the difficulties of gaining legal access to housing. The ILD’s agenda was now clear: It had to learn why housing had become such a primary concern for so many Peruvians. What precisely did it take, or cost, for an ordinary family to get a piece of real estate?
Using real case histories and simulations, ILD researchers discovered that existing government procedures to allot undeveloped land involved 207 bureaucratic steps that could take upwards of three years to complete; gaining a legal property title might take as long as 20 years! Suddenly, the reason became quite clear for the number of housing complaints and why there had been 282 violent land invasions in Peru in 1985 alone. The majority of Peruvians did not have legal access to land, leaving them no alternative but to squat on private and public lands.
The ILD proceeded to draft eight proposals for reforming the legal property system and addressing other bureaucratic hurdles that alienated the poor from the law, including the formalization of property, access to public information, administrative simplification, and arbitration, which it turned over to the Office of the Ombudsman. Once again, however, when faced with a concrete proposal, the government resisted change. A new Attorney General had also taken office, and since the Attorney General was then part of the executive branch, he was pressured to drop the proposed reforms. The ombudsman was in place but politically stymied. The ILD was then forced to discontinue its relationship with the Attorney General.
But, once again, a failure had its silver linings: Poor people had tasted the benefits of having government listening to them directly, and the Government would be hard-pressed to persuade them otherwise; for the ILD’s part, it had discovered beyond a doubt that property was an important issue for most of the people of Peru, demanding further study. In addition, the ILD’s hard work of setting the ombudsman concept into motion turned out not to be in vain: Peru’s New Constitution of 1993 incorporated the Office of the Ombudsman as an autonomous entity no longer part of the Attorney General’s office, just as the ILD had proposed.
Bringing Extralegal Property into the Legal System
By 1987, ILD’s research had determined that the value of real estate assets that were not duly titled or could not be leveraged to generate capital was in the neighborhood of US$ 70 billion. Such “extralegal” homes could not be used in the legal market to obtain credit or produce surplus value. Therefore, for their owners, this enormous investment was “dead capital.”
The ILD launched another communications campaign and held public hearings along with open discussions in urban and rural areas to probe public opinion about what informal legal arrangements people actually had to secure and transfer their assets in the extralegal sector. The information gathered from these meetings allowed the ILD to define what the extralegal social contract about property really was and how it could be made compatible with professional, systematized law. The ILD then drafted the “Property Registry Law,” presenting it to the Peruvian parliament in 1988. Simultaneously, the ILD was conducting a national campaign to create public awareness of the issue and the advantages of integrating such a huge amount of extralegal property into the legal system, which reached its pitch when Peruvian pollsters confirmed that 80 to 90 percent of the population supported “formalization” of the poor’s real estate assets.
With public opinion firmly behind formalization, the Peruvian parliament unanimously enacted the ILD’s draft into law (Ley del Registro Predial) in November 1988, thereby reducing the administrative time to record the property of the poor from more than a dozen years to one month and cutting the costs by 99 percent. To assure that extralegal property was titled and recorded, the ILD helped to create a new organization --Registro Predial-- and then proceeded to run it on behalf of the Government from 1990 until 1996.
In 1995, the World Bank and President Alberto Fujimori requested a new project from the ILD to extend formalization further. The ILD came up with a draft that became Decree Law No. 803 in March 1996, creating the Commission for the Formalization of Informal Property (COFOPRI) as well as the start-up programs and the strategy for that organization. Once the law was enacted, the government assumed direct control of the property formalization program and hired existing and former ILD personnel to manage it.
Administrative Simplification
To deal with the queues, paperwork and excessive bureaucratic procedures that caused most Peruvians so much lost time, unnecessary expense, not to mention the general constraints on economic activity, the ILD created a draft of the law and an administrative strategy to streamline bureaucratic procedures and facilitate institutional reform. This proposal was based on public hearings and debates throughout the country, featuring legal specialists and congressmen. Such events, which went on for two years, not only added substance to the ILD proposal but created an enormous wave of support for it.
As a result, in June 1989, the ILD’s draft was unanimously approved in Congress by all political parties and, with no major modifications, became Law No. 25035 for Administrative Simplification. Government now had the mandate and means needed to decrease or eliminate unnecessary red tape, streamline public administration, and substantially reduce transaction costs. The new law rested on four pillars: 1) substituting most ex ante requirements that create legal bottlenecks with ex post controls; 2) keeping the costs of operating legally below those of operating illegally; 3) decentralizing decision-making procedure; 4) promoting user participation to control the application of all decisions.
Shortly after the law was enacted, President Alan Garcia called upon the ILD to manage the implementation of the simplification process. The ILD signed an agreement with the Government in July 1989. The ILD proceeded to design a unique mechanism called “The Administrative Simplification Tribunal” to gather and evaluate proposals from citizens for deregulation and to check up on how various bureaucracies were responding to the dictates of the law. To facilitate public participation, bright yellow boxes were placed in the ILD headquarters, in several government offices as well as at all the radio, television, and newspaper outlets to make it as convenient as possible for people to deposit their grievances. The media were encouraged to review the grievances they received, and when they saw an astonishing or outrageous story, they took up the cause, creating the kind of public pressure that politicians found impossible to ignore. The complaints were dealt with in a publicly televised tribunal managed by the ILD and presided over by the President of the Republic every second Saturday morning. The televised proceedings racked up ratings that any entertainment series would have been proud of.
During the year the Tribunal was in operation --with the President, by law, in attendance-- more than 200 bureaucratic knots were untied. The time previously required to fulfill hundreds of different kinds of official procedures, including obtaining a passport, applying to university, and getting a marriage license, was cut across the board by at least 75 percent. To get a marriage license, which used to take 720 hours of bureaucratic hassles, was reduced to 120 hours, thus helping women secure their rights as marriage partners. The number of documents required to apply to university was reduced from nine to two. At the end of President Garcia’s term in July 1990, 79 percent of the population (and 84 percent of the poorest among them) rated the Law of Administrative Simplification as the best law enacted during the 1985-1990 legislative period. After the change of government in July 1990, the ILD presented President Alberto Fujimori with a package containing 39 draft laws for legal reform derived from the ILD’s analysis of the grievances received by the Tribunal and based on the principles of administrative simplification. The Executive branch eventually enacted 15 of these, including the Unified Business Registry for incorporating small businesses, the liberalization of the land real estate markets, and a pardon for prisoners whose cases had never come to trial.
The Fujimori Government used the instruments contained in the Law of Administrative Simplification to carry out most of the structural adjustment reforms that were required to insert Peru into the global economy. Unfortunately, the President refused to continue the televised Tribunal perceiving them as a remnant of the government of a political foe whose popularity ratings had soared within a few months from six to 25 percent, thanks mainly to the exposure he received from his televised appearances at the Tribunal.
The Unified Business Registry
During his 1990 campaign for the Presidency, Fujimori used ILD research to make a major issue of the obstacles that small enterprises were facing in Peru. In September 1990, one month after Fujimori’s inauguration, the ILD presented the new president with a draft law aimed at reducing radically the time required to obtain a license to operate a business legally. In September 1990, the President enacted Supreme Decree No. 118-90-PCM establishing the Unified Business Registry.
The existence of this new government agency reduced red tape and costs dramatically: the nearly 300 days it took to obtain a business license were cut to one day --and one desk; the cost was slashed by seven times, from US$ 1,200 to US$ 174. Consequently, between 1991 and 1997 alone, 671,300 businesses were legalized, creating 557,770 new jobs. The creation of the Unified Business Registry also saved a total of US$ 700 million dollars in administrative expenses and losses. In addition, the collection of just three of the most important taxes increased by an annual average of US$ 248 million. The Unified Business Registry has since been absorbed into the National Tax Administration (SUNAT).
The Municipal Operating License
Most of the obstacles to creating a new business in Peru occur at the national level, and the Unified Business Registry was aimed at wiping them out. But there is another level of bureaucratic obstacles presented by municipal governments that operate independently of the national government. To deal with those obstacles, the ILD proposed in May 1990 to all of Peru’s municipalities a public ordinance for simplifying the granting of municipal operating licenses.
Some ten municipalities adopted the ILD’s model ordinance and thereby cut the costs for obtaining municipal licenses for a business from US$ 690 to US$ 70 dollars and reduced the bureaucratic gauntlet from two months to one day. Some municipalities were assisted by the ILD, while others benefited from the Unified Business Registry, which had been designed and implemented by the ILD.
The System of Arbitration
As in other developing countries, the administration of justice in Peru is inefficient and costly, especially for the poor. It is one of the reasons why many poor people decide to resolve their conflicts outside the law. To create a conflict resolution system that would be accessible to the poor, the ILD studied the limitations of the official legal system along with the extralegal mechanisms that the poor themselves used to resolve their disputes that were relatively efficient.
Once again, the ILD carried out hundreds of interviews, held dozens of public hearings, and hired several prominent foreign and local legal experts to help draft a new arbitration law.
In February 1992, the ILD proposed to the Peruvian public and Government a draft of a new law that would allow all parties in conflict the option of not going to court but to undergo an arbitration procedure that would solve their problems in a quick, inexpensive, fair, and predictable way. Although the ILD draft was not accepted, its provisions were included in General Arbitration Law No. 25935 in December of the same year. In addition, the agency in charge of formalizing property, COFOPRI, which was created in 1996, adopted the rules for resolving informal property border and ownership disputes from the ILD proposal and incorporated them into COFOPRI’s regulations.
Justice for Untried Prisoners
The poor are also victims of a slow and onerous criminal justice system. In 1990, ILD research revealed that 13,595 prisoners --75% of the prison population-- had not been tried. Worse, many of these prisoners had already served jail terms that were longer than those set by law for the crimes they had allegedly committed.
The ILD proposed a legal alternative to President Fujimori: the pardon of untried prisoners. Supreme Decree 017-90-JUS approved this pardon in September 1990. Thanks to this pardon and under ILD supervision, a total of 4,000 prisoners --30% of the prisoners behind bars without trial-- were set free. The pardon, however, did not apply to such offenses as drug trafficking, terrorism, child molestation or homicide. The Penal Procedure Code incorporated the fundamental principles of the ILD’s proposal. Currently, there is a special Civil Committee that evaluates the prison population --based on precedents that were set by the ILD-- and recommends to the President the release of unjustly jailed or untried prisoners.