Decentralization in Peru is an ongoingprocess that is in its infancy and faces key challenges.This study aims to take stock of the process and identifythese challenges. The main goal of the report is to helpthink through these issues with a view of identifyingpriorities and opportunities for fruitful engagement in thisarea. Much of the stock-taking serves as an introduction tothe topic for the general reader and draws on what hasbecome by now extensive secondary literature. The reportdistils the key challenges of the decentralization processand adds value in three specific areas. A first distinctcontribution of this report is to highlight the importanceof political economy factors in explaining the ebbs andflows of the decentralization process. Second, the reportprovides new data on truly decentralized spending as opposedto deconcentrated as well as on public spending per capitaacross districts. Third, this report provides a novelanalysis of the efficiency of public spending acrossdepartments in Peru. The report compiles measures of publicsector performance and efficiency for education, health, andtransport across all departments. The overall institutionalframework provides enough reasons for reconsideration anarea where the Bank could add value. To be clear, thisreport does not call for new rushed legislative initiativesto address the perceived shortcomings in the institutionalset up. What is called for is the creation of spaces forinter-institutional and inclusive dialogue to help establisha consensus on some basic principles. Only then will changesto the current institutional framework be appropriate. Themechanism to share natural resource revenues among levels ofgovernment has contributed to obfuscate the decentralization process.
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