The Challenges and Risks of Creating Independent Regulatory Agencies: A Cautionary Tale from Brazil
69 Pages Posted: 2 May 2007 Last revised: 3 Jun 2010
Between 1996 and 2002, the Brazilian government established independent regulatory agencies (IRAs) for electricity, telecommunications, oil and gas, and other infrastructure sectors as part of a very ambitious privatization program. Following the formulas advocated internationally, Brazilian IRAs have institutional guarantees of independence such as fixed and staggered terms of office for commissioners, Congressional approval of presidential nominations, and alternative sources of funds to ensure their financial autonomy. This paper analyzes the design of IRAs in Brazil and asks whether their institutional guarantees of independence were effective in insulating them from the political sphere. My general conclusion is that these guarantees - typical of developed countries, especially the U.S. - failed to insulate Brazilian agencies. The paper indicates a number of episodes of political influence over agencies, and uses detailed institutional analysis to explain what went wrong. The Brazilian experience illuminates the difficulties that many developing countries face in trying to realize the ideal of regulatory independence and the benefits that would supposedly flow from this. Thus, it might serve as a cautionary tale for policymakers and also for developing countries contemplating similar reforms.
Keywords: Brazil, independent regulatory agencies (IRAs), privatization, regulatory agencies
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