In 1990, the Peruvian government launched a major customs administration reform. The reform transformed what was generally considered to be an inefficient and "bad" customs administration into an efficient and modern administration that observers see as a model for others to follow. Moreover, the improvements resulting from the reform have been sustained to date, consolidated, and deepened.
The most important steps that would eventually ensure the success of the reform were taken at the very beginning and during the initial years of the process, when the legislative basis for reform was laid. With the support of the highest authority, reformers were able to work toward achieving their vision of a professional, modern customs administration characterized by integrity. Rather than tinkering with adjustments or improving existing systems and procedures, the reformers started with a clean slate; went for the best in organizational, managerial, and operational systems; and largely achieved their objective through quality design and planning. The customs administration changed dramatically within a few years, and the consolidation and deepening of the reform process continues today.
The modernization of a complex administration is, by its nature, a gradual process. One cannot pinpoint a fixed date when the new customs administration was established. The most intense years of reform were 1991-94, when the basics were developed and put into place, and 1995-98, when the reforms were consolidated and deepened. Following a brief leveling-off period, in 2000 the reformers made a push for further modernization, increased administrative efficiency, and better service to the trading community with a program of second-generation reforms that were based largely on more intensive use of technology. Today the customs administration continues to renovate itself in light of changes in the trading environment and technological developments.
Although Peru's achievements are formidable both in substance and in sustainability, continued vigilance and effort will be needed to prevent the quality of the customs administration from deteriorating. Risks are mainly economic and political, but some of a systemic nature may also arise.
This chapter begins by reviewing the circumstances and factors that stimulated the reform and underlie its success. Skeptics might reason that being perceived as successful is easier when a country starts from an extremely low point of departure and establishes what should have existed in the first place, but Peru's success in customs reform is much Page 66 more than that. By starting from scratch, in many ways Peru surpassed the degree of modernization and the quality of management systems that can be found in many industrial countries. That is not to say that the system is perfect, and improvements and adjustments are possible or needed in a number of areas, but that situation is characteristic of customs administration. Given its position in the middle of foreign trade operations, customs administration needs to be flexible and able to adapt to changes in the sector.
This section summarizes the characteristics of the trade and tariff regime and the customs administration in 1990 and how the economic crisis that erupted that year led to important policy and institutional reforms, including the customs administration reform.
In 1990, Peru's trade regime was characterized by intervention, regulation, and protection. The import tariff regime was complex, consisting of 39 different rates, ranging from 10 percent to 84 percent, along with 14 different surtaxes. In combination, the tariffs and surtaxes amounted to 56 rates ranging from 10 to 110 percent. The overall rate level was high. The unweighted, average, nominal tariff rate, excluding surtaxes, was 46.5 percent. Multiple exemptions and numerous nontariff barriers added further complexity. Peru also had 130 special exemption regimes. Nontariff barriers included quantitative restrictions, prohibitions on 539 tariff items, licenses, importer and exporter registration, authorizations, and administrative requirements. Exports were subsidized.
In 1990, Peru's customs administration was disorganized, inefficient, and corrupt, and it had a negative public image. Out of 4,700 personnel, only 2 percent were professionals. Salaries were low and training was inadequate. In addition, discipline was poor and the incidence of corruption was high. Laws and regulations were uncoordinated and contradictory, and neither customs personnel nor the private sector were familiar with them; as a result they were not properly applied. Working without guidelines or instructions, personnel acted on suspicions rather than on good faith. Discretionary action was the rule. Procedures were bureaucratic and cumbersome, with excessive clearance controls. Customs valuation was subjective; thus the duties and taxes charged on import shipments were unpredictable. On average, goods were not released from customs until more than 20 days after the presentation of declarations. Such delays substantially increased costs for import and export businesses.
Computing equipment was inadequate, and the customs administration lacked professional staff members with adequate computer skills. The customs process was almost entirely based on paperwork. Statistics were processed through a mainframe computer at the Ministry of Economy and Finance (MEF) that served the entire ministry. Statistics, prepared only after huge delays, were obsolete by the time they were ready. Infrastructure was precarious and, at some customs offices, nonexistent. Vehicles were not available for operational activities, and communication links between headquarters and field offices were lacking.
The customs administration's collection function was not effectively controlled. Revenue collection procedures lacked rigor and resulted in a large number of disputes and litigation cases. In addition, many payment checks lacked deposit coverage, but the customs administration failed to take action to recover revenue. Customs policy was not clearly defined, and institutional development plans did not exist. Also the customs administration failed to provide the public with information about rules, procedures, and activities. Personnel changes in senior management positions were frequent. Finally, the customs administration depended on the MEF for its budget. There was no investment budget, and budgetary programs were not properly implemented.
The Peruvian customs reform came about as a result of the 1990 economic crisis. In 1990, Peru faced an unprecedented collapse of its public finances. Tax revenue, which had averaged between Page 67 15.0 and 17.0 percent of gross domestic product (GDP) in the mid-1980s, had fallen to 8.7 percent of GDP, and GDP itself was also falling. Those developments coincided with hyperinflation and increasing terrorism by the Shining Path. To bring Peru out of the crisis, newly elected President Alberto Fujimori launched major policy and institutional reforms. The old trade policy of interventionism and protection was replaced by a policy of deregulation, openness, and liberalization. Within a year, quantitative restrictions and other nontariff barriers had been virtually eliminated, the tariff structure had been simplified to only a few low rates, and most exemptions had been abolished.
On the institutional side, a January 1991 decree mandated the reform of all public entities of the central and regional governments and decentralized public institutions. Customs reform was considered urgent because of the fiscal emergency and the need to reduce obstacles to trade. A March 1991 decree empowered the customs administration to reorganize itself. The subsequent Legislative Decree Number 680 stipulated that the reorganization must encompass the redefinition of a national customs policy, a new organizational structure, the professionalization of staff, the implementation of an integrated computerized system for administrative and technical operations, an overall moralization of customs staff, the reactivation of foreign trade, and an increase in budgetary revenue.
This section reviews important initial measures taken to establish a solid basis for sustainable reform.
In December 1990, President Fujimori appointed Carmen Higaonna as superintendent of the customs administration with a mandate to reform the agency. Higaonna was eminently...