Institute for Liberty and Democracy

Establishment

The ILD's initiative began in 1979 when de Soto was running a group of small Peruvian mining companies headquartered in Lima and believed he was spending too much of his time grappling with red tape and climbing over regulatory barriers. He found this to be a nationwide problem, resulting from excessive government regulation. This meant that the lion's share of the Peruvian economy was an informal one. The ILD's research received much publicity and de Soto was contacted by President Fernando Belaúnde Terry who asked him for a plan to reform executive branch legislation. However, the project was abandoned due to pressure from Belaúnde's cabinet.

ILD has worked directly in more than 25 emerging market countries and has been consulted by 35 heads of state, leading a range of high-impact projects such as managing property formalization in Peru, implementing land titling in El Salvador, and helping streamline the legal frameworks governing property and business rights in Tanzania and Egypt.

The "Other Path"

When the Shining Path began to gain power during the 80s, the ILD started a campaign to raise awareness about "the informal sector." In 1986, de Soto published his first book, The Other Path, calling for legal reforms.

In 1984 the ILD sought to establish an ombudsman in Peru to represent public interests. 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 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.

ILD researchers concluded that existing government procedures to allot undeveloped land involved 207 bureaucratic steps that could take upwards of three years to complete, and that gaining a legal property title might take as long as 20 years. The ILD drafted eight more proposals for reform.

Property rights campaign

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 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.

The Peruvian parliament unanimously enacted the ILD's draft into law (Ley del Registro Predial) in November 1988. 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 reforms

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. 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. The concept of 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 García 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 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 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.

Legal system

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 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.

The ILD proposed to President Fujimori a plan for the pardon of untried prisoners. Supreme Decree 017-90-JUS approved this pardon in September 1990. 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.