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Contributions from
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Tribune
Tajikistan needs policy change
Untapped potential
New approaches for Bolivia and Nicaragua
02/2005
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[ Donor harmonisation ]
New approaches for Bolivia and Nicaragua
Initial experiences with joint funding by several donors in Latin America show that these innovative procedures can make sense. It is, however, important to pay more attention to political factors, to strengthen implementing institutions and to actively minimise risks. All summed up, it seems promising to tackle development in a pluralistic sense, which combines new and tested instruments.
[ By Wolfram Klein ]
As potential methods to enhance development cooperation, donor harmonisation and joint funding have currently become subjects of intensive international debate. It is said that efficiency, effectiveness, significance and sustainability suffer because of the great number of donors who all apply different systems for goal definition, implementation and monitoring. Developing countries are, therefore, said to be discouraged from assuming responsibility.
While such criticism is appropriate, the technical terms often remain unclear. For instance, “donor co-ordination” is used as a synonym for the application of joint instruments, but the word merely describes a cooperative approach among donors. “Harmonisation”, on the other hand, includes a considerable convergence of objectives and, where relevant, of the mechanisms used. “Joint programmes” (such as sector wide approaches), imply a certain level of consensus on common goals. However, it is “joint funding” which zeroes in on common instruments (such as budget support with donors directly funding national budgets or basket financing with donors pooling money for certain policies).
Blurred concepts imply the risk of focussing too strongly on individual instruments such as basket of budget financing. Germany has promoted a more comprehensive approach within the framework of the OECD’s Development Assistance Committee (DAC), and rightly so. By introducing multiple-year commitments and defining priority programmes and focus areas, Germany’s Development Ministry (BMZ) has already improved its operations with a view to facilitate harmonisation, joint programmes and instruments.
In theory, it is clear why joint programmes with other donors make sense.
– They reduce transaction costs and increase efficiency and effectiveness. In addition, they create a better overview of what kinds of consultation and funding are needed in the medium term.
– They shift responsibility for implementation and monitoring to the target countries (and ideally, for planning too), thereby increasing ownership and sustainability.
– Donors’ co-ordination among one another becomes more policy- and result-
oriented.
– Less competition between donors adds to the other advantages.
But are the advantages real? Internationally, this question is still too rarely raised. Bolivia and Nicaragua are interesting examples for harmonisation efforts in Latin America, a region so far hardly considered in this context. In both countries, many donors are active, and both are highly dependent on aid. Both countries offer a good common basis for donors, because they have drafted poverty reduction strategies in the context of the HIPC debt relief programme.
In Bolivia, a major programme for institutional reform (PRI) was set up with a “basket” of over 60 million dollars. One of the objectives was to introduce a professional civil service. However, the programme has almost completely failed because of major problems, including lack of support from a government playing games with civil service positions. The German government was not involved in the funding, but did take part in co-ordination. Extensive restructuring is necessary but may fail to materialise if the new Bolivian government turns out to be too weak to broker a viable consensus.
A second basket of 60 million dollars (SIBTA) was, with German involvement, meant to increase technological capacities in agriculture in Bolivia. The programme was quite complex and involved a large number of donors. Implementation, so far, has proven cumbersome and needs to be improved.
A mid-sized basket funding arrangement, also with German involvement, was agreed in Bolivia with the Office of the Ombudsperson. Problems arose with political disagreement over the succession to the very competent initial Ombudswoman. Nonetheless, one positive outcome is that the basket has stemmed competition between donors. It has also enabled the professionally competent office to run its operations independently.
Since the early 1990s, the Bolivian social investment funds have been supported and enhanced with major German involvement. The objective was decentralisation of disbursements and empowerment of municipal institutions. In contrast to the cases dealt with above, there was no supervisory body that would have given donors a chance to make their influence directly felt. Again the result was disappointing. Donor co-ordination was unconvincing, the funds’ structure remained fuzzy and the municipalities were weak partners.
Under Norwegian leadership, a small “Anticorruption-Basket” of 500,000 Euro was issued in 2002 for Nicaragua. It primarily supported the public prosecutor’s office. This basket will now continue in a second, better-defined phase. Germany and seven other donor countries want to become involved.
The World Bank has issued major budget aid programmes in Bolivia and Nicaragua. They will give direct support to the national budgets. In Bolivia, the total amount will add up to 42 million dollars for the Social Sectors Programmatic Structural Adjustment Credit (with a German share of 21 million Euro). In the case of Nicaragua, two Poverty Reduction Support Credits will provide the sum of approximately 100 million dollars (10 million Euro German share). In addition to tackling social sectors such as drinking water, health and education, they specify conditions for transparent budgeting, decentralisation, institutional reform and monitoring. Future payouts are subject to observance of these conditions.
More donors are preparing to join budget support programmes. The goal is to define a common and consistent set of conditionalities (“Policy Assessment Matrix”) to guide and bind donor and receiving governments. Over the next ten years, new conditionalities and further disbursements are to be agreed upon. The idea is to strike a balance rather than to impose conditions that are either too though (and unattainable) or too weak (and pointless).
It is still too early to assess whether these budget-financing programmes are successful. Nonetheless, some preliminary conclusions can already be drawn from the experiences in Bolivia and Nicaragua:
Joint programmes and funding are no panacea.
– Contrary to expectations, transaction costs proved to be high, particularly for donors. Normally, the process followed was initially drawn-out and complex and, in many cases, this did not improve as the programme proceeded. So far, co-ordination difficulties have been underestimated. Goals and obligations should be defined more clearly and, in many cases, with more modesty. One should also consider permitting various speeds under the umbrella of joint goals. Priority would then be given to a solid, common “policy base” with leeway for various forms of participation including a manageable and growing number of joint instruments.
– As national institutions retain more responsibility, recipients should assume greater ownership in the mid-term. However, problems are likely to arise because some recipients seem overburdened in the short-term. Moreover, institutions suffer because of (sometimes massive) political meddling and the poor sense of ownership in the wider political environment. The ability and the willingness to reform should probably be assessed more conservatively. Donor bodies should retain a certain influence on strategic decisions (for instance concerning leadership positions).
– Current debates overlook joint approaches’ effects on the sense of ownership among donors. A negative trend is evident, even going as far as “cheque book diplomacy”. This is particularly so when donors lack sector-specific know-how or are under high pressure to disburse funds. Joint programmes cannot replace donors’ further specialisation in partner countries and priority areas. All donors should accept and pass on the lead role on a rotational basis, as is already common in some cases. Active participation in monitoring and evaluation is also essential.
– Programmes of greater scale can indeed achieve more than small measures, but they also imply a growing risk of corruption and misuse of funds. Programmes, therefore, often include risk-reducing measures such as transparent bookkeeping and budgeting. Participative systems of social control should, however, be made more use of. Developing countries often still need advice and support to tackle these challenges. Payment instalments, which are staggered and results-based, also reduce the risk of a total loss. Nevertheless, donors should plan exit scenarios from the outset.
– There is much to be said for a pragmatic, pluralistic approach, which promotes symbiosis of various mechanisms (rather than co-existence). Conditional structural adjustment credits for the support of poverty reduction strategies would then be a framework for “sector wide approaches”, which could be supplemented by further joint and bilateral measures.
– Much can also be said for Germany’s active participation in joint programmes, since these create significant political leverage. Germany’s part in defining joint goals and programmes, and its willingness and ability to assume a leading role, have indeed grown. Particularly in the focus areas of German development co-operation, there is still scope for stronger engagement.
Dr. Wolfram Klein,
is deputy head of the Central America division in the German Development Ministry (BMZ). Before he worked at the German embassy in La Paz. He is writing here in a personal capacity, his article does not express official BMZ policy.
wolfram.klein@bmz.bund.de
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