The Architecture for
Development Co-operation:
Is reform feasible without a policy
paradigm shift?
by
Prof. Louka T. Katseli
Director, Development Centre
Assisted by Felix Zimmermann
4 February 2005
OECD DEVELOPMENT CENTRE
CENTRE DE DEVELOPPEMENT DE L’OCDE
A growing consensus for system reform
1. Agenda Setting
2. Implementation
3. Monitoring and Evaluation
Major Shortcomings – Agenda Setting
ACTORS
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Hegemony of large donors in policy
priorities
Influential bilateral donors
Dominance of BWIs in policy selection
Weakened and uncoordinated UN
agencies
Private financial institutions
Multinational companies
POLICY PROCESS
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Normative “one-size-fits-all” approaches
Mismatch with local conditions and
needs
Selectivity
Lack of policy coherence across relevant
policy domains
Ambitious long-term agendas through
short-term instruments
EFFECTS
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Lack of voice and
ownership
Limited participation of
local stakeholders
Aid-dependency syndrome
Diffused political
responsibility
Weakened credibility of
domestic institutions
Major Shortcomings - Implementation
ACTORS
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Multitude of operating actors
EFFECTS
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POLICY PROCESS
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Improved but limited
harmonisation of donors
Plethora of donor-driven
projects, policies and practices
Multitude of funding
mechanisms and instruments
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Unpredictable financing
and economic
environment
High transaction costs
Inefficient use of
resources
Major Shortcomings - Monitoring and Evaluation
ACTORS
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Donor-side experts
Evaluation units within donor
institutions
EFFECTS
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POLICY PROCESS
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One-way monitoring and
evaluation
Monitoring of inputs rather
than outputs
Limited use of objective
outcome indicators
Limited “peer reviews”
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Limited monitoring capacity on
the ground
Low accountability to public (on
donor and recipient sides)
Lack of transparent operations
No arbitration mechanisms
No internal learning by doing
Limited international sharing of
best practices
How do we explain inertia?
 Informational Asymmetries and Adverse Selection
– Informational asymmetries lead donors to engage in
practices harmful to recipient interests
– Poor countries or weak-capacity states experience
more difficulties in obtaining adequate financing
 “Free-rider” effects among recipients
– Wait-and-see-strategy: a recipient country questioning
existing practices might lose resources; an “obedient”
recipient will not
How do we explain inertia?
 Failure of collective action
– Beneficiaries of reform - taxpayers and recipient
communities - are dispersed and disorganised
– Future benefits from reform are uncertain
– Reform transaction costs incurred by intermediaries
(i.e. agenda-setting institutions) are high and
immediate
• Present costs of reform are larger than the present
value of expected benefits
• “Agenda-setting” actors have no incentives to
pursue reform
Therefore…
 We have a policy regime intermediated by entrenched
but rational institutional interests
 We need a policy paradigm shift: reform requires new
incentive structures for donors, intermediate institutions
and recipients
A Bias for Reform through Restructured
Incentives: 10 Ideas
1.
2.
3.
4.
5.
Allow those with most to lose from failure to lead: recipient
governments and local accountable institutions
Secure sustainable political support through domestic
participative processes based on institutional competition
Encourage policy coherence through comprehensive
strategies for growth and poverty reduction
Build a “bias for hope” by focusing on achievable short-term
outcomes
Increase and coordinate diverse financing from public and
private sources by tying and pooling financial allocations
around specific outcomes
10 Ideas continued
6.
7.
8.
9.
10.
Ensure predictability, shared commitment and
responsibility through contractual relationships
Foster “learning by doing” through rolling programming
Develop mutual transparency and accountability
through independent monitoring and evaluation
mechanisms
Reward positive outcomes through “performance
conditionality”
Lower “agencies’ costs” of reform through incremental
change, diversity and enhanced options
Like the samba or the tango,
development is not something one
can learn by correspondence. It
requires a shared process of active
and retroactive learning by doing.
Javier Santiso (2000)
Is Best Practice on our Doorstep?
 The EU Regional Policy
– Aim: convergence and social cohesion of leastdeveloped EU regions
– A long tradition of European Community Support
Frameworks (ECSF)
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1st CSF from 1989-1993
2nd CSF from 1994-1999
3rd CSF from 2000-2006
4th CSF from 2007-2013 (currently being negotiated)
Development Support Frameworks (DSF)
How would they work?
Preparatory Stage
ECSF
DSF
1. Consultation process with all major stakeholders
Including regional administrations
and civil society
2.
Giving voice to local
stakeholders; allow for
institutional competition.
Recipient proposal of comprehensive and multi-annual development strategy
Recipient government proposes
strategy, consisting of National
Operational Programs (NOP) and
Regional Integrated Programs
(RIP)
A development strategy
proposed by recipient country
(NDS) or regional institutions
(RDS) to bilateral agencies and
intergovernmental institutions
Preparatory Stage (cont’d)
3.
Integrated and coherent programmes contain policy initiatives and projects
with time frames, financing requirements and expected impacts
NOP projects address sectoral
priorities.
RIP projects address regional
priorities.
NOPs and RIPs adapted to
country or regional specificities
and institutional set ups,
integrating the growth and
social policy agenda.
Negotiation Stage
ECSF
DSF
1. Stakeholder negotiations
Discussions between a designated
Managing Authority and the EU
Directorate for Regional Policy
2.
Finance Ministry and local
Managing Authority negotiate
with bilateral agencies, or
intergovernmental institutions
(e.g. EU Development &
EuropeAid)
Contractual agreement with detailed mutual obligations
Signed by recipient country and
European Commission. Rolling
programmes ensure continuity of
projects across CSFs
Agreements would be flexible,
but binding between two or more
partners. Rolling programmes
would assure continuity.
Financing and Implementation Stage
ECSF
DSF
1. Financing provisions
EC’s Structural Funds cover up to
75% of total ECSF budget. The
rest is supplemented by locallyraised public and private
resources.
An advance allows ECSF to be
initiated.
BWI and regional banks assist
government with programme’s
financial assessment.
Public and private partners align
pledges around all, or a selected set
of, programmes depending on donor
preferences (e.g. Norway & MFTAM
support education NOP)
Disbursement of funds coordinated
by local budget authorities through
decentralised special accounts.
Financing and Implementation Stage (cont’d)
2.
Recipient-led implementation
A Managing authority with
decentralised units.
A Managing Authority with a
network of decentralised units
and participating institutions.
DSFs serve as a focal point for
donor harmonisation and
coordination, and help to identify
financing gaps.
Monitoring and Evaluation Stage
ECSF
DSF
1. Independent monitoring & evaluation system
Reports on all programmes at
predetermined intervals evaluate
absorptive capacity,
implementation and effectiveness.
2.
Representative, but independent,
M & E Committee conducts
regular evaluations at
predetermined intervals.
Arbitration procedures could be
envisaged.
Mutually-agreed follow-up evaluations
Financial disbursements are
conditional on positive outcomes.
Corrective action, penalties or
even refunding may follow.
Managing Authorities and
government are accountable to
national parliament and the
European Commission
Financial allocations and
replenishments are tied to
evaluations.
Managing Authorities and
participating institutions are
accountable to national
authorities and development
cooperation partners.
The DSF approach would not only
encourage:
 Ownership
 Coordination
 Results-Based Management
 Predictability
But would also provide incentives for:
 Matching needs with financing
 Regional integration
 Mutual accountability
 Performance-conditionality
 Capacity building in recipient countries
Don’t go for the BIG BANG!
A development support framework should allow
for diverse approaches and preferences
In dealing with the multiple and
complex problems of development,
we have learnt that we must be
deaf, like Ulysses, to the seductive
chant of the unique paradigm.
Albert Hirschman (1995)
Thank you!