1. 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 LOCDE

2. A growing consensus for system reform 1. Agenda Setting 2. Implementation 3. Monitoring and Evaluation

3. Major Shortcomings – Agenda Setting ACTORS 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 EFFECTS Lack of voice and ownership Limited participation of local stakeholders Aid-dependency syndrome Diffused political responsibility Weakened credibility of domestic institutions POLICY PROCESS 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

4. Major Shortcomings - Implementation ACTORS Multitude of operating actors EFFECTS Unpredictable financing and economic environment High transaction costs Inefficient use of resources POLICY PROCESS Improved but limited harmonisation of donors Plethora of donor-driven projects, policies and practices Multitude of funding mechanisms and instruments

5. Major Shortcomings - Monitoring and Evaluation ACTORS Donor-side experts Evaluation units within donor institutions EFFECTS 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 POLICY PROCESS One-way monitoring and evaluation Monitoring of inputs rather than outputs Limited use of objective outcome indicators Limited peer reviews

6. 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?

7. 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 How do we explain inertia?

8. 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

9. A Bias for Reform through Restructured Incentives: 10 Ideas 1. Allow those with most to lose from failure to lead: recipient governments and local accountable institutions 2. Secure sustainable political support through domestic participative processes based on institutional competition 3. Encourage policy coherence through comprehensive strategies for growth and poverty reduction 4. Build a bias for hope by focusing on achievable short-term outcomes 5. Increase and coordinate diverse financing from public and private sources by tying and pooling financial allocations around specific outcomes

10. 10 Ideas continued 6. Ensure predictability, shared commitment and responsibility through contractual relationships 7. Foster learning by doing through rolling programming 8. Develop mutual transparency and accountability through independent monitoring and evaluation mechanisms 9. Reward positive outcomes through performance conditionality 10. Lower agencies costs of reform through incremental change, diversity and enhanced options

11. 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)

12. Is Best Practice on our Doorstep? The EU Regional Policy –Aim: convergence and social cohesion of least- developed EU regions –A long tradition of European Community Support Frameworks (ECSF) 1st CSF from 1989-1993 2nd CSF from 1994-1999 3rd CSF from 2000-2006 4th CSF from 2007-2013 (currently being negotiated)

13. Development Support Frameworks (DSF) How would they work?

14. Preparatory Stage 1.Consultation process with all major stakeholders 2.Recipient proposal of comprehensive and multi-annual development strategy Including regional administrations and civil society Giving voice to local stakeholders; allow for institutional competition. ECSFDSF 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

15. Preparatory Stage (contd) 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.

16. Negotiation Stage 1.Stakeholder negotiations 2.Contractual agreement with detailed mutual obligations Discussions between a designated Managing Authority and the EU Directorate for Regional Policy Finance Ministry and local Managing Authority negotiate with bilateral agencies, or intergovernmental institutions (e.g. EU Development & EuropeAid) ECSFDSF 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.

17. Financing and Implementation Stage 1.Financing provisions ECs Structural Funds cover up to 75% of total ECSF budget. The rest is supplemented by locally- raised public and private resources. An advance allows ECSF to be initiated. BWI and regional banks assist government with programmes 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. ECSFDSF

18. Financing and Implementation Stage (contd) 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.

19. Monitoring and Evaluation Stage 1.Independent monitoring & evaluation system 2.Mutually-agreed follow-up evaluations Reports on all programmes at predetermined intervals evaluate absorptive capacity, implementation and effectiveness. Representative, but independent, M & E Committee conducts regular evaluations at predetermined intervals. Arbitration procedures could be envisaged. ECSFDSF 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.

20. The DSF approach would not only encourage: Ownership Coordination Results-Based Management Predictability

21. But would also provide incentives for: Matching needs with financing Regional integration Mutual accountability Performance-conditionality Capacity building in recipient countries

22. Dont go for the BIG BANG! A development support framework should allow for diverse approaches and preferences

23. Thank you! 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)