IS Myanmar the last “donor frontier”? With a mostly impoverished population of 60 million that has had little development assistance for decades, it would appear so. North Korea and Cuba are much smaller, and after this cohort there are no new “donor-restricted” countries of substance.

And now Myanmar is indeed opening up: Daw Aung San Suu Kyi is going to stand in the next elections as the leader of her party; political prisoners continue to be released, and most are likely to be free soon; and the United States has endorsed the reform process with a visit by Hillary Clinton.

The parallels to the “peaceful transition” of  South Africa in the 1990s are striking – somehow the ruling elite has been able to make substantial 

Daw Aung San Suu Kyi visits an aid project in Magwe Region’s Pakokku township on January 31. Pic: AFP

compromises to produce a political solution. In the wake of this achievement, the donors will come surfing in. This article offers some advice to the government about how to manage its relationship with the growing donor community.

We might hope that donors will bring with them their collective experience from 50 years of development work in Africa and elsewhere. The OECD-DAC rhetoric encapsulates the theoretical “lessons learned” from those decades: untied aid; use of partner country systems; joint-program support; budget support and so on. The rhetoric suggests that donors should support a government-led overview of the economy that would identify development priorities, to which donors would respond, thereby avoiding duplication of planning efforts and projects. That, however, will not happen.

The problem is that rhetoric is rarely reflected in reality when it comes to development assistance. The central reasons for this are, firstly, that donors are naturally in competition with each other, and, secondly, they are accountable to those who fund them for achieving many objectives: strategic and diplomatic, trade and business expansion, as well as alleviating poverty. Accountability to recipient governments is rather superficial, based on Memorandum of Understanding, agreed project plans, and impartial implementation and impact reporting. Why? Because recipient governments do not fund these organisations, and because recipient governments want to maximise the inflow of grant or cheap-loan aid. Thus recipient governments tend to let donors do what they want, within reason, so long as it fits with the broad government strategy documents.

“Donors” are large bureaucratic organisations, and as such success is judged upon increasing organisational prestige and size. Competition is inevitable. Efforts to mitigate this competitive reality, such as pooled program funding and budget support, meet some success and should be encouraged, but in the rush to enter the Myanmar market they will be relatively neglected.

The accountability problem is most acute for bilateral donors, who constantly need to justify their budget allocations to domestic interest groups. It is less a concern for international non-government organisations (INGOs), although they are very much in competition with each other. The loan agencies, notably the World Bank and the Asian Development Bank (ADB), tend to float above the feeding frenzy and sometimes coordinate amongst themselves to fund different sectors. A final consideration is that there will be far more funds allocated to Myanmar than there will be good projects to spend them on since although needs are wide and deep, the binding constraint will be project implementation capacities – both human capital and bureaucratic. Ministries will find the numbers of projects they must negotiate and manage increasing dramatically, and present management systems will become serious disbursement bottlenecks.

Here is the likely scenario: Donors will conduct their own uncoordinated (indeed secret) country strategy reviews of Myanmar. Consultant missions will pour in and government officials will find themselves in many repetitive meetings explaining the same basics to each donor mission. Donors will then decide what they want to do, inform the government, which will accept nearly everything as it is grant funding (and what is proposed will be in line with general government priorities and strategies). Limited good office space will then be taken up by donors and, more seriously, many of the best English-speaking educated Myanmar will be employed by donors. The quality public servants that do remain will have much of their time consumed in meeting with donors.

Within five years Myanmar could become a typical aid-dependent country. The characteristics of which are: letting donors informally dictate spending priorities in exchange for funding most of the public investment plan; letting donors waste the time of ministry officials in “policy dialogue” in exchange for budget support; letting donors place long-term foreign experts in ministries and projects to “speed up disbursement”; letting donors draft “policy documents” for the government; allowing donors to implement many inappropriate, competing and unnecessary technical assistance projects; and undertaking research and producing reports that have little meaningful audience beyond donors (and those who fund them). These are the “aid game” compromises that aid dependent countries typically make. For all really important policy decisions, however, the governments decide themselves without any foreign involvement.

Given the realpolitik of donors, what can we expect to see over the next couple of years? And what can the government do about maximising the value they extract from donors while minimising the damage? Here are four broad recommendations to the government.

Lead the strategic planning process.

The government must produce it own comprehensive version of a donor country strategy document for 2012-2015 as soon as possible. All sectors of the economy should be covered, and in each sector a clear plan detailed about priorities for policy reform and projects (ie not general statements about needs and importance). For example, what should be done with the finance sector to 2015? In what direction should domestic banks be heading and what services should they introduce? Only by providing detailed responses to questions like these can the government tell donors what to focus upon. The government should work with the United Nations Development Program (UNDP) to produce this in 2012, and it should be a document cleared and approved at the highest levels.

Enforce donor specialisation, information sharing and reporting.

A detailed country strategy is the basis for making donors do what you want. The next steps are making them stick to the plan and making sure they avoid duplication and specialise. The government should conduct its own review of the international donor community with a view to understanding the comparative advantages of each donor. That review should also cover aid modalities and government opinions on these. The government should also draft an aid management legal document that specifies how aid is managed in Myanmar, including the responsibilities of all donors. Donor responsibilities would include sending copies of all project documents, such as design, implementation, reviews and outputs, to a public web library managed by the government, and filling in and sending implementation reports about all projects to a centralised government database. Annual donor gatherings would formally identify who is and who is not undertaking their responsibilities.

Review government donor project approval and management systems to simplify and decentralise.

Top-heavy (centralised) approval and management processes will need to be decentralised – what is now decided by the president should be decided by the relevant minister, and states should also have more autonomy to manage small aid projects. Further, all aid-relevant regulations need to be reviewed with a view to simplification, which is best done by removing many requirements and steps. The issuing of visas and work permits for aid workers and consultants is one area, for example. System reviews are a complex area of administrative reform and reforms should start in 2012. Administrative delays will delay disbursement of funds and therefore cost money.

Protect and build human capital in the public sector.

There will be a brain drain of bright public (and private) sector employees to donors for some years. This cannot be avoided. Donors will pay whatever it requires to get their staff. In the meantime, investing in education is the best thing that the government can do. It should look at international experience and allocate a high percentage of the government budget to the education sector. Similarly, the government can have indicative targets for the flow and balance of aid funds across key sectors like infrastructure, health, education, and rural development. Finally, it can make donors specialise in education, as elsewhere. For example, one donor can be exclusively allocated one university for 10 years. The government can make donors commit to long-term institutional and sector-specific relationships. One or two donors, for example, could support agricultural extension services. One could focus on policy analysis for the Ministry of Health. These would be lead donors and others could contribute funds to them if they wished.

Conclusion

Underpinning the above advice is an appreciation that the government has considerable leverage over donors that should be used. Donors want Myanmar more than Myanmar wants donors. Donors will complain if the government really “took the driving seat” as recommended above, but that does not matter, as donors will still have far more they want to spend in Myanmar than can be absorbed in any useful manner.

Driving the development aid vehicle, however, requires a clear and detailed statement of what the government wants donors to focus on, and clear and transparent aid systems established to manage donors to increase the efficiency and effectiveness of their spending. Those are the key challenges for the government in 2012.

Description: http://www.mmtimes.com/2012/news/614/mccarty.gifAbout Dr Adam McCarty

This is the first in a regular series of development-focused articles by Dr Adam McCarty for The Myanmar Times. Dr McCarty is an Australian economist who has been living and working in Vietnam since 1991 as a university lecturer and consultant, conducting policy research and project evaluations for donor agencies, including the World Bank, ADB, UNDP, bilateral donors and INGOs. In 2001, he established Mekong Economics Ltd, where he is chief economist. Dr McCarty’s work and research across the Mekong region has covered microfinance, state enterprise reform, rural development impact evaluations, trade policy, aid effectiveness, and the education sector. Dr McCarty first came to Myanmar in 2008 and has worked on microfinance and trade policy. His articles for The Myanmar Times draw on lessons learned in Vietnam and other countries in the region to provide an applied economist’s perspective on the challenges and opportunities Myanmar is likely to face as it reintegrates into the global economy.