Comments

Great introduction to the topic. I just wanted to point out one specific type of political risk that is important. That of "capture" of resources. By this I don't necessarily mean corruption, but rather that while the goal of aid donors might be to reach the most disadvantaged and needy populations, that is not always a government priority - in particular using funds for politically attractive projects that benefit the middle classes and the ruling party's power base is always a temptation for governments seeking re-election and budget support can be used to help support this type of project. This might come under the guise of a "nationally led development agenda" but it is really a "government or ruling party led development agenda". To ensure this doesn't happen, in addition to the steps above it's important to carry out a poverty analysis that looks at disparities, and also to analyze the impact of the government budget on these.

Thank you for the very interesting and useful analysis. The world bank praised New Zealand's RSE scheme as one of the most successful development projects to date. But my question is what are the social impacts back home when many of the young village men leave for most of the year. What impact does this have on family systems, security and vulnerabilities e.g. to humanitarian disasters or conflict? Also access do women have to these schemes and the savings earned as a result of them - what impact does this have on gender equality? My other concern is about the vulnerability of RSE workers in the host country - particularly the US. $3000 plus the costs of flights would take many months to work off at minimum wage. During this time participants are indebted to the company. Vulnerable immigrant workers such as these are prime sources exploitation by large international companies. Take for example the garment manufactures on Saipan Island (part of the United States), where it is well documented that Chinese workers (whose flights to the island are paid by the company) become practically enslaved to the multinational, because it becomes difficult to pay off the debt of their accommodation and airfares, and are unable to save for the flights home again. Their debt silences them against speaking out about the human rights violations that go on within the work places. While I think this is an extreme case, it concerns me that Pacific workers would be so far from their home, and indebted by $3000 or more until they can work it off. From what I have heard workers under the schemes have no choice over where they stay, and are given access to only a small portion of their income while in the host. Is this correct? What checks and balances are in place to insure treatment and living conditions meet appropriate standards for all of the workers under these schemes?

Two very simple ways in which donors can manage the issue of corruption in Indonesian educational development is to avoid spending money in ways where the risk is very high, such as school construction and ill-conceived training schemes of the kind proposed in the new Australian Education Partnership, and spend it in ways that achieve results but that still work through government systems. Such ways have been demonstrated by the AusAID Indonesia-Australia Partnership in Basic Education that finished in 2007, USAID’s Managing Basic Education Project, 2003 – 2007 and UNICEF’s Mainstreaming Good Practices in Basic Education (2006 – 2010). Another and more challenging and longer-term task is to assist Indonesia in addressing the alarming processes of “educating” children in corrupt practices that are embedded in the National Examination system. A study I conducted for USAID in 2009 found congruence between research in the USA on the impact of ‘high stakes’ testing there and the present conditions in Indonesia where the National Examination is considered to be high stakes. The research finds that as the stakes associated with a test go up, so does the uncertainty about the meaning of a score from that test and so do the distortions, corruption, and negative backwash effects on the quality of education and on students. Briefly, corruption occurs at all levels in the implementation of these examinations, making the results unreliable and invalid, and worse, encouraging and rewarding children to cheat and learn about corruption from an early age. Now that is an area that Australia has the technical excellence to support and which Indonesian officials have expressed a need for assistance. Instead, money is to be spent, and likely wasted, elsewhere. Could it possibly be because corrupt government officials see the opportunity for corruption and personal benefits and so support these alternative development goals (construction and training) or is this a too cynical and uncharitable suggestion?

Thanks Matt, I definitely agree with you first suggestion (getting specific evidence on the risks in a particular country). And I agree for the most part with the strategies you suggest for risk management. Although, I'm suspicious of 'cash on delivery': mostly because I think it assumes that governments in recipient countries have more wiggle room vis a vis the social structures that they're set amongst than is actually the case (i.e. incentivising them won't change much because they are stuck in a form of political equilibrium that is very difficult to escape). For similar reasons, I don't think budget support will help at all in very corrupt countries. I agree with your point on alternative delivery mechanisms though. And that debate between Kaufmann and Khan on Development Drums is great. A must listen.

Hi Jane & Jonathan. I want to make an important correction to the above comment that quotes me as discussing the geographical direction of Australian aid. That was not me, but in fact Stephen Grenville, a consultant on financial sector issues in East Asia and Visiting Fellow at the Lowy Institute for International Policy who made those comments in the new Lowy aid blog: http://aidreview.lowyinterpreter.org/post/AusAID-Review-Narrow-the-geographic-focus.aspx Since Stephen's post, further discussion on the geographical direction of Australia's aid program can be found here http://aidreview.lowyinterpreter.org/ if you are interested

Thanks Terence, Attitudes to corruption in aid range from complacent to alarmist. By gently mocking the latter, your article helps to put some perspective around the issue. I especially liked your comment on disproportionate press coverage being the disincentive for aid transparency and thereby undermining an important initiative to improve aid governance. Yet we can also say more about the specific things that donors can do to manage the risk of corruption <em>and </em>deliver effective aid. Here are a couple of quick thoughts. First, get specific evidence about the risks of corruption to better inform aid policy. This mean going beyond 'media frenzy' and general measures of corruption - such as TI's perception index - to zero in on fiduciary risks around public finances, partners and aid. Secondly, put in place strategies to manage risks. This could include: better ex-ante selectivity of countries and sectors to engage in; making payments for results - such as CDG's 'cash on delivery' proposal; supporting safeguards around public expenditures - and budget support can be a good entry point into discussions with recipient governments on this; and in the worst cases, looking for alternative delivery mechanisms. There is a lot that could be done, without being either complacent or alarmist. (Note - to hear an excellent debate the role and importance of tackling corruption as part of a development strategy, check out Daniel Kaufmann and Mushtaq Khan on development drums http://developmentdrums.org/284)

Here's an interesting piece on budget support and corruption - http://www.owen.org/blog/113

Great article Matt. It also raises the question of the chain itself and the value add that each actor in that chain brings. I think technology will not only improve the feedback loop for the existing chain, but also begin to question the efficiency of the chain itself. This certainly has benefits- ensuring that each stage of the chain is indeed adding value to the desired development outcome, rather than allowing any actor to rest on its laurels. However I suspect there's also some risk involved, as it may lead to a rise in the number of 'quick and dirty' projects (often with the aim of increasing the gratification of the individual donor, rather than increasing the benefit brought to the recipient) at the expense of targeting actual need or neglecting projects that require greater nuance or where the outcomes are more difficult to define. Organisations such as Kiva who are founded on such technologies seem to sit at the crossroads of such arguments. While cutting out some of the traditional actors in the chain and thus bringing donor and recipient much closer together, many seem uncomfortable with new actors such as Kiva who's operational structure bucks the traditional trend. It will be interesting to see if tech based organisations such as Kiva actually change the very nature of the traditional chain, or simply create a new chain that either competes with or works in harmony with the traditional chain.

What a great article! Really comprehensive and nicely put! Kudos! For more information on crowdsourcing, visit our site @ http://www.crowdsourcing.org

I agree that the ability to get more input and feedback from beneficiaries and prospective beneficiaries is an awesome thing. But no, this alone is not going to fundamentally change aid. Unless you want to argue that your ability to choose from a menu and fill out a feedback card at the end of a meal, has revolutionized the restaurant industry. Mobile monitoring and feedback might collapse the informational chain but it will have no impact on the institutional chain. Here's the impact I see: Taxpayers: like the stories, but generally aren't in a position to have more practical effect than nondirectional pressure for better results. Aid Agencies: trying to keep their internal costs down and shovel money out the door, don't want to go anywhere near these b'ficiary feedback mechanisms themselves except on the occasional field visit, just expect to see implementers collecting and using it. Aid Implementers: Well I can't speak for everyone, but being able to give out a hotline phone number to 30,000 people and get a few dozen calls a day to hear about where distros might not be happening or contractors not behaving themselves, is almost unalloyed awesome. Beneficiaries: level of empowerment and ability to hold us to account also = awesome, until and unless we become unanchored from our values and start treating these calls the way typical call centre operators (eg: banks, phone companies) treat us!

ARDE 2009 Review - Budget Support The report properly notes that the integration of Australia’s programs into developing country systems through budget support implementation mechanisms avoids duplicating effort and establishing parallel systems. The report also notes that 40% of all Australian aid is being distributed through developing countries’ public financial management systems, but only 23% is subject to developing countries’ procurement systems. Recently, AusAID approved a $500 million Australian aid package, the Basic Education Program, for schooling in Indonesia using a budget support implementation mechanism. What other significant aid packages are being delivered through budget support implementation mechanisms? Budget Support has become an important modality for development cooperation in the last decade and has a different basis for accountability than project support. It requires strong developing partner country financial accountability and public expenditure management, including an ‘open and transparent’ public procurement system. General budget support is budget support that is unearmarked for a specific sector of government spending. Sector budget support is budget support that is earmarked for use in a specific sector or budget line, e.g. health or education. Many factors can affect a donor’s decisions to use developing country’s systems besides expected benefits: the assessed quality of the system; the donor’s legal framework, historic practices, or tolerance for risks; the partner country’s own preferences; and related intangibles such as the perception of corruption or poor governance. Of importance is an understanding how AusAID is assessing its risk in using budget support implementation mechanisms and what are its rules and conditions for approving use of such a mechanism. The rules and conditions of the European Commission (EC), regarding budget support are specific - direct budgetary assistance in support of macroeconomic or sectoral reforms will be granted where: •Public expenditure management is sufficiently transparent, accountable and effective. •Well defined macroeconomic or sectoral policies established by the country itself and agreed by its main donors are in place. •Public procurement is open and transparent. What are AusAID’s rules and conditions for the use of budget support? Assessment of developing country Public Finance Management (PFM) systems is normally through an Integrated Fiduciary Assessment i.e. a Public Expenditure and Financial Accountability (PEFA) assessment which evaluates the strengths and weaknesses of the PFM system and provides a performance benchmark to measure progress with PFM reforms and evaluate if a reorientation of the ongoing PFM effort is needed. The PEFA methodology provides a framework for developing country governments and other stakeholders to assess the PFM system in a country. The assessment is based on a standardized format and indicator set developed by a group, including the World Bank (WB), the International Monetary Fund (IMF), the EC and several bilateral development partners. The PEFA indicators are a set of 28 high level performance indicators that measure strengths and weaknesses of a government’s PFM system. The use of WB Country Procurement Assessments (CPA) and other assessments can be used to examine public procurement system performance. A WB CPA is an intensive, comprehensive assessment and diagnostic tool offering analysis of a particular country’s public procurement regime. Specifically, the CPA identifies existing risks and vulnerabilities of the regime and assists the developing country in ultimately strengthening the institutional, legal, and policy framework underpinning its procurement regime. The CPAR is typically a joint effort between the WB and its client country. These assessments are also conducted as the public procurement system in a particular country changes or undergoes reform. The Organization for Economic Co-operation (OECD) Methodology for Assessment of National Procurement Systems (MAPS) provides a common tool which developing countries and donors can use to assess the quality and effectiveness of national procurement systems. The assessment uses 12 indicators which can become a key element of, and will improve, the existing CPA process. What assessment methodologies does AusAID use for developing country public finance management and public procurement systems? A recent review of the Web Sites of the WB and other Donors suggests that few PEFA, CPA and/or MAPS assessments have been undertaken in East Asian, Papua New Guinea and Pacific Island countries in the past three years, the period during which AusAID’s use of budget support implementation mechanisms has increased. What is AusAID’s program to assess developing country public finance management and public procurement systems to inform their suitability for budget support? Where AusAID is using budget support mechanisms and risk is high, are complementary public finance management and public procurement improvement programs in place? E. John Blunt 15 Parkview Crescent, Hampton East, Victoria, 3188 Telephone: 03 9553 1182 Email: edevsol@bigpond.com Mr. E. John Blunt, is a Public Sector Management and Procurement Expert with extensive experience in leading public procurement reforms in a variety of international development environments including in Indonesia, Nauru, Pakistan, Papua New Guinea and the Solomon Islands with the Asian Development Bank, the Australian Agency for International Development, the European Commission, the United Nations Development Program and with the governments of Australia, Swaziland and Timor-Leste. He also has commercial procurement experience in Australia, China, Hong Kong, Papua New Guinea, the Philippines and Thailand.

Thanks John, fair enough...