Managing the Donor Invasion

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 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.

ArticleMekong Economics