Myanmar Economy

Myanmar: Managing the invasion of donors

Is Myanmar the “last donor frontier”: 60 million persons in an impoverished country that has had little development assistance for decades. North Korea and Cuba are so much smaller, and after them there are no new “donor-restricted” countries of substance. And now Myanmar is indeed opening: 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 will be free soon; and the USA has endorsed the reform process with a visit by Hillary Clinton. The parallels to the “peaceful transition” of South Africa are striking – somehow the ruling elite has been able to make substantial compromises to produce a political solution. In the wake of this stunning political achievement the donors will come surfing in. This Capacity4Development group should offer some advice to the Government of Myanmar (GoM) about how to manage their relationship with the growing donor community - and to donors about what lessons to have learned from many failures, and how to think beyond "business as usual" in entering Myanmar. Here are my initial thoughts to kick us off. I will contrinute more later specifically about aid modalities. 

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-programme support; budget support; etc. The rhetoric of the OECD-DAC would suggest that donors should support a GoM-led overview of the economy which would identify development priorities, to which donors would respond, thereby avoiding duplication of planning efforts and interventions (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 – and careers are made – upon increasing organisational prestige and size. Competition is inevitable. Efforts to mitigate this competitive reality, such as pooled programme funding and budget support, meet some success and should be encouraged, but in the rush to enter the “Myanmar market” they will, however, 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 can sometimes coordinate amongst themselves (“I will do primary education and you do secondary, while Japan builds bridges, ok?”). A final consideration is that there will be far more funds allocated to Myanmar than there will be good projects to spend them on – 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: The feeding frenzy has begun - get in and find the good projects before the competition. Donors will conduct their own uncoordinated (indeed secret) Country Strategy Reviews of Myanmar. Consultant Missions will pour in and GoM 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 GoM, who will accept nearly everything as it is grant funding (and what is proposed will be in line with general GoM priorities and strategies). Limited good office space will then be taken up by donors and, more seriously, many of the best English-speaking educated Myanmarese will be employed by donors. The quality public servants that do remain will have much of their time consumed in meeting with donors, and in enjoying their “capacity building” activities.

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 GoM; allowing donors to implement many inappropriate, competing and unnecessary technical assistance projects; undertaking research and producing reports which 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 of course decide themselves without any foreign involvement.

Thus, given the realpolitiks of donors, and assuming that political reform in Myanmar is not a false dawn, what can we expect to see over the next couple of years – and what can the GoM do about maximising the value they extract from donors (and minimising the damage)? Here are four broad recommendations to the GoM:

1. Lead the strategic planning process.
   
   
   
   The GoM must produce it own comprehensive version of a donor Country Strategy Document for 2012-2015 as soon as possible. All sectors of the economy would be covered, and in each sector a clear plan detailed about priorities for policy reform and projects (i.e. not general statements about needs and importance). For example, what to do with the finance sector to 2015? What are the top issues to study and develop policies and a legal framework for? Microfinance? In what direction should domestic banks be heading and what services should they introduce? Only by providing such details can the GoM tell donors what to focus upon. The GoM should work with UNDP to produce this in 2012, and it should be a document cleared and approved at the highest levels.
2. 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 GoM should conduct its own review of the international donor community with a view to understanding the comparative advantages of each donor (that may or may not be interested to enter or expand activities in Myanmar). That review should also cover aid modalities, and GoM opinions on these. The GoM 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 (design, implementation, reviews, outputs, etc.) to a public web library managed by the GoM, and filling in and sending implementation reports about all projects to a centralised GoM database. The annual donor gatherings (Consultative Group meetings) would formally identify who is and who is not undertaking their responsibilities.
3. Review GoM 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 Prime Minster 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 small area, for example. System reviews are a complex area of administrative reform and thinking about it – and reforms - should start in 2012.  Delays will delay disbursement of funds – delays lose money.
4. 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 GoM can do. They should look at international experience and target a (high) percentage of the Government budget to the education sector. Similarly, they can have indicative targets for the flow and balance of ODA funds across key sectors like infrastructure, health, education, and rural development. Finally, they can make donors specialise in education, as elsewhere. For example, one donor can be exclusively allocated one university for ten years. The GoM 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 other donors could contribute funds to them if they wished.

Conclusion

Underpinning the above advice is an appreciation that the GoM has considerable leverage over donors that should be used. Donors want Myanmar more than Myanmar wants donors. Donors will complain if the GoM 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 GoM 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 GoM in 2012.