4th LAC PRS DONOR NETWORK MEETING
Washington, D.C., June 14 and 15, 2007
Latin America & the Caribbean Poverty Reduction Strategy (LAC/PRS) Donor Network Meeting
Washington D.C., June 14-15, 2007
The Fourth LAC/PRS Donor Network Meeting was hosted by the World Bank and held at the World Bank headquarters in Washington D.C. The purpose of the meeting was to exchange experiences, information and learning among donors from both headquarters and field offices.
Participants represented the following countries and institutions: Canada (CIDA), Colombia, Denmark (DANIDA), European Commission (EC), Germany (including GTZ, BMZ and KFW), Great Britain (DFID), IADB, IMF, Institute of Social Studies (ISS), Japan (JICA), Millennium Challenge Corporation (MCC), the Netherlands, Sweden (SIDA), Switzerland (SDC), Spain, UNDP, and the World Bank.
The meeting was inaugurated by Pamela Cox, Vice President of the Latin America and the Caribbean Region at the World Bank, who talked about the main challenges facing the region - lagging growth and persistent poverty and inequality- and their implications for development cooperation. Mrs. Cox stressed the importance of ensuring the continuity of poverty reduction efforts, which should include: enhancement of pro-poor growth, strengthening of governance and the rule of law, better quality of education, improved access to basic services and infrastructure conditions, and the combat of crime and violence.
The meeting was divided into three thematic blocks, and a last block on the future of the PRS and the role of the network.
I. PRS and Politics (chair: SDC)
II. PRS and Budget Support (chair: World Bank)
III. Sharing Analysis and Experience (chair: Denmark)
IV. Reflections on the Future (chair: World Bank)
Agenda item I: PRS and Politics
Main issues:
- With regard to the PRS process, what does it mean for the work of the donors that there are different political actors included in decision making processes at country level?
- In the complex context of ownership and empowerment of local actors, what should be the role of donors in states with governance issues and lack of PRS prioritization?
I.1 PRS is a political process. Although PRS is a process highly impacted by national politics, it is not necessarily the other way around. It was argued that donors should interfere less in the formulation of PRSs, making true on the commitment to enhance national ownership, but still acknowledge the politics of PRS implementation, and act both within and outside the government structure. Understanding of the political economy and national power schemes in a country and acting within that framework is crucial, but this does not mean being involved in party politics. Donors should try to find their place within the national power structures and interests, and define mechanisms to make their ideas and expertise useful for advancing these national interests.
I.2 Donors are political actors. How should donors interact with political actors? What is the role of donors on the political arena? How do donors become “more political and less diplomatic”? Bilateral donors have a political mandate from their governments (including, in some cases, to express opinion on highly political issues) and need to respond to the taxpayers, but at the same time respect national ownership. Transparency and accountability are examples of issues that are generally less technical than political. Donor officials cannot forget about the responsibility toward the populations of the countries they work in and should always support activities that are in the public interest.
I.3 Donor messages and prioritization. It was stressed that it is important that the technical messages sent by the donor community are pragmatic and clear, making sure that they reach the government, particularly when it has limited technical capabilities. This is complicated when there are many messages, not always well coordinated, from the donor community. It is for this reason that donors should strive for a common framework that allows them to be assertive on the fulfillment of an agenda agreed upon between donors and government. Too many donor priorities mean that there is no prioritization. Diplomatic messages by donors working in the field are often too vague, because it is difficult for these officers to speak clearly without risking their standing. It is important to be polite, but clear and, if needed, bring headquarter staff to deliver the difficult messages. A main challenge is to find a balance and analyze the trade-offs of the government-defined priorities and the donor-defined ones (usually related to issues of governance and sustainable poverty reduction). Key focalized entry points should be identified, using political windows to support government policies and programs that are within the donors’ framework.
I.4 Mechanisms for donor-government dialogue. Honduras and Nicaragua have extensive mechanisms for dialogue between donors and the government. In both countries, the consulting mechanisms also include Congress and political parties in the discussion.
I.5 Enhancing the PRS process. The PRS process takes a long time to be defined, appropriately consulted and become operational. Under these circumstances, it may be impossible to avoid discontinuity and back-tracking. There is a lack of knowledge of the PRS processes in the general population, so maybe PRSs are too sophisticated and long-term, and should rather be shorter, simpler, more focused, and with clearer monitoring indicators. Concrete results would be more difficult to reverse. A problem with the PRS is that they are rarely strategic and are rather too general and all-encompassing. It was argued that a less complex, more straightforward and shorter-term development agenda could be easier to “sell” and also to adapt to the political cycles and changes of government. This would imply that there would have to be less pressure from the donor community on what should be identified as additional objectives, mainstream issues and conditionalities. Donors should be sensitive to the strategies governments really want, or are able to implement given technical, administrative and political conditions.
I.6 PRS Results. The concrete results of the PRS processes in the region are disappointing in terms of poverty reduction and should make us pause. Yet, PRSs have contributed to put poverty reduction in the discussion agenda over development aid. Hence, the PRS process should not be abandoned, but its weaknesses need to be recognized and addressed, by making sure that PRS is part of national politics and to define by which modalities donors will support it. Another important aspect is not to put all the emphasis on the planning process, but rather to emphasize the improvement of national monitoring and evaluation systems that are able to measure progress and correct what needs to be corrected throughout the implementation stage.
Miscellaneous
- Transparency and access to credible statistical information is key to the adoption of evidence-based policies and programs. Support to statistical development is an area that is not linked to party politics, but has clear political implications.
- Donors should adapt their expectations of the PRS processes to the government’s limited technical capacities.
- The discussion is based on the hypothesis that broad national consensus is possible, but this might not be the case. The PRS cycle is not a success story. There is too much emphasis on the planning process and too little on implementation. Maybe we need different and varied instruments?
Agenda item II: PRS and Budget Support
Main issues:
- Is budget support the right rational instrument to support PRS?
- Conditionality
II.1 Country cases. Donor coordination for budget support is strong in Nicaragua. There is a legal instrument (Joint Financing Agreement) signed by 9 donors (including 7 bilaterals, the EC and the World Bank), a common matrix of triggers and joint monitoring and decision-making processes. Nevertheless, implementation of the PRS is not smooth. The new government in Nicaragua shows a strong commitment to poverty reduction, but the way the government interacts with donors is changing. An important challenge is how to incorporate new donors, like Venezuela. In Honduras there is an example of two budget support systems (WB and EC) being coordinated in the sense that WB provides the macroeconomic and policy reform framework and EC the health and education sector budget support within that framework (which raised the question if sector budget support is possible).
II.2 Is budget support the right vehicle to support PRSs? It was argued that budget support is an instrument (perhaps the only one) to join the policy dialogue on general priorities for poverty reduction set by the government, which PRS is not. For the WB, Development Policy Lending is a budget support instrument applicable in countries with or without PRS. There is no clear link between budget support and PRSs, and there might be a risk of duplicating M&E systems, therefore donors can play an important role in aligning these systems. In Honduras, budget support may be the best form of support to the PRS. In Bolivia there is currently no coordinated budget support, but only sector budget support in the water and sanitation sector, by the EC. The future of budget support in Nicaragua is uncertain, as the government is in the process of defining its poverty reduction strategy.
II.3 Sector budget support. Some donors have high expectations of sector budget support, but resource allocations can not be traced to specific sectors. The idea is that the policy actions defined in the conditionalities matrix aim at poverty reduction in a specific sector. For these to be successful, it is important to focus on the key issues where the political windows are. However, we should strive for a mechanism that enhances transparency and symmetry of information on the destination of budget support resources. Yearly Public Expenditure Reviews may be the appropriate mechanism for this purpose.
II.4 Criticizing budget support. There are many risks involved in negotiating the conditionality for budget support when government and donors have diverging goals. In Honduras the PRS is not used as a platform for budget support, but is rather a fictional strategy.
Miscellaneous
- How can donors, especially bilateral ones, justify budget support in front of their constituencies in countries that voluntarily create hard to justify loopholes in the tax code that t might be responding to vested interests?
- There is no “one-size-fits-all” solution in the definition of budget support mechanisms. Donors have to be flexible and take into account the country-specific conditions.
- Budget support is a more political instrument than other ways of providing development assistance. In order to diminish the political aspect and risk losing budget support as a tool for development aids it is important to base disbursements on technical criteria.
Agenda item III: Sharing analysis and experience
The general discussions focused on the following main points:
- Social cohesion
- Need to rethink PRS and donor expectations
III.1 Social cohesion. Social cohesion is based on a sense of identity and belongingness, being part of the same group, and can be enhanced by strengthening the socio-political and institutional context (education, political participation, etc.). There is an overall tendency to include a social cohesion perspective in programmatic development planning (e.g. EC), as an element that goes beyond poverty reduction. The institutional challenge of strengthening social cohesion is considerable. The usefulness of further investigations on the effective dynamics of social cohesion and local democracy was brought up. Other issues related to polarization within and among countries were pointed out, such as: ethnicity, regional disparities, and human capital levels.
III.2 The double causality of inequality and economic growth has to be taken into account when talking about PRS: poverty reduction is more costly and economic growth more difficult with high initial levels of inequality. It is therefore important to complement growth policies with active redistribution policies (case of Brazil was discussed).
III.3 Need to rethink PRS. PRS processes have facilitated a certain stability of the poverty agenda in the region, but what we should do instead of PRS should be discussed. If there is no direct correlation between PRS and poverty reduction, issue that should be addressed. Current model of PRS has been donor driven since created, as it was a prerequisite for debt relief and still used as a requirement for BS by the WB and IMF. There are too many requirements from the donors. Maybe a more modest, pragmatic model that is results based, more technical and more focalized (well-targeted, specified) would be a better instrument. Agree on a minimum of strategic elements defined by the government and that can be accomplished (simplify).
III.4 Donor expectations of PRS processes. Need to bring down donor’s expectations on PRS processes and outcomes. However, we should not go back to just giving out the funding without any expectations of policy reforms. In the discussions on sector approaches, it is difficult to stress only certain sectors, but at the same time it is also ineffective to only have a general discussion without any concrete sector results in perspective.
Miscellaneous
- Data comparability is a problem when making regional comparisons. Quality and access to quantitative data has improved in the region, but not so much the qualitative side.
- Alignment and harmonization is not about doing the same things, but doing different things in a coordinated manner.
Agenda item IV: Reflections on the future
Accra Meeting
A list of possible themes to be discussed at the next High Level Forum on aid coordination and alignment –to be held in Accra, Ghana on September 12, 2008- is attached. The Steering Committee is meeting regularly to select the final subjects. Given the importance of vertical funds, this is likely to be at the center of discussions. No new declaration on the subject is foreseen to emerge from the Forum. In response to the question why is PRS absent from the list of possible themes, it was clarified that it is understood by all donors that PRS is central to harmonization and alignment.
Future of the LAC PRS Donor Network
Four central questions were discussed related to the characteristics of the network:
- Should it remain a space for discussion among headquarter donor representatives or should field-based representatives be integrated?
o The network has been a useful open dialogue space among headquarter representatives that seldom meet, so the network should remain at that level.