A regional workshop on harmonization of donor procedures and practices was held in Hanoi, Viet Nam from 22 to 24 January 2003 in preparation for the High-Level Forum on Harmonization, scheduled to be held in Rome from 23 to 25 February 2003. This report is a summary of the main messages and conclusions of the workshop. The major objectives of the workshop were to provide an overview of the output of the OECD/Development Assistance Committee (DAC) Task Force on Donor Practices; to disseminate information on the harmonization experience in Viet Nam; to have participating countries from the region share their views and experiences in the area of harmonization; and to provide a set of guiding principles for future work on harmonization in the region. The Asian Development Bank (ADB), the World Bank (WB), and the Government of Japan, in cooperation with the Government of Viet Nam, jointly organized the workshop. Apart from representatives of the organizers including senior officials from the Government of Viet Nam, attending the workshop were senior representatives from six developing countries in the region, and representatives of the donor community in Viet Nam.1 The report begins with brief background information followed by a short description of the Viet Nam country experience to date in the area of harmonization. Then follows a section that provides the views on harmonization of the participating developing countries and the report concludes with some key guiding principles for future work on harmonization in developing Asia.

The need for harmonization emanated from a desire to reduce transaction costs, build capacity in the partner country and improve overall development effectiveness. The Multilateral Development Banks (MDBs) set up a Roundtable on Harmonization in the 1990s to share experience and lessons. MDB technical working groups in several priority areas have facilitated the harmonization effort. The areas include procurement, financial management and analysis, and environment and social assessments. The G7 subsequently put forward recommendations for MDB reform and the reform agenda reinforced the need to strengthen coordination among MDBs.

The MDBs and the OECD/DAC Task Force on donor practices were requested to work together in 2001 to look at how aid can be delivered more effectively through simplifying and harmonizing donor procedures. The main purpose of the Task Force was to elaborate a set of good practice papers. The Task Force invited sixteen developing countries2, representing different geographical regions and at different levels of development, to consult with and to participate in meetings. The areas covered in the papers are good practices between donors and partner governments, among donor agencies, and within individual donor systems. Several subgroups were set up to report on different aspects of the harmonization exercise. In May 2002, the subgroup on Reporting and Monitoring visited Viet Nam to strengthen cross learning between Viet Nam and the DAC Task Force members, to brief the government and its ODA partners on the OECD/DAC harmonization agenda and the work of the subgroups, and to motivate more local donor agencies to join the harmonization process.

The Monterrey Conference in March 2002 further highlighted the importance of building partnerships among donors and developing countries as a means of making more effective progress towards the Millennium Development Goals. It specifically called on development agencies to harmonize their operational procedures so as to reduce transaction costs and to make ODA disbursement and delivery more flexible, taking into account national development needs and objectives under the ownership of the partner country. The High-Level Forum to be held in Rome was proposed in the second progress report on harmonization prepared for the April 2002 Development Committee Meeting as a follow-up to the Monterrey Conference. The focus of the Forum is to be on enhancing the effectiveness of development assistance through improved harmonization of donor operational policies, procedures, and practices in the context of the CDF/PRSP and similar approaches.

There was general agreement from the participating developing countries regarding the need to harmonize procedures and practices among the various donors operating in each country to reduce both the administrative burden on the partner country and transactions costs. The delegates from the seven developing countries expressed their views on harmonization, including their own experiences.

All participants welcomed efforts by individual donors to simplify and rationalize their own procedures as well as those by groups of donors who have similar aid procedures to jointly harmonize their procedures. The delegates enumerated different problems and burdens associated with different procedures and practices of the donors. Many of the problems enumerated can be resolved through harmonization among the donors, and between the donors and the partner country. Also, each donor agency itself needs to simplify its procedures and practices. In addition, equally important is the need to encourage harmonization among the partner country's own ministries and agencies. All these measures are expected to reduce transaction costs and enhance the effectiveness of ODA.

There were several common messages that emerged. The need for the partner country assuming ownership of the harmonization effort was repeatedly stressed, as was the necessity of catering to the actual needs and capacity of the partner country. Local capacity building is imperative to promote country ownership. The experience of Viet Nam in the training of local staff in the area of procurement was explained in this context.

Some participants noted that Consultative Group meetings, roundtable meetings and joint portfolio meetings have been utilized to discuss the harmonization process suitable to the county's specific circumstances. In Viet Nam, the discussions have led to major efforts at harmonization in the areas of procurement, financial management, environment and social issues and portfolio management. In order to widen understanding on the benefits of harmonization the need for more consultation among the donors as well as between the partner government and donors was emphasized.

Several participants stressed the importance of aligning donor activities to the partner country's national or sectoral development plans. Many stated that a "one-size-fits-all approach" does not apply to harmonization in aid delivery and that harmonization should aim at increasing the effectiveness of assistance by simplifying procedures. Diversity in aid modality and "competitive pluralism" of donors is crucial to respond to the development needs of partner countries. A "two-window approach" (coexistence of pooled funds and project assistance) was suggested. This would enable the partner country to select appropriate assistance in line with the development needs of the country. At the same time, as cited as an example, in the case of the health sector, the necessity of standardization in such areas as preparation of technical manuals for local workers and medical equipment specification was highlighted.

The following areas were mentioned as priority areas of harmonization efforts: information sharing, appraisal and approval, procurement, bidding documents, monitoring and evaluation, and financial management. Some participants also expressed the necessity of shifting to a sector-wide approach as an avenue for easing harmonization.

During the discussion, a question concerning the costs of harmonization itself was raised and it was pointed out that the whole effort was not costless. The benefits of harmonization should outweigh the costs of the harmonization effort and such a cost-benefit analysis of harmonization should help determine priority areas for harmonization. Several specific examples were provided by the different delegates that reflected both the need for harmonization, and the areas of priority that each participating country identified in the area of harmonization. In general, the areas covered in the Viet Nam country pilot were considered of importance and were to be given priority in any future harmonization exercise.

All the participants endorsed some basic principles that were put forward at the workshop regarding harmonization. There was general agreement that the following key principles should guide future work on harmonization, which must be regarded as a long-term process.

(Note)

1. The developing countries represented were Bangladesh, Cambodia, Lao PDR, Indonesia, Nepal, Philippines, and Viet Nam. Both multilateral and bilateral donor agencies and financial institutions were represented.
2. Bangladesh, Bolivia, Cambodia, Egypt, Senegal, Guatemala, Kenya, Kyrgyz Republic, Mall, Morocco, Mozambique, South Pacific Forum, Romania, Tanzania, Uganda, Viet Nam.
3. The LMDG includes Canada, Denmark, Finland, Germany, Netherlands, Norway, Sweden, Switzerland and UK/DFID.