Official Development Assistance (ODA)

Report of the Regional Workshop on Aid Effectiveness in Asia

18-20 October 2006, ADB Headquarters, Manila

October 23, 2006

I. Introduction

This note summarizes the discussions and conclusions of the Regional Workshop on Aid Effectiveness in Asia, which was held on October 20, 2003, in Hanoi, Vietnam. This workshop was co-hosted by the Vietnamese Ministry of Planning and Investment, the Japanese Ministry of Foreign Affairs and the UK Department for International Development.

II. Background and Objectives

Over the decades, improving aid effectiveness has been one of the main concerns of the development community. Recently, the donor community has been concerned with growing evidence that a number of donor requirements and processes for aid delivery have been generating unnecessary transaction costs as well as hindering the development of the already limited capacity of partner countries. Partner countries have also expressed their concern that donor practices are not always well suited to national development priorities and systems.

Since 2000, Multilateral Development Banks (MDBs) and the OECD/DAC have been working together to look at how aid can be delivered more effectively through simplifying and harmonizing donor practices in collaboration with selected partner countries. In February 2003, the High-Level Forum on Harmonization (Rome HLF) was held in Rome, Italy, to launch the implementation of good practice principles on harmonization in country programs and projects. To ensure that the HLF would have a substantive impact, the Rome Declaration on Hamonization was adopted. It included an indicative list of countries and thematic areas in which progress on harmonization would be expected over the next year or so. As a next step, the Declaration encouraged partner countries to design country-based action plans for harmonization in which they would set out proposals for the harmonization of development assistance. In turn, bilateral and multilateral agencies were expected to take action to support harmonization at the country level.

In the course of preparation for the Rome HLF, the Regional Preparatory Workshop in Asia was held in Hanoi, Vietnam, from the 22-24 of January 2003. This preparatory workshop proved to be extremely useful in bringing together the voices of Asian partner countries as well as those of donors engaged in development aid in this region. The workshop discussions were well reflected in the Rome Declaration.

Moreover, as a follow up to the Rome HLF, both development partners and donors were asked to take concrete action to improve aid effectiveness. In the OECD/DAC, active discussion has already started regarding ways to elaborate the aid effectiveness agenda of the Working Party on Aid Effectiveness and Donor Practices. In this context, creating an opportunity for Asian partner countries and donors to exchange their views on the issue of aid effectiveness was regarded as highly useful; hence, the decision to hold the Regional Workshop on Aid Effectiveness in Asia. The main objectives of the workshop were to promote the practical applications of the Rome Declaration in an Asian context, and to facilitate collaborative actions for aid effectiveness through the sharing of experiences and ideas among donors and partner countries in Asia.

III. Participation

The workshop was hosted by the Vietnamese Ministry of Planning and Investment, the Japanese Ministry of Foreign Affairs and the UK Department for International Development. Seven countries from Asia were represented: Bangladesh, Cambodia, Indonesia, Laos, Nepal, the Philippines and Vietnam. Three Central Asian countries, which were sponsored by the World Bank, also attended the workshop as observers: Kyrgyz, Mongolia and Tajikistan. In addition to the co-sponsors, the international and bilateral agencies represented were Australia, Belgium, Canada, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Sweden, Switzerland, the United States of America, the Asian Development Bank, the IMF, the UNDP and the UNFPA. The vice-chair of the OECD/DAC Working Party on Aid Effectiveness and Donor Practices was also in attendance. Altogether there were approximately 120 participants at the one-day workshop.

IV. Overview of the discussions

(1) Session 1: Recent Progress in the Harmonization and Aid Effectiveness Agenda

Regional and international efforts and progress on harmonization were presented by the OECD/DAC, the World Bank and the Asian Development Bank. Firstly, the OECD/DAC presented the main discussion of the Rome HLF, which successfully obtained the commitment of donors and partner countries to take action for harmonization. This commitment was summed up in three words: "alignment", "coordination" and "simplification". So as to go forward, it was regarded as strategically important to move from principle to practice, to change the way donors do business and to make progress at the country level. The OECD/DAC will continue to support these efforts by reviewing the progress of harmonization measures and by maintaining peer pressure among donors.

Secondly, the World Bank introduced efforts and progress made by MDBs after the Rome HLF. Three key developments since Rome were a) reaffirmation of the scope of the harmonization and alignment agenda which focus on country implementation, b) evolution of the global architecture to support and monitor implementation, and c) growing interest in harmonization in partner countries. The progress made by MDBs in the areas of financial management and the environment was also presented.

Thirdly, the Asian Development Bank showed the progress of harmonization in several Asian countries. In addition to the pilot and frontier countries, which expressed their interest in harmonization, several Asian countries recently expressed their interest in initiating harmonization work. Sector-wide approaches (SWAps) in several sectors were also discussed as an example of recent harmonization initiatives. The importance of aligning donor strategies to national development strategies was stressed as the top priority for future work.

Following the above-mentioned presentations, several bilateral donors and multilateral agencies also presented their harmonization efforts.

(2) Session 2: Recent Progress in Regional Perspectives

Seven Asian countries presented their recent development and progress in promoting aid effectiveness focusing on harmonization. The main points of each presentation were as follows:

1) Bangladesh

Several harmonization activities are proceeding in the area of financial management, project-tied foreign training and procurement. Harmonization measures in the area of financial management include: reforms in budget and expenditure control, a government audit system, and the enhancement of the training facilities of the Financial Management Academy. Future harmonization challenges include: a) the harmonization of donor policies and procedures, b) the alignment of donor policies with partner's development strategies, c) environmental considerations, d) capacity building and e) the realization of the four principles on harmonization proposed at the Preparatory Workshop in Hanoi in January 2003.

2) Cambodia

Significant progress has been made in building partnerships with donors since the launch of the new development partnership paradigm in May 2000. A notable example of successful partnership with donors is the Seila program, in which the harmonization of reporting and monitoring methods has made progress in a context of decentralization. In the education and health sectors, a variety of joint plans and programming are being promoted among donors. Under the Donor Partnership Working Group established in June 2002, three research projects are presently underway. They focus on: (a) practices and lessons learned in development cooperation management, (b) harmonized approach for capacity development, and (c) operational guidelines for development cooperation management. Cambodia is pushing ahead with SWAPs in key areas, but the choice of implementation modality should be at the discretion of each participating donor. Since achieving full harmonization is a long-term process, a gradual approach is needed with a focus on the areas which would help increase national ownership, lessen the burden on implementing agencies and minimize the unintended adverse effects of donor practices.

3) Indonesia

Matching of "supply and demand" (or donor and partner efforts) is imperative. Such synchronization should aim at generating a sense of partner ownership as well as optimizing the use of all available development resources. In this regard, there is a great need for improvement in the areas of public sector management, accountability, institutional coordination, the rolling over of unspent funds, public procurement and financial management reform. In order to enhance disbursement of ODA projects, capacity development should be of primary importance. Capacity "for what" and "for whom" needs to be elaborated so as to make such capacity building operational.

4) Laos

In Laos, 80% of public investment is funded by ODA, which accounts for about 20% of the GDP. Thus there is a great need for increased efficiency and effectiveness of ODA. The National Poverty Eradication Plan (NPEP) is serving as a basis for the alignment of donor development assistance. In the process of formulating the NPEP, numerous consultative workshops and meetings with various development stakeholders and donor agencies were conducted by sector and by region. The participation of a variety of stakeholders has since resulted in the enhancement of sustainability and the obtaining of new practical ideas for poverty reduction. Coordination of the interests of line ministries and local governments was the key challenge in selecting priority sectors and districts.

5) Nepal

Foreign aid accounts for 60 % of development expenditure and 5-6% of the GDP in Nepal. Nepal embarked on an extensive economic reform program in the early 90s in the areas of decentralization, civil service reform, governance, tax reform, public expenditure reform and infrastructure. In Nepal, the PRSP serves as a coordination mechanism for enhancing aid effectiveness. A MTEF (Mid-Term Expenditure Framework) has been developed as a link between the tenth plan, the PRSP and the annual budget and programs, so as to protect the key PRSP priorities in the event of a shortfall in resources. "Foreign Aid Policy" was issued in 2002 in order to ensure compatibility and convergence of foreign-aided development activities with nationally determined/devised development priorities. The following elements should be improved if the effectiveness of ODA is to be enhanced: (a) policy clarity regarding development objectives, (b) up-to-date information on the national development situation, (c) adequate high-level manpower, (d) administrative and management capacity and (e) sincere donor efforts towards harmonization.

6) Philippines

The Medium-Term Philippine Development Plan (1999-2004) serves as a basis upon which donors can elaborate their development assistance plans for the Philippines. The government discusses their priority issues with donors during country program reviews and other such meetings. Government agencies began carrying out ODA portfolio reviews in 1992. These reviews later evolved into joint portfolio reviews in conjunction with the ADB, JBIC and the World Bank. Some recent developments in harmonization efforts are: a) Public Expenditure Management, Procurement and Financial Management Review with the World Bank and the ADB, b) Common Country Assessment with UN agencies and c) Third Country Cooperation in collaboration with Japan. In order to achieve development effectiveness and capacity building, these programs should be implemented in a country-defined/country-led approach.

7) Vietnam

In Vietnam, there are various ongoing harmonization activities at the following three levels: the strategy and policy level, the regulations and guidelines level and the technical level. The government is presently preparing a harmonization action plan, which should encompass all harmonization efforts under a common framework. Under this plan, the complementarities between harmonization and capacity development should be utilized to their full extent. The action plan will have the following three dimensions: a) a policy dimension aimed at pinpointing common "harmonizable" areas in the national/sectoral development strategy implementation process, b) an institutional dimension aimed at improving the ODA legal framework, streamlining ODA management procedures and building capacity and c) a procedural and technical dimension focusing on the development of common formats for studies and project documents, standard bidding documents, financial reporting and auditing, common EIA documentation, and portfolio management.

(3) Session 3: Alignment to National Development Strategies

As a new initiative for the promotion of alignment with the development plans of Vietnam, Japan introduced the "Policy Matrices Initiative". This initiative provides a comprehensive view of Vietnam's sector plans and strategies in order to better identify areas for alignment through making a matrix of policy objectives, measures, targets, key outcomes, timetables and donor support. In this context, each strategy is to be formulated by the partner country. Line ministries are expected to play a central role in collaboration with the MPI and interested donors. Potential sectors for alignment include education, health, transport and agriculture.

This presentation was followed by two harmonization examples at the sector level in Vietnam. The Vietnamese Ministry of Education and Training (MOET) presented its experience with the EFA (Education for All) project. EFA has been promoted in collaboration with several bilateral and multilateral donor agencies. As a result of the joint review meeting, MOET has established Technical Working Units for the implementation of the EFA plan. Some of the key challenges the Vietnamese EFA is facing include: establishing financial mechanisms, harmonization among donors and capacity building from the central to grassroots level. Secondly, a consultant for the Ministry of Agriculture and Rural Development (MARD) presented harmonization efforts within the forestry sector. The signing of the Forest Sector Support Program and Partnership (FSSP) in 2001 by MARD and major donors provided the institutional setting for the Harmonizing Project Implementation Framework (HIF) encompassing major donor projects and the national forestry investment program (comprised of 661 programs). A consultation mechanism covering provincial-level implementation agencies, as well as donor and national-level representatives, identified practical operational standards, such as the settling of land use titles in order to improve investment efficiency and disbursement rates. It is envisaged that common investment procedures and cost norm structures will be adopted.

(4) Session 4: Capacity building toward promotion of aid effectiveness

The concepts behind the "Comprehensive Capacity Building in ODA Management" were presented by the Ministry of Planning and Investment of Vietnam. This program not only covers training aspects but also institutional frameworks and incentive structures. The program is divided into three parts: (i) a framework and system for ODA management, including the improvement of Decree 17 on aid utilization and management and the streamlining and harmonizing of internal governmental procedures to support capacity building efforts, (ii) capacity improvement for managing ODA projects, such as the professionalization of project management and capacity development corresponding to each project cycle and (iii) capacity development to manage non-project aid, by means of building awareness of new aid modalities and testing pilot programs.

The follow up discussions and comments at the end of Session 4 on capacity building proved to be very insightful and enriching. One commentator from a PAR (Public Administration Reform) Project Management Unit highlighted the need to consider the program in the wider context of facilitating changes in support of the country development process, where no change is sustainable without being internalized, and that the past country experience susggested to consider the experimentation strategy for the program implementation. Besides, the practicality element was emphasized in conducting the training program with suggestions on ensuring the "learning by doing" or "hands-on" approach. Other presentations from this session, including one by JICA-CIEM (Central Institute for Economic Management) and another by a private-sector representative, provided various perspectives on the capacity building issue. JICA-CIEM described their findings from a donor practices and transaction cost study in Vietnam. The study stressed the importance of increasing recipient ownership through capacity building, enhancing donor alignment, greater information sharing between donors and the government, improving internal governmental procedures and streamlining donor practices. In the second presentation, a local private management consulting firm, called the Organizational Capacity Development Co. or OCD, shared its views and experiences on the role that partnerships with donors could play in building up local capacity to meet development needs. The firm presented its recent achievements in the area of capacity development support for ODA funded projects through the provision of training courses in collaboration with donors and NGOs.

V. Conclusions (and Next Steps)

The main discussion points for each session were summarized by the Session Chairs as follows *:

* Other points salient in Vietnamese context are shown in ANNEX 2.

Perspectives to Enhance Aid Effectiveness

There was broad agreement that considerable progress has been made since the last regional workshop on harmonization in Hanoi in January 2003. The importance of the principles agreed at that time; including country ownership, the country based approach, the need to recognize diverse aid modalities, and cost-benefit analyses of harmonization, was re-endorsed.
The Rome Declaration has added momentum to the process of enhancing harmonization and aid effectiveness in countries. The follow up to Rome in 2005 will be an important milestone, which we should be working towards.
Participants underlined the importance of the exercise of enhancing aid effectiveness and welcomed the basic directions of the Rome Declaration on Harmonization and the recent initiatives by both donors and partner countries.
The presentations highlighted the range of experience in improving aid effectiveness that is developing around Asia. These involved the following measures and issues:
- Intensified partnership between donors and partner countries in order to ensure better matching of supply and demand;
- Formulation of Poverty Reduction Strategies, and the use of participatory approaches in formulating them;
- Formulation of medium term expenditure frameworks;
- Alignment of aid policies and programs with national priorities;
- The importance of sectoral approaches;
- Capacity building for ODA management; and
- Harmonization and simplification of donor procedures
In view of the variety of issues identified in the presentations, it is important to promote the enhancement of aid effectiveness by using a "multi-dimensional but well-coordinated approach." This allows each player to push forward the issue deemed most appropriate (cost-effective) and rewarding (with a high likelihood of success).
The necessity to pay attention to the transaction cost of harmonization was pointed out. Thus the required level of harmonization and its institutionalization needs to be well taken into consideration. The importance of achieving tangible results in the short term was also emphasized. Tangible results will build up confidence among the government and the donors concerned and will become a driving force to keep up momentum. Short-term impact with long-term vision is also important in the sense that sustainable change can only take place at a pace absorbed by government and donor capacity and a realistic approach is crucial so as not to overload existing capacity.
Additional investments are required by all players to get harmonized approaches working in practice. Institutional commitment and incentives are needed both at senior levels and among front line implementation staff if progress is to be made. This investment of time and resources can be seen as transitional, the longer term benefits being savings for all in transaction costs and sustainable development of partner country capacity to manage their own development processes.
It was noted that decentralized (provincial-level) harmonization could reduce the transaction costs of harmonization and reduce the strain on limited available national capacities, while the overall inter-relationship between decentralization and aid effectiveness should be further examined.

Alignment with National Development Strategies

It was accepted by all participants that alignment of aid with national strategies was a given, and that international donors should be aligning their efforts with national priorities. The challenge remains to develop more practical examples of alignment in practice.
The policy matrix concept was presented as a tool through which greater alignment can be achieved, if it is used to bring together the policy priorities of Government and the actions taken by donors to address them. Further development of this concept is the task ahead.
The alignment issue has two aspects. One is the "policy priority" setting, and the other is "aid systems and procedures". The idea of formulating policy matrices emphasizes the significance of making progress in terms of "policy prioritisation". This involves giving more respect to the existing development plans of the partner countries.

Capacity Building

The importance of capacity building for ODA management with a view to enhancing ODA effectiveness was confirmed. It was seen as a major requirement for enhancing country ownership.
The presentation of the Comprehensive Capacity Building Program for ODA Management in Vietnam was strongly welcomed by participants. This covers the measures to be taken in relation to the framework and system for ODA management, improved capacity for managing ODA projects and capacity to manage non-project aid.
"How to build capacity" is important not only for the sake of improving ODA management in itself, but also for the overall purpose of making ODA inputs more effective. As such this work is conducive to enhancing the capacity of partner countries in a sustainable manner, since many of the ODA projects have "capacity building" as their main objective.
Capacity development is far more than a mere technical intervention; it is a process of transformative change. Thus factors at the individual, organizational and societal levels need to be taken into consideration in designing capacity development projects/programs. How to measure the outcome of capacity development is a future challenge.

ANNEX 1: Workshop Agenda

ANNEX 2: Progress in Vietnam

ANNEX 1

Regional Workshop on Aid Effectiveness in Asia

October 20, 2003, Hanoi
Venue: Ballroom III, Melia Hanoi Hotel

08:00 - 08:30	Registration
08:30 - 08:40	Welcome speech Nguyen Bich Dat, Vice Minister for Ministry of Planning and Investment, Vietnam
08:40 - 08:50	Opening Remarks Hajime Furuta, Director-General, Economic Cooperation Bureau, Ministry of Foreign Affairs, Japan Suma Chakrabarti, Permanet Secretary, Department for International Development (DFID), U.K.

Session 1: Recent Progress in harmonization and aid effectiveness agenda after Rome High Level Forum on Harmonization

Chair: Klaus Rohland, Country Director in Vietnam, the World Bank

08:50 - 09:00	Progress in OECD/DAC harmonization initiatives Presenter: Ikufumi Tomimoto, Deputy Managing Director, Planning and Evaluation Department, JICA (Vice-Chair of the DAC Working Party on Aid Effectiveness and Donor Practice)
09:00 - 09:10	Progress in MDBs harmonization initiatives at the global level (including Rome High Level Forum) Presenter: Colin Bruce, Senior Manager, Operations Policy and Country Services, World Bank
09:10 - 09:20	Progress of MDBs harmonization activities in Asia Presenter: Shahid Zahid, Principal Planning and Policy Officer, Strategy, Planning Policy and Interagency Relations Division, Asian Development Bank
09:20 - 09:40	Discussions

Session 2: Recent Progress in Regional Perspective ～ Actions taken by the partner countries for harmonization and aid effectiveness

Chair: Will Costin, Resident Mission in Vietnam, Asian Development Bank

09:40 - 10:40	Presentation by each partner countries (5 - 10 minutes for each presentation)
	<Bangladesh> Presenter: Md. Shafiqul Islam, Joint Secretary, Economic Relations Division, Ministry of Finance
	<Cambodia> Presenter: Chhieng Yanara, Deputy Director General, Council for Development of Cambodia (CDC)
	<Indonesia> Presenter: Ceppie K. Sumadilaga, Director, Bilateral Foreign Cooperation, National Development Planning Agency (BAPPENAS)
	<Lao PDR> Presenter: Latsamy Keomany, Deputy Director General, Department of International Cooperation, Committee for Planning and Cooperation, Lao PDR
	<Nepal> Presenter: Lal Shanker Ghimire, Under Secretary, Ministry of Finance
	<Philippines> Presenter: Rolando G. Tungpalan, Assistant Director General, National Development Office, NEDA
	<Vietnam> "Action Plan of Harmonization by the Government of Vietnam" Presenter: Duong Duc Ung, Director, Ministry of Planning and Investment
10:40 - 11:00	Discussions
11:00 - 11:20	Coffee break

Session 3: Alignment to National Development Strategies

Co-Chairs:

Duong Duc Ung, Director of MPI, Vietnam
Bella Bird, Country Director, DFID Vietnam

11:20 - 11:35	"Policy Matrices Initiative in Vietnam" Presenter: Mitsuru Kitano, Minister, Embassy of Japan in Vietnam
11:35 - 11:45	"Case of Education Sector in Vietnam" Presenter: Nguyen Quoc Chi, Manager, EFA Program Preparation Unit, Ministry of Education and Training
11:45 - 11:55	"Case of Forestry Sector in Vietnam" Presenter: Elke Foerster, Harmonization Specialist, Forestry Sector Support Program
11:55 - 12:40	Discussions
12:40 - 14:00	Lunch: (hosted by MPI, Japan and DFID) at El Patio Restaurant

Session 4: Capacity building toward promotion of aid effectiveness

Co-Chairs:

Duong Duc Ung, Director of MPI, Vietnam
Mitsuru Kitano, Minister, Embassy of Japan

14:00 - 14:15	"Updates on the Comprehensive Capacity Building Initiative in Vietnam" Presenter: Pham Thi Thanh An, MPI, Vietnam
14:15 - 14:45	Comments
	Central Institute for Economic Management and JICA PAR Project - Mel Blunt and Alf Persson OCD (Organizational Capacity Development) - Dau Thuy Ha
14:45 - 15:30	Discussions
15:30 - 16:00	Coffee break

Session 5 :Wrap-up and next step

16:00 - 17:00	Plenary discussion and Concluding remarks by the Session Chairs
17:00 - 19:00	Dinner Reception (hosted by Ambassador of Japan, UK and MPI Vice Minister Dat) at Ballroom II

ANNEX 2

Progress in Vietnam

Other than the main discussion points mentioned in "Conclusions (and Next Steps)", points salient in the Vietnamese context are as follows:

Perspectives to Enhance Aid Effectiveness

The presentations by the Government of Vietnam were welcomed as strong signals of their leadership of the harmonization and enhancement of aid effectiveness process. A metaphor of ODA as a symphony, with the Government as the conductor and the donors as players, was put forward by the Government presenter Dr Ung of MPI (the Ministry of Planning and Investment). This captured the vision of Government for bringing together a diverse set of international development actors to support Vietnam's development process.
The presentation by Dr Ung on the draft Harmonization Action Plan was well received. It is an important step in bringing together current efforts for harmonization and enhancement of aid effectiveness in Vietnam into a common framework. The framework included actions by both the Vietnam Government and international development partners that are required to make increased aid effectiveness a reality. It is expected that the Harmonization Action Plan will be further developed between Government and donors for presentation at the CG in December 2003.
Within the framework of the Harmonization Action Plan, the next six months in Vietnam will also see donor's input into the review of Decree 17 on aid modalities, further work by donors in harmonizing procedures and enhancing aid effectiveness, and further development of initiatives to strengthen Government's own systems. This will include simplifying the government's internal procedures for appraisal/approval of new projects and securing counterpart funding, financial management and procurement. More examples of harmonization and enhancement of aid effectiveness in practice should be disseminated. The current work developing in the education and forestry sectors could be important examples to watch.

Alignment with National Development Strategies

The presentation of the policy matrix concept is one of the achievements of the workshop. Further development of this concept is the task ahead. The piloting of this initiative is under consideration, and could be usefully linked to the development of medium term expenditure frameworks and sector approaches. The presentation of harmonization efforts in the forestry sector in Vietnam provided a very useful example of the benefits and challenges of putting aid effectiveness principles into practice.

Capacity Building

Progress made in developing the concept for the Capacity Building for ODA Management in Vietnam was a tangible result from the workshop. The concept paper was a result of good collaboration between Government and donors and was well received. It is expected that a Government proposal will be put to donors at the CG, which will include steps to turn the concept note into a plan for action, which might include concrete indications of financial commitment.