Pepe PhD Conference 2012

Aid and Governance in

Lao People Democratic Republic (Lao PDR)

Phanthanousone (Pepe) Khennavong PhD candidate - Public policy programme

Crawford School of Economic and Governance

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Supervisory panel 1.   Mr. Stephen Howes – Principal Supervisor 2.   Mr. Sean Burges 3.   Mr. Andy Kennedy

Presentation Outline

I.  Introduction

II.  Country context

III. Literature review

IV.  Research methodology

VI.  Findings and discussion

VII.  Conclusion

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I. Introduction

1 Research questions - Have aid donors to Lao PDR been able to influence governance, and, if so, how?

2 Aid and governance •  During 1950s and 1960s, - potential contribution of aid to filling

investment savings and export-import gaps in developing countries

•  During 1970s and 1980s, a shift of donor practices for aid disbursement - imposed ‘structural adjustment’ conditions on economies of recipient countries

•  From 1990s to present, the focus of aid has shifted from targeting standard policy reforms toward building effective institutions and the quality of recipient government functions, including the delivery of basic services

3 The concept of governance by Kaufmann et al (1999a and 1999b) has been widely used in the foreign aid system.

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I. Introduction (Cont’d)

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Process by which governments are selected, monitored, and replaced

Capacity of the government to effectively formulate and implement sound policies

Respect of citizens and the state for the institutions that govern economic and social interactions among them

1) Voice and accountability: Various aspects of the political process, especially civil liberties, political rights, and independence of the media

3) Government effectiveness: The quality of public service provision, the quality of the bureaucracy, the competence of civil servants, the independence of the civil service from political pressures, and the credibility of the government’s commitment to its policies

5) Rule of law: The incidence of both violent and non-violent crime, the effectiveness and predictability of the judiciary, and the enforceability of contracts

2) Political stability: The likelihood that the government in power will be destabilized or overthrown by possibly unconstitutional and/or violent means, including terrorism

4) Regulatory quality: The incidence of market-unfriendly policies such as price controls or inadequate bank supervision, as well as burdens imposed by excessive regulation in areas such as foreign trade and business development

6) Control of corruption: Corruption, conventionally defined as the exercise of public power for private gain. This ranges from the frequency of ‘additional payments to get things done’, to the effects of corruption on the business environment, to ‘grand corruption’ in the political arena or in the tendency of elites to engage in ‘state capture’

II. Country context

1 Land locked country – per capital income $986

2 74% of population living below $2 a day

3 1975 – transition year from Kingdom of Lao to Lao People’s Democratic Republic (Lao PDR)

4 Since 1975 – one party state ruling by the Lao People Revolutionary Party (LPRP)

5 1986 – introduction of New Economic Mechanism

6 85% - foreign aid share of government public investment programme

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Technical Cooperation (TC) and aid for governance in Lao PDR

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Description Year (Amount in million USD)

2002 2003 2004 2005 2006 2007 2008 2009

Total ODA to Lao PDR 278.48 301.06 269.9 301.94 363.71 396.12 495.6 419.98

Technical Cooperation ODA 31.24 27.19 31.97 64.29 67.68 92.44 76.38 88.2

Percentage of TC 11% 9% 12% 21% 19% 23% 15% 21%

Source: OECD DAC database

Source: OECD DAC database

1 8 7 8

13 13 13

27 25 25 26 32

44 44

35 36

-

10

20

30

40

50

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Aid and governance in Lao PDR since 1995 (Amount is in million USD)

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Kaufman’s results do not show much improvement in governance but this does not prove that aid has

been ineffective:

1.  What is the counterfactual

2.  They are relative rankings

3.  They are based on cross-country surveys which may or may not be reliable

0

10

20

30

40

50

60

1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Percentile rank of six Kaufmann et al.’s governance indicators for Lao PDR Percentile rank indicates the percentage of countries worldwide that rate below Lao PDR.

Higher values indicate better governance rating

Voice and Accountability

Political Stability

Government Effectiveness

Regulatory Quality

Rule of Law

Control of Corruption

III. Literature review Three categories of the arguments against the proposition that aid can be used

to improve governance

1 Domestic institutions change slowly, and are largely determined by domestic

politics, something over which donors have traditionally had little influence

2 Tools donors have for addressing government often have little influence.

For example, criticisms of conditionality and technical assistance.

3 Far from improving governance, aid can in fact make it worse. For example:

•  Poorly designed and implemented aid can lead to increased rent-seeking,

corruption or even violence.

•  Poor aid can also weaken accountability to domestic voters, which can have

an adverse impact on performance.

The first two arguments still allow for aid to have an influence on the margin, even

if it is not decisive. The third, however, suggest that aid in fact will have a negative

influence 8

III. Literature review (cont’d) Most of the evidence in support of the negative influence of aid on governance

comes in the form of cross country regressions.

•  Knack (2000) - one of the earliest and influential authors for this proposition -

Aid could potentially exacerbate corruption and has negative impact on the

rule of law and bureaucratic quality

•  Aleina and Weder (2002) also argue that high level of foreign aid in poor

countries can increase the level of corruption.

•  Djankov et al (2008) also argue that high level of foreign aid in developing

countries undermines their institutions

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III. Literature review (cont’d)

There is a significant body of literature critiquing cross-country aid regressions and their lack

of reliability. In particular, Ear (2007) critiques Knack (1999) and argues that “the causal link

between aid dependence and worsening quality of governance may be tenuous at best and

sensitive to alternative specifications”. The alternative approach is one based on case studies.

Case study 1 - Ear (2007) - The political economy of aid and governance in Cambodia

•  Key findings – Aid failed to improve governance except for political stability and may

have worsened corruption

Case study 2 - Huges (2009) - The politics of aid “Dependent Communities: aid and

politics in Cambodia and East Timor

•  Key findings - the policies of Western aid organizations tend to stifle active political

engagement by the citizens of countries that have been torn apart by war – Cambodia vs

East Timor

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III. Research gap

The current literature on the impact of aid on governance seems to have two

key limitations.

1 It is heavily biased in the direction of cross-country regressions, which

may well be unreliable. It often assumes that that the impact of foreign aid

on quality of governance is likely to be homogenous across countries

2 There are very few case-studies, and those that are lack direct insight

into the perspectives of government officials. Ear (2007)’s findings, for

instance, very much based on perspectives from donor community (84% of

the survey’s respondents worked for donor agencies and Non-Profit

Organizations (NGOs))

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IV. Research methodology Approach - A qualitative case study

1) Survey

- Replicated Ear’s (2007) elite survey on aid and governance based on Kaufmann et al.’s six

dimensions of governance

- Extended to a larger group of respondents especially more government officials

2) Semi-structured in-depth interviews

- Mostly open ended questions

- Looked for justification on the ratings by research participants

3) Ethnography and observation

- Worked two days a week with Ministry of Planning and Investment for six months in

Laos managing UNDP supported program for aid coordination and aid effectiveness

4) Analysis of reports and documents

- Reviewed Government documents and donor briefings, evaluation and reports

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Survey I. Survey launched at the end of September 2011 – closed in late July 2012

Key question - For each of six dimension of governance, please indicate whether you

believe that the donor community as a whole has succeeded in stimulating positive

changes in the quality of government in Laos.

II. Rating on donor success

- Ratings on donor success on the quality of the government – negative, no influence,

poor, medium, positive and strongly positive

- To avoid response or acquiescence bias, rating included a ‘not

sure/don’t know’ option

III. The response rate was 75% of the relevant informed population of 80

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Respondents for Ear’s study = 43 (84% of them are representing donor agencies) 14

Descriptions Number Percentage of total research

participants

Male Female Average working

experience

Median

Total research participants 60 39 21 17 15

Government officials 31 52% 21 10 18 15

Donor representatives 29 48% 18 11 15 15

Government officals in total 31 52% 21 10 18 15

Gov't Official - Senior (58%) 18 30% 12 6 24 23

Gov't Officials - Manager (26%) 8 13% 7 1 12 12

Gov't Officials - Technical (16%) 5 8% 2 3 6 6

Donor representatives in total 29 48% 18 11 15 15

Officials working with donor agencies (48%) 14 23% 9 5 14 15

National expatriates working with the Government (28%) 8 13% 4 4 17 15

International expatriates working with the Government (14%) 4 7% 4 0 18 15

Non-Government Organizations ( NGOs) (10%) 3 5% 1 2 13 10

Composition of respondents

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Governance Dimensions Strongly negative

Negative No influence

Poor Medium Positive Strongly positive

Total No influence to Poor

Positive to Strongly positive

Medium to Strongly positive

Voice and accountability

Gevernment & donor 0% 0% 0% 20% 30% 46% 3% 20% 50% 80%

0 0 0 12 18 28 2 60

Government only 0% 0% 0% 13% 32% 52% 3% 13% 55% 87%

0 0 0 4 10 16 1 31

Donor only 0% 0% 0% 28% 28% 41% 3% 28% 45% 72%

0 0 0 8 8 12 1 29 Political stability


0 0 41 8 10 0 1 60

Government only 0% 0% 58% 19% 19% 0% 3% 77% 3% 23%

0 0 18 6 6 0 1 31

Donor only 0% 0% 79% 7% 14% 0% 0% 86% 0% 14%

0 0 23 2 4 0 0 29 Government effectiveness


0 0 1 8 19 26 6 60

Government only 0% 0% 0% 10% 32% 39% 19% 10% 58% 90%

0 0 0 3 10 12 6 31

Donor only 0% 0% 3% 17% 31% 48% 0% 21% 48% 79%

0 0 1 5 9 14 0 29

Survey results

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Governance Dimensions Strongly negative

Negative No influence

Poor Medium Positive Strongly positive

Total No influence to Poor



Regulatory quality


0 0 5 39 14 1 1 60

Government only 0% 0% 10% 74% 16% 0% 0% 84% 0% 16%

0 0 3 23 5 0 0 31

Donor only 0% 0% 7% 55% 31% 3% 3% 62% 7% 38%

0 0 2 16 9 1 1 29 Rule of law


0 0 0 6 21 32 1 60

Government only 0% 0% 0% 13% 42% 45% 0% 13% 45% 87%

0 0 0 4 13 14 0 31

Donor only 0% 0% 0% 7% 28% 62% 3% 7% 66% 93%

0 0 0 2 8 18 1 29 Control of corruption


0 0 33 22 5 0 0 60

Government only 0% 0% 61% 32% 6% 0% 0% 94% 0% 6%

0 0 19 10 2 0 0 31

Donor only 0% 0% 48% 41% 10% 0% 0% 90% 0% 10%

0 0 14 12 3 0 0 29

Survey results (Cont’d)

V. Findings and discussion I Donors and government officials do not differ much in their rating the influence of

donors on the quality of government in Lao PDR. Ratings by all research participants

seem to be consistent across all sub-groups although government officials are more

optimistic

II Both donors and government officials are prepared to be negative about the

influence of aid. This suggests that they are speaking frankly

III Two clear clusters of results

1.   Positive influence – research participants felt that donors have successfully

influenced voice and accountability, government effectiveness and rule of law

with rates from medium to strongly positive of 80%, 85% and 90%, respectively.

2.   No influence - political stability, regulatory quality and control of corruption

were rated as the three dimensions that donors have not been able to effect change

with ratings from no influence to poor of 82%, 73% and 92%, respectively.

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V. Findings and discussion (cont’d) IV Reasons for positive influence

1.  The reform has been perceived by the Government as no harm to the current

Lao political regime.

2.  Being more responsive to the reform is a Government strategy to increase

donor support and to sustain the Party’s legitimacy.

3.   Donors seem to pay more attention to voice and accountability, government

effectiveness and rule of law compared to other three dimensions.

V Reasons for no influence

1.   The ruling Lao People’s Revolutionary Party (LPRP) has monopoly power

over all political spectrum in Lao PDR

2.   Application for becoming a World Trade Organization (WTO) member has

prompted the Government to improve the regulatory quality rather then donors’

influence

3.   Corruption is in the “too hard” basket. Government does not want an external

pressure on this and donors put this issue to one side.

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V. Comparison with the results by Ear

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Description Dimensions of governance Rating (Medium to Strongly positive)

(Laos vs Cambodia)

Similar results •  Regulatory quality

•  Control of corruption

•  27% vs 29%

•  8% vs 7%

Different results

•  Voice and accountability

•  Political stability

•  Government effectiveness

•  Rule of law

•  80% vs 47%

•  18% vs 67%

•  85% vs 30%

•  90% vs 12%

Key explanation for these results is that expectation which seems to be higher in Cambodia compared to Lao PDR

V. Comparison with the results by Ear (cont’d)

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Governance Dimensions No influence to Poor



Key development that donors can influence

Voice and accountability

Lao PDR 20% 50% 80% One-party state – but the party is convinced to revitalize the current voice and accountability framework.

Cambodia 53% 12% 47% Electoral democracy – but donors are skeptical over the process

Political stability

Lao PDR 82% 2% 18% Monopoly power by the Party

Cambodia 33% 36% 67% Resolution of the 1997 crisis

Government effectiveness

Lao PDR 15% 53% 85%

High priority for both donor and government to maintain its relevance and authority .

Reform to keep the flow of external assistance

Cambodia 70% 2% 30% Donor salary supplement – brain drain issue

V. Comparison with the results by Ear (Cont’d)

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Governance Dimensions No influence to Poor



Key development that donors can influence

Regulatory quality

Lao PDR 73% 3% 27% Donors have less concerns

Cambodia 71% 7% 29% Donors have less concerns

Rule of law

Lao PDR 10% 55% 90% High political will – treaty to six out of nine core UN treaties – first ever legal sector master plan up until 2020

Cambodia 88% 2% 12% Low political will – WB suspended the legal reform program

Control of corruption

Lao PDR 92% 0% 8% Sensitive issues and strong partnership is important for other areas

Cambodia 93% 2% 7% Aid seems to make corruption worse

VI. Conclusion 1 Results of the survey suggest balanced views over the influence of aid on governance

in Lao PDR

II Key results – aid has effect in some areas and not in others

Positive influence

•  Voice and accountability

•  Government effectiveness

•  Rule of Law

No influence

•  Political stability

•  Regulatory quality

•  Control of corruption

III Implication

1.  Be careful of cross-country generalization

2.  The influence of aid depends on types of government – to be further explored

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Thank you

Q&A

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Pepe PhD Conference 2012

Documents

Transcript of Pepe PhD Conference 2012