A Political Economy Approach to the PRSP Process. Constraints and Opportunities

1. A Political Economy Approach to the PRSP Process. Constraints and Opportunities Rosa Alonso I Terme The World Bank Institute Joint Donor Staff Training on Partnership for Poverty-Reduction June 17-19, 2002

2. Overview of Presentation • Introduction • The Origins of the PRSP process. How did we get here? • A Political Economy Approach to: • Data Production and Data Usage • Participation and Civil Society • Pro-Poor Policies • Donor Coordination

3. The PRSP process: Overview • World Bank/IMF Annual Meetings, 1996⇒ approves the HIPC initiative for comprehensive debt relief. • Cologne Summit, 1999⇒ G-8 declares support for deeper debt relief within a framework of poverty reduction • World Bank/IMF Annual Meetings, 1999⇒ agreement to link debt relief to the establishment of nationally-owned participatory poverty reduction strategiesthat will provide the basis of all their concessional lending and for debt relief under the HIPC Initiative.

4. The PRSP process: Overview II • Core Principles of the PRSP based on the Comprehensive Development Framework: • Country-driven • Results-oriented • Comprehensive in scope • Partnership-oriented • Long-term in perspective • Participatory

5. The PRSP process: Overview III • In April 2002: • 60 PRSP countries (34 Africa, 7 East Asia, 10 ECA, 2 MENA, 3 South Asia, 4 LAC) • 42 I-PRSPs completed • 9 PRSPs completed • 3 PRSP Progress Report • A PRSP, I-PRSP, or PRSP progress report supported by both theBank and Fund Board within the preceding 12 months is a condition for: • HIPCs to reach a decision or completion point • Approval of the IMF’s PRGF arrangements or reviews • IDA (World Bank) concessional lending.

6. Introduction • From a political economy and a historical perspective, the PRSP process is a radical endeavor • The only dramatic shifts in economic policy-making have historically come through: • Revolution from below • External forces

7. Introduction (continues) • The PRSP process tries to combine both • Can that work and how long will it take? • Key to combine ambition with realism • Taking account of political economy constraints and a sense of history is helpful

8. How did we get here? • Intellectual Origins • Experiences on the Ground (in the South) • Experiences in the Street (in the North) • Institutional Dynamics (in the donor community)

9. Intellectual Origins • Increasingly-broad conception of welfare and what constitutes development—A. Sen • Neo-positivist quantification • Anti-government neo-liberalism of the 1980s and 1990s • Post-Modern psychological approaches to social sciences

10. Experiences on the Ground (in the South) • Governments that were neither representative of the population and, in particular, the poor, implementing policies that were neither good for growth nor for poverty-reduction • The traditional approach to development aid did not seem to be “working”—need to look for a new approach

11. Experiences in the Street (in the North) • Pressure for debt-relief--HIPC • Criticism of conditionality • Criticism that structural adjustment policies are not pro-poor • Criticism of lack of effectiveness of foreign aid

12. Institutional Dynamics • HIPC—Ensuring that resources freed by debt relief are used to benefit the poor • Mission creep—increasingly broad functions of development aid institutions • Learning Process—fungibility of aid • Institutional allies—the initiative could find ready allies within the development community

13. The Political Economy of Data Gathering and Data Usage • The quantity, quality, and coverage of the data a country collects says a lot about its priorities • Key to look at • Decision-making process on what data to collect and track • Actual data production • Publicity, and • Usage (feed-back into policy-making)

14. Participation and the Role of Civil Society • Participation and good governance are not purely “instrumental”… • “…political liberty and civil freedoms are directly important on their own and do not have to be justified indirectly in terms of their effects on the economy.” (Amartya Sen, Development as Freedom)

15. Participation and Civil Society(Continued) • But….We should not expect civil society to be necessarily any more “representative” or representative of the interests of the poor than governments

16. Participation and Civil Society • M. Olson, The Logic of Collective Action: • The smaller and more homogeneous the group, the more likely it is to organize • The larger the group and the greater the barriers to communication among its members, the less likely it is to organize

17. Participation and Civil Society • If the poor are geographically disperse, with bad roads and other communications, speak a variety of languages with no common language and constitute the largest group… • And the non-poor are geographically-concentrated, with better communications and a common language…

18. Participation and Civil Society • The best organized among civil society will be civil servants, unions, the business sector, and other non-poor groups… • And civil society (just like the government) will be heavily biased toward representing the non-poor

19. Participation and Civil Society • Thus, an unfettered aggregation of existing social interest groups will almost certainly not automatically yield a pro-poor coalition…therefore… • Debatable Issues. How do we ensure that participatory processes provide equal access to poor groups? How representative have PRSP participatory processes really been? • How can one foster the formation of pro-poor coalitions?

20. Participatory Processes and Representative Democracy • The relationship of participatory processes with representative democratic institutions (or simply, with the State) is difficult to articulate because… • Civil society is not uniform and thus does not have one voice, but several—Voicesof the Poor, plus other voices in society—thus, aggregation problem

21. Participatory Processes and Representative Democracy Debatable Issues: • How does one deal with the aggregation of voices in civil society? And… • Once aggregated, how are they integrated with government views?

22. Sustainability of PRSPs • Importance of involving not just governments and civil society but also Parliaments in the PRSP process • If Parliaments are not involved, PRSPs are viewed as “government” and not “state” documents and thus subject to change with changes in government

23. PRSPs as Economic Constitutions • PRSPs can be viewed as “Economic Constitutions,” setting a country’s basic development values, objectives, strategies, and operational rules of the game about which there is a societal consensus

24. But, What Type of Constitutions? • Three types of Constitutions: • “State” constitutions--lasting (US) • “Government” constitutions—changing (19th century Spain) • “Semantic” constitutions—unchanging because irrelevant (Latin America in earlier part of 20th century)

25. Participation—Pro-Poor Policies and Pro-Growth Policies • Participation—Pro-Poor Policies—Pro-Growth Policies “triad.” We assume/hope they go together…but what if… • Debatable Issue • A country implements growth-enhancing, pro-poor policies designed without adequate participation? (East Asia model) • A country implements, following the PRSP process, policies that are pro-poor but not pro-growth (policies a la Kerala, Cuba)?

26. Pro-Poor Policies • With increased attention to data and participation, less attention being paid to policies… • But, ultimately, the key to poverty-reduction are improved, more pro-poor policies… • And we know quite a bit about what policies are pro-poor

27. Debatable Issue • So far, there has been more progress on the data and participation fronts than on changing policies…Why? • More and better data is collected that sits on shelves and more voices are being heard and then ignored • There is a lag. It takes less time to start improving data and to initiate consultative processes than it does to change policy-making • Until there are substantial changes on the governance side, policies will not improve

28. Donor Coordination—The Historical Background • Long history of: • Colonial ties • Cold War priorities • Bureaucratic dynamics leading to competing projects and programs and weak coordination • (Often) lack of poverty focus

29. Old approach Donor-driven Project-dominated Non-coordinated Often politically-motivated Weak accountability New approach Country-driven Program-dominated Coordinated Overriding motivation—poverty reduction Enhanced accountability The role of the donor community

30. Incentives for Donors to Stick to Project Financing--Projects • Appear to be easy to plan, design, control and supervise • Have clear visibility • Accountability is easier to establish • Can easily tie to procurement from donor goods and services • Allow by-passing national authorities and pursuit of donor objectives (A. Birgsten, S. Wangwe et al.)

31. Incentives for Recipient Countries to Prefer Projects • Those employed in project implementation units benefit • Projects allow bidding one donor against another • A full move to budget support: • Can lose sectoral/institutional development richness • Is risky--Makes the whole budget dependent on donor financing

32. Incentives for Donors and Recipient Countries to Move to Program and Budget Financing • Build-up of national institutions • Increased ownership of government policies • Allows focusing on overall quality and pro-poor character of recipient country policies • Increased effectiveness of aid

33. How can donor coordination under PRSPs make foreign aid more efficient and pro-poor? • Alignment of donor practices • Complementarity of donor action • Lightening of burden on recipient country • Joint financing mechanisms helping to overcome: • Pressure from the local “development industry” and • Bureaucratic impediments to budget support within donor agency

34. How can donor coordination under PRSPs make aid more efficient and pro-poor? • Focus on recipient country priorities--joint donor action makes it easier to focus on recipient rather than donor country goals • Joint donor approaches encourage collective risk-taking… • AND coordination among some donors may have spill-over effects onto others through peer pressure

35. The donor community and the PRSP process what is expected? • Debatable issues: • Who assesses and how do we assess whether policies are pro-poor? • What are the down sides and risks of country “ownership” of PRSs for the donor community? • How do we weigh the quality of policies versus institutional/political considerations in evaluating poverty-reduction strategies?

36. Making donor coordination happen • Debatable issues: • Focus on progressive donors committed to the PRSP process—forget about others? • How does one ensure coordination on the side of the IFIs? • What role can governments in PRSP countries play to push along donor coordination?