True Ownership and Policy Autonomy:Managing Donors and Owning Policies
National Graduate Institute for Policy Studies Development Forum

Edited by Izumi Ohno
with contributions from:

Yasutami Shimomura,
Kenichi Ohno,
Masashi Nagasu

True Ownership and Policy Autonomy:
Managing Donors and Owning Policies

True Ownership and Policy Autonomy:
Managing Donors and Owning Policies

Edited by Izumi Ohno
with contributions from:

Yasutami Shimomura,
Kenichi Ohno,
Masashi Nagasu

National Graduate Institute for Policy Studies
GRIPS Development ForumCopyright © 2005 GRIPS Development Forum
Contact:
GRIPS Development Forum
National Graduate Institute for Policy Studies
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Phone: 03-6439-6337
Fax: 03-6439-6010

Contents
Foreword
Contributors

Introduction and Overview ......................................................................1
Yasutami SHIMOMURA and Izumi OHNO

1. Export Capacity Building in Thailand: Managing Donors andthe Development Process toward a Self-Reliant Economy ................21
Yasutami SHIMOMURA

2. Fostering True Ownership in Vietnam: From Donor Management
to Policy Autonomy and Content......................................................37
Izumi OHNO and Kenichi OHNO

3. Challenge of Managing Donors in Cambodia: Review of theProcess of Preparing the National Poverty Reduction Strategy ..........67
Masashi NAGASUTables
1 Three Dimensions of Ownership: Thailand, Vietnam, and Cambodia..13
2 Thailand’s Top 10 Export Commodities: 1973-1986 ........................25
3 Thailand’s Terms of Trade: 1975-1985 ..............................................25
4 Thailand’s Macroeconomic Imbalance in the Early 1980s ................27
5 Choices Faced by the Thai Government in 1985 ..............................27
6 Simulation on the NFC Profitability ................................................29
7 Foreign Exchange Rate and International Fertilizer Price Trends........29
8 Trade Balance between Thailand and Japan in the Early 1980s..........31
9 Aid as a percent of Macroeconomic Aggregates ................................41
10 Change in Political and Economic Systems in Cambodia ..................70
11 Timeline of SEDP II and PRSP Preparation......................................77
Figures
1 Typologies of Development Management ..........................................5
2 Selected Sources of Foreign Exchange Inflows ..................................41
3 Two Prototypes of PRSP ..................................................................46
4 Foreign Aid: Grants versus Loans ......................................................51
Boxes
1 Aid Harmonization by Donor Group................................................52
2 History of Aid Infusion without Control ..........................................71
3 Two Banks, Two Processes, Two Documents ....................................81Foreword
This book is a collection of essays on ownership, based on case analyses ofthree East Asian countries. By illustrating the different nature and levels ofownership demonstrated in Thailand, Vietnam, and Cambodia, it attempts
to cast light on critical elements of ownership that are desirable for andshould be ultimately aspired by today’s developing countries.
For Japan, ownership is not entirely a new concept. Despite the recently
intensified global attention to country ownership, Japan has embraced suchconcept for long, phrasing it as “self-help effort.” Moreover, I believe thatthe concept of “self-help effort” is somewhat broader than the conventional
interpretation of ownership—with the emphasis on eventual graduationfrom aid and selective adaptation of external advice to the country-specificcontext—reflecting Japan’s own development and aid experiences in East
Asia. I hope that this book will contribute to deepening the understandingof ownership by adding Asian perspectives to the ongoing debates.
I sincerely appreciate the valuable contributions by the authors, who haveparticipated in this research. We are also grateful for all who have kindly
supported our research by giving their time for interviews and providing
comments. These include the discussions at two international workshops,“Forging partnership?: A comparative study of institutional responses to
Nordic and Japanese Aid in Asia,” held in Hanoi on March 19-21, 2004
and Stockholm on June 17-19, 2005 (funded by SIDA, FINNIDA,NORAD, DANIDA, JBIC and JICA, with the participation of Nordic andAsian researchers). However, we bear sole responsibility for the views
expressed in the book and any errors.

Tokyo, August 2005
Izumi Ohno

Contributors(In the order of chapters)

Yasutami Shimomura is professor in the Department of Humanity andEnvironment at Hosei University, Tokyo.
Izumi Ohno is professor at the National Graduate Institute for Policy
Studies, Tokyo.
Kenichi Ohno is professor at the National Graduate Institute for Policy
Studies, Tokyo.
Masashi Nagasu is professor at the Graduate School of International Relations, Ritsumeikan University, Kyoto.

Introduction and Overview

Yasutami Shimomura and Izumi Ohno

1. Objective
The objective of this research is to share the experiences of aid anddevelopment management of three East Asian countries and to contribute to a mutual understanding of the critical elements of ownershipthat are desirable for today’s developing countries. Such elements
include the capacity of developing countries for managing donors andowning policies. There is a shared consensus on the importance ofownership in the development process, and virtually all recent literature argues that aid should better promote national ownership. Certainly, aid facilitates recipient countries’ access to finance, goods, andknowledge and technology, which are essential inputs to their socioeconomic development processes. However, it is also true that there is atension between ownership and aid because excessive dependence on
aid may constrain recipient countries from exercising policy autonomy.
What is true ownership? What are the critical elements of ownershipthat developing countries should establish in order to sustain poverty
reduction and growth? How have some countries succeeded in dealing1with donors and exercising policy autonomy? How can donors foster(or hamper) true ownership of developing countries? These are thecentral questions to be examined in this research. In doing this, we go
beyond donor rhetoric on ownership and pay attention to recipient
perspectives.
This research attempts to analyze the experiences of Thailand, Vietnam, and Cambodia in managing aid relationships and development
processes. The nature and levels of ownership demonstrated by thethree countries differ significantly, owing to their stages of political andsocio-economic development, as well as to historical factors. By providing concrete country analyses, this research tries to deepen our understanding of the nature of true ownership.
While ownership is a multi-dimensional concept, we concentrate on
national-level development strategies and policies, charged by the central government. This is because economic development is a processthat must be undertaken at the level of the nation-state as the implementing unit, and in its early stages the central government must act as
the initiator of change by establishing a development vision, translating it into practical measures within hard budget constraints, andinteracting with external and domestic partners for resource mobilization, coordination and implementation.

2. Three Dimensions of Ownership
Three dimensions are especially important when we examine the concept of true ownership from the perspective of recipient governments.
The first is the goal of aid. Ownership should be based on the strong
will and commitment of national leaders to build a self-reliant economy. National development strategies and policies (or poverty reduction
strategies, which have been widely introduced in low-income developing countries during the past five years) should assume eventual “grad2

True Ownership and Policy Autonomy

uation” (or an “exit plan”) from aid and be supported by a concrete
vision and realistic measures for growth promotion and domestic
resource mobilization. Although most national development strategies
embrace equitable and sustainable growth as their stated objective, thisshould not be simply a slogan.
This issue is closely related to Japan’s aid philosophy, which stems fromits own experience in catching up with the West since the Meiji era,reconstructing the nation after World War II, and supporting East
Asia’s successful economic take-off. In fact, ownership is not an entirely
new concept for Japan. Such a concept has long been embraced in theguise of “self-help effort,” which includes aspirations for growth with
eventual graduation from aid (Ohno 2003). Therefore, while sharing
much with what is advocated by today’s international development
community, the Japanese concept encompasses a slightly broader spectrum of action (Sunaga 2004).
The second is the scope of ownership. Most literature defines ownershipin terms of recipient commitment to and capacity for design andimplementation of policy reform (Leandro, Schafer and Frontini 1999;
Morrissey 1999).1 But this definition fails to differentiate managementof the aid relationship from development itself. We consider it important to distinguish two types of capacities: (i) donor management; and(ii) policy autonomy and content (referring to the substance of national development strategies and policies).
Donor management refers to the capacity to own the relationship withthe donor community and requires leadership in policy dialogue, coor1 Morrissey (1999) deconstructs government ownership into: preference, political capacity,

political commitment, administrative capacity and institutional capacity. He states that a government truly owns a policy reform if it has the capacity to analyze options and to choose andimplement the preferred policy. Earlier, Johnson and Wasty (1993) measured “borrower ownership” of adjustment programs using four independent variables: locus of initiative; level ofintellectual conviction among key policy makers; expression of political will by top leadership; and efforts toward consensus-building among various constituencies. These variables
were refined by Killick (1998) by adding “institutionalization of the measures within the policy system.”3

dinating of diverse requests, selectively adopting donor advice, handling friction with diplomatic grace, and so on. Such capacity isrequired and exercised by a relatively small segment of the government,
mainly the administrative body in charge of aid receipt. By contrast,
policy autonomy and content are concerned with owning development
policies. This requires the capacity to identify national development
goals, set coherent and realistic action plans and timetables, execute
them without delay, respond to unforeseen situations, and so on. As
such, it is a much broader task than donor management. It calls for the
execution of development itself, of which aid is only a part. Intra-governmental coordination is required for owning policy autonomy andcontent. In heavily aid-dependent countries, it is not easy in practice todraw a line between the management of aid resources and that of thecountry’s own development. Nevertheless, the two are conceptually different (see Chapter 2).
Figure 1 illustrates two extreme types of development management. In
Case 1, the government is capable of managing the entire development
process and hence coordinates aid as part of its own coherent development effort. The government initiates and formulates a national development strategy, identifies specific needs to be financed by aid, presents its aid requests and negotiates with donors, matches aid programs
and projects with its own internal resources, implements various developmental activities, and monitors and evaluates results.
By contrast, in Case 2, government and donors assume “joint responsibility” for managing the development process. Due to capacity constraints, the government faces the fragmentation of aid, as well as difficulty in formulating and presenting policy content. In this case, government and donors jointly decide the content of development policy
and the allocation of the budget, including aid money, and jointly
monitor development activities. Development management increasingly becomes a process of donor coordination, rather than government
coordination of aid resources.

4True Ownership and Policy Autonomy

Figure 1 : Typologies of Development Management
Case 1: Strong Capacity & Ownership
Recipient
DonorsDevelopment scenario

Identification of aid needs

Development strategy• Policy autonomy& content

Implementation
Formulation of aid strategy
Aid management

Aid money

Internal budget

Development effectiveness &sustainability• Aid relationshipas part of entire
development
coordination

Achievement of strategic goals
Development management by recipient

Case 2: Weak Capacity & Ownership
Recipient & Donors
Development scenario• Scope of policy choice &interpretation set by donors

Development strategy
Implementation
Internal budget & aid money• Aid relationship as central todevelopment coordination

Development effectiveness &sustainability
Achievement of strategic goals
Joint decision on development management by recipient & donors
Source: modified the Figure 3-5, Ohno and Niiya (2004), p.28.

5In our view, the East Asian “miracle” economies pursued and accomplished Case 1-type development management. Although the “miracle”
governments may have lacked sufficient institutional basis at the initialstage of development, they made strenuous efforts to establish core
government institutions for strategic planning, resource management,
and coordination and to build cadres of economic technocrats insulated from narrow political pressures (World Bank 1993; Campos andRoot 1996). Under strong political leadership, these economic technocrats formulated and implemented growth-oriented economic policies—for example, diversifying and upgrading industrial structure—
while addressing social and equity concerns. For these governments,
the aid relationship was just one component of development management, a means to achieve a national goal of promoting growth andestablishing wealth-sharing mechanisms on a nation-wide scale(“shared growth”).
In reality, most developing countries fall between Case 1 and Case 2.
The governments of heavily aid-dependent countries, in which aid
accounts for a substantial part of development financing and donors
possess greater financial power, are especially constrained from exercising genuine autonomy. Nevertheless, to establish true ownership, thegovernment must be at the center of the development process; it isvitally important to develop a vision for promoting shared growth, tobuild country systems for mobilizing financial and human resources,
and to nurture local expertise in managerial and technical skills inorder to realize the level of Case 1.2 This research shows Thailand to
be an example of Case 1-type development management. Vietnam andCambodia, to different degrees, are yet to achieve Case 1-type development management.
The experience of Botswana shows that high levels of aid dependency
2 In this regard, we are concerned that recent donor discussions of ownership tend to focus on

aid relationship. Such discussions assume that donors dominate development policy agenda
and that the development process in recipient countries is virtually identical with the aid relationship.

6

True Ownership and Policy Autonomy

do not always undermine the development of good leadership andeffective public administration. Being heavily dependent on UK aid at
independence, the government made it a national goal to build an economically viable sovereign state and eventually attain freedom fromreliance on recurrent budgetary grants-in-aid (Stevens 1981). Botswana
successfully combined good leadership and policies that boost selfreliance to ensure that high levels of aid are effectively used to promotea national development strategy (Brautigam and Botchwey 1999).
National development planning and its integration with the annual
budgetary process has been the foundation of Botswana’s development
management machinery and its basis for managing mineral rent andforeign aid. Moreover, the Botswana government took control of theaid process right after independence and made sure that aid was integrated into its own national budgeting and planning procedures.
Botswana refused donor proposals that did not fit well with its own
priorities and insisted on tailoring donor activities to the government’s
way of doing things (Rakner 1996; Nordas et al. 1998).3
The third dimension of ownership is the creativity of ideas. This issue—
closely linked to the second—is related to the capacity to reinterpret
relevant elements of exogenous model(s) of the development strategy(“translative adaptation” 4 ) and adapt them to the prevailing conditions
in a particular developing country. Here, a critical test is where thelocus of a strategy or program idea resides; is it a mere copy of a foreign model or has it been adjusted and blended with the requirementsof the country in question (Evans 2003)? Should the scope of policy
choice and interpretation be set by donors? As Helleiner (2002: 255)
has put it, “some donors seem to believe that ownership exists whenrecipients do what we want them to do but they do so voluntarily.” A
key question is whether the government is free to choose and own only
3 Botswana has received substantial amounts of aid. At independence, Botswana had nofinancial reserves and depended entirely on grants from Britain to cover its recurrent budget.
Aid utilization as a percentage of public sector development spending fell from total dependency (100%) in 1967-1970 to between 40 and 60% in the late 1970s to less than 15% in 1992
(Rakner 1996).
4 The concept of “translative adaptation” is based on Maegawa (1994).

7the set of policies that the donors have already decided upon (Van deWalle 2005).
Prevailing views tend to disregard the creativity of policy ideas and toconcentrate on levels of “commitment” by political leaders and technocrats within governments to implement policy reform. Drawing on
the experience of heavily aid-dependent sub-Saharan Africa, theseviews claim that it is both unrealistic and unnecessary to expect to findthe locus of reform initiative in recipient countries and that it suffices
for them to take policy prescriptions “off the shelf ” from a donor or aninternational agency (Morrissey 2001; Booth 2003). The underlining
assumption is that policy ownership should be limited to the recipient’s“preferential right of interpretation” of existing prescriptions (SIDA
2003).
We argue that this is not the case. True ownership should mean thecapacity of a developing country to choose from alternative policy prescriptions—even if they are not granted by the international aid community—this is precisely the point that distinguishes true ownershipfrom “nominal ownership”(Shimomura 2004; also see Chapter 1).
When a country decides to rely on external advice or foreign models,
policymakers and technocrats must conduct a thorough assessment ofalternatives and carefully adapt the policy content and sequencing to
the country-specific context at both the design and implementation
stages.
Ishikawa (2003) holds similar views and pays special attention to the“trial and error” processes by which developing countries arrive at the
point of identifying an effective reform scenario. The government is
expected to study exogenous model(s) and analyze their relevance tocountry-specific conditions. The interaction between exogenous
model(s) and country-specific conditions would be repeated until a
final direction has been set for an effective scenario for reform.5 The
implementation of this scenario may further produce a new series of
economic issues, which can in turn be dealt with as second-generation
8

True Ownership and Policy Autonomy

issues.
With recent global aid debates urging a shift from conditionality topolicy dialogue (Koeberle 2004; Morrissey 2004), the difference
between our views and those set out above appear to have become amatter of nuance. But we attach great importance to the process ofinternalization, adaptation, and trial and error when recipient governments import external models—rather than having donors set thescope for policy choice and interpretation. This may sound idealistic,
but we consider such a process vital to avoid the risk of financial
dependency degenerating into intellectual aid dependency. Even recipient government facing immediate capacity constraints should be
encouraged to aspire to establish Case 1-type development management.6

3. Summary of Each Chapter
The next three chapters examine the type of ownership found in three
East Asian countries—Thailand, Vietnam, and Cambodia—in light of
the three dimensions mentioned above. In particular, we pay attention
to how each has managed donors and the development process, covering both achievements and the challenges they have faced.
Chapter 1, by Yasutami Shimomura, analyzes policy ownership by theThai government, which has demonstrated a strong capacity for managing donors and steering the development process to achieve its
5 According to Ishikawa (2003), Chinese leaders went through “trial and error” processes during the 1970s and 1980s. There was no exogenous model that fitted China’s initial conditions
well. Although Chinese leaders sought and listened to intellectual advice from donors (suchas the World Bank), they made their own decisions on the reform scenario and the design ofpolicy content for the market transition. The prescription adopted by the Chinese leadershipwas gradual transition to a market economy, which is quite different from the “big-bang”
approach adopted by Russia and East European countries with the enthusiastic support of theWorld Bank and the IMF.
6 Our discussions here do not cover extreme cases (e.g., authoritarian regimes like North
Korea), where it is not possible to establish aid relationships through government channels.

9national goal of export capacity building in the 1980s.
By the early 1980s, Thai leaders had recognized, with urgency, theimportance of transforming the country’s export structure, which had
been heavily dependent on primary goods, and they envisaged export
capacity building as a way to build a self-reliant economy. What is
impressive about Thailand is its capacity for designing concrete plans
and implementing them. In doing so, they addressed both hard andsoft aspects of development policies and measures, i.e., physical infrastructure development (hard institution) and export promotion strategies (soft institution). Thai leaders also demonstrated pragmatism inadjusting their policies and measures in response to a fiscal crisis.
It is notable that Thailand did not necessarily rely on a set of policy
measures and “best practices” which had been strongly recommended
by the international aid community. Thai authorities took the initiative
and assumed responsibility for steering this process by revising theEastern Seaboard Development Plan and by formulating proposals forthe restructuring of Japanese-Thai economic relations through the socalled White Paper. Overcoming rivalry among opinion leaders, theThai leadership reached a set of workable solutions of their own andsuccessfully negotiated with two dominant donors, the World Bankand Japan. The fact that Thailand pursued its own way in spite ofuneasy relations with these influential donors, draws our attention.
These Thai cases in the 1980s give important clues to understanding
the crucial aspects of ownership.
Chapter 2, by Izumi and Kenichi Ohno, analyzes the type of ownership demonstrated by the Vietnamese government. Vietnam is often
cited as a model country with strong ownership. It is shown here that
the Vietnamese government excels in the capacity of donor management, while there is much to be desired in owning policy and content.
The Vietnamese government has demonstrated high capacity for aid
management—as shown in the case studies of: (i) formulation of theComprehensive Poverty Reduction and Growth Strategy (CPRGS, the10

True Ownership and Policy Autonomy

Vietnamese version of the Poverty Reduction Strategy Paper (PRSP));and (ii) management of the aid harmonization process. These achievements are laudable for a low-income country.
Nevertheless, Vietnam has not yet developed an effective economic
policy-making structure like the ones established by more advanced
East Asian economies (including Thailand) during the period of economic take-off. This is evident from: (i) the lack of realistic industrial
vision; and (ii) the challenges of internal harmonization and public
administration reform (involving ODA regulations). Vietnam’s seemingly strong capacity for dealing with donors should not be confusedwith a capacity for policy and institutional response to improve performance in the global economy.
Donors should recognize Vietnam’s real challenges and provide support
to enhance the quality of the government’s policy making and execution. It is important to understand the nature of Vietnam’s ownershipand to identify entry points for and the manner of the most effective
assistance. Donor support that is carefully targeted and well integrated
into the government’s own agenda will have better chances of bringing
results.
Chapter 3, by Masashi Nagasu, reviews Cambodia’s struggle for acquiring ownership from donors as the country moves from the reconstruction period to the development process. Cambodia is a country heavily
dependent on external assistance. The country is dependent not only
on financial assistance but also on foreign technical assistance indesigning development policy, programs, and development projects.
Development policies and programs are essentially conceived, prepared, and proposed by donors in Cambodia because many foreign
advisers and consultants supplement and even substitute for the workof government officials. This is mainly due to the country’s disadvantages of inadequate development institutions and human resources
caused by unstable political history.

11

The ownership situation in Cambodia is well-illustrated in an episodeplayed by major development actors in the process of preparing twoplanning documents—the Second Five-Year Socio-Economic Development Plan 2001-2005 (SEDP II) and the National Poverty Reduction
Strategy (NPRS, the Cambodian version of PRSP). This process wascharacterized by two competing and conflicting initiatives by two
Banks, i.e., the Asian Development Bank (ADB) and the World Bank.
As a major donor in Cambodia (Japan is the biggest donor, followed
by ADB and the World Bank) and in light of its support for the previous SEDP, ADB considered it essential to lead the overall development
framework of the country. At the same time, the government launched
the PRSP process, initiated by the World Bank and the IMF in 1999,
because Cambodia needed to qualify for financial assistance from these
two organizations. While coordination efforts were made between
ADB and the World Bank, they failed to respect the government’s wish
to have a single process of poverty reduction strategy. The two processes continued to coexist, and the two donors had strong influence onmanaging the process despite their assertion that ownership should bein the hands of the client country in formulating the national plan andstrategy.
As declared in the current NPRS, the government and its development
partners finally agreed that “the next SEDP and the corresponding
NPRS will be merged.” It is hoped that the government will takeadvantage of such an arrangement to exert genuine ownership in thenext round of policy planning.
The comparative analysis of Thailand, Vietnam, and Cambodia illustrates how these countries differ in the nature and levels of ownership(see Table 1). The ownership demonstrated by the Thai government
during the 1980s scores high in all three dimensions, namely the goalof aid, donor management, and creativity of policy ideas. While bothThailand and Cambodia faced rivalry between two influential donors,
the Thai government successfully avoided fragmentation of development planning processes and skillfully managed donors to retain its
12True Ownership and Policy Autonomy

policy autonomy. Moreover, the locus of policy content resided with
the Thai side. The Thai government was capable of designing andimplementing concrete plans for industrial structure transformationand export capacity building measures and fully integrated aid into
government policies in such processes. This is the very aspect that isdesired for today’s Vietnam. Cambodia is severely handicapped due toits adverse political history.
Table 1: Three Dimensions of Ownership :Thailand, Vietnam, and Cambodia
Thailand
Goal of aid• Aid graduation, with • Aid graduation,
export capacitywith modernizationbuilding established and industrialization
as priority goal (Fifth by 2020 (Ten-Year
Five-Year Plan)
Strategy, Seventh
Five-Year Plan and
CPRGS)• Skillful donor
Scope ofmanagement
ownership • Strong policy
content andautonomy• Strong
Creativityof ideas

Vietnam

Cambodia• No explicit
discussions on aid
graduation• NPRS focuses on asubset of policies
and programs mostcritical for poverty
reduction within
the SEDP II
framework thatembraces inclusive
broad-based
economic growth• Skillful donor
management• Weak policy
content andautonomy• Reliance on
donors, by leaving
decisions to donor
consultation• Certain level ofcreativity, esp.
related to donor
management• Weak, relying on
donorsThai ownership is much deeper and stronger than that exhibited by
Vietnam and Cambodia, and we believe that this is the kind of ownership that needs to be established by today’s developing countries. The
Thai case shows that if and when the government coordinates the aid
13effort as part of its own coherent development effort, the problem oflack of local ownership of aid largely disappears.7 The fact that Thailand is now graduating from aid and emerging as a donor should not
be surprising.
We fully recognize that the three countries vary significantly in termsof their initial conditions—not only economic but also historical andpolitical ones. Especially, Cambodia had suffered seriously from thetotal destruction of institutions and human resources by Khmer Rougeand had to start its reconstruction with unusually handicapped situations. Here, our intention is not rank these countries, as if they had
been at the same starting point. Our intention is to illustrate variationsin ownership through concrete examples and suggest the nature andlevels of ownership that should be aspired and ultimately establishedby developing countries.
We would also like to stress that the concept of ownership should beviewed from a dynamic, not static, perspective.8 Although we haveillustrated Cambodia’s challenges, it is true that the government has
started genuine efforts to acquire ownership and lead the aid partnership process. Cambodia has been nominated as one of 13 pilot countries for aid harmonization and alignment, and the government has
become increasingly vocal in international fora. It is hoped that the
government would insist on its position more clearly to donors as its
voice and capacity increases.

7 Van de Walle (2004) stresses that this is the more ambitious form of coordination because it

puts the government at the center of the development process.
8 In fact, the existing literature reveals that in the early stage of aid receipts (the 1950s), Thailand was severely lacking in trained personnel and organizational capability over the whole
range of government departments. Those early years saw aid-related activity scattered throughthe bureaucracy, while development policy, planning, and coordinating capabilities at thehead of the bureaucracy remained woefully weak (Muscat 1994).

14

True Ownership and Policy Autonomy

4. Implications for the Role of Donors
Our analyses raise a set of issues about how donors should improvetheir behavior and aid approaches in order to foster true ownership indeveloping countries.
First, the undeniable fact is that it is very difficult to practice true
donor coordination (or partnership) in the field. As the case of Cambodia shows, fierce donor rivalry continues to exist in reality, and ownership is yet to go beyond donor rhetoric. Such donor rivalry presents
serious problems, especially for those countries heavily dependent on
aid.
Second, donors should better understand the different scopes and levels of ownership held by respective countries and tailor their assistanceto country-specific conditions. They should be sensitive about country
differences including those of government capacity and identify appropriate entry points for policy dialogue. As the experience with CPRGS
shows, Vietnam does have the existing national policy configurationand is capable of managing donors. Under these circumstances, there isa risk that donors might end up building dual accountability systems ifthey impose a donor-driven agenda and institutional framework that is
not well integrated with the existing process. This could also lead tohigh transaction costs for both the government and donors because: (i)donors would have little chance of working through country systems;and (ii) the government may lose opportunities to internalize relevant
donor advice.
Third, related to the above, donors should be humble about the extent
of their country knowledge. As the story of Thailand’s Eastern
Seaboard Development Plan shows, developing countries often have abetter knowledge of their own social realities than donors, and therefore a better idea of solutions. This suggests that donors should listen
more to the voices of developing countries and learn carefully from15

their wisdom.
Ultimately, donors need to fully recognize that there is limit to theirinfluence on and knowledge of recipient countries. Donors shouldmake greater efforts to support the process of local capacity building in
the true sense. It is important to increase the quantity and quality ofpolicy debates and to stimulate domestic policy research and training.
These activities require a long-term investment in human resources,
but they should produce output in the form of second-generation policy makers and officials.

16True Ownership and Policy Autonomy

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Ohno, I. (2003, April). Japan’s ODA at a crossroads: Striving for a new vision.
Japan Economic Currents, 31.
Ohno, I., & Niiya, Y. (2004). Good donorship and the choice of aid modalities—Matching aid with country needs and ownership. Tokyo: GRIPS
Development Forum.
Rakner, L. (1996). Botswana—30 years of economic growth, democracy and aid:
Is there a connection? (CMI Report Series R 1996:8). Bergen: Chr.
Michelsen Institute.
Shimomura, Y. (2004, November). Ownership and conditionality in Japan’s
development assistance. Power point presentation at the FASIDInternational Symposium (Prospects and issues facing Japanese
ODA: In Search of new approaches), co-sponsored by Ministry ofForeign Affairs, Japan and FASID.
Swedish International Development Cooperation Agency. (2003). Sida atwork—A guide to principles, procedures and working methods. Stock-18

True Ownership and Policy Autonomy

holm: Author.
Stevens, M. (1981). Aid management in Botswana: from one to many donors.
In C. Harvey (Ed.), Papers on the economy of Botswana (pp. 159177). London: Heinemann Educational Books.
Sunaga, K. (2004). The reshaping of Japan’s official development assistance(ODA) charter (FASID Discussion Paper on Development Assistance No.3). Tokyo: Foundation for Advanced Studies on International Development.
Van de Walle, N. (2004). Overcoming Stagnation in Aid-Dependent Countries.
Washington, DC: Center for Global Development.
World Bank. (1993). The East Asian miracle: economic growth and public policy.
New York: Oxford University Press.

19

Chapter 1
Export Capacity Building in Thailand:Managing Donors and the Development
Process toward a Self-Reliant Economy
Yasutami Shimomura

1. Introduction
Objective
This chapter analyzes Thailand’s attempts to build export capacity inthe 1980s, at the dawn of its accelerated export-led growth. The purpose is to examine how Thai leaders (politicians, technocrats, businessmen, and academics) tackled the crucial policy agenda of transforming
the export structure from primary goods (rice, maize, tapioca, sugar,
rubber, etc.) to labor-intensive light industrial products (textiles andapparel, accessories, sport shoes, traveling kits, musical instruments,etc.) and further to technology-intensive manufacturing goods such as
electrical and electronic goods, automobiles and so on.

Export capacity has two aspects. One is hard institution or physicalinfrastructure of electricity, transportation, communication, etc. tostreamline production and distribution. The other is soft institution, inparticular a set of skills and know-how in international marketing and21

sales promotion. Thailand was very active in both areas in this period.
To illustrate Thailand’s attempts, this chapter deals with two specificcases of export capacity building. The first is the construction of gigantic export-oriented industrial complexes with two deep-sea ports: theEastern Seaboard Industrial Development Plan. This deals with hardinstitution. The other is Thailand’s trade negotiations with Japan, itslargest trade partner and donor at the time. For the purpose of modernizing its export structure, Thailand proposed the First White Paperon the Restructuring of Japanese-Thai Economic Relations. This isregarding soft institution.
These two cases share one notable feature. Thailand did not necessarily
rely on a set of policy measures and “best practices” that had beenstrongly recommended by the international aid community. Instead
Thai leaders explored their own way. Thailand’s approach caused fierce
disputes with two very important partners, the World Bank and Japan.
The fact that Thailand pursued its own way in spite of uneasy relations
with these influential donors draws our attention. These Thai cases of
the 1980s are expected to give hints for understanding crucial aspectsof ownership.
Export capacity building: an enigma
Many developing countries recognize the crucial role of export as anengine of growth and try hard to develop their export capacity. To support developing countries’ endeavors, the international aid community
has urged them to adopt outward-looking economic policies. Experts
have also stressed that foreign direct investment paves the way toexport-led growth. Based on the experience of East Asia in this regard,
Radelet and Sachs (1997) highlighted the critical role of “export processing zones.”

In the meantime, it is to be admitted that many developing countries,
particularly in Sub-Saharan Africa and Central Asia, have suffered from22

True Ownership and Policy Autonomy

disappointing outcomes, even after vigorously implementing theabove-mentioned conventional wisdom. Apparently, an outward orientation and attractive facilities for foreign investors, such as export processing zones and generous incentives, do not guarantee results. The
bitter lesson of past experience is that export capacity building is ahighly complicated and formidable task and we still do not understandits essential features. Our proposal to cope with this situation is toaccumulate in-depth case studies of the attempts of many developing
countries in order to cast light on the essential aspects of export capacity building.
As there is no proven path to sufficient export capacity, policy makers
of developing countries explore the routes in their own ways. As theinitial conditions appear to be different from one country to another,
they need to design programs taking into account the features of theirown socio-economy, instead of mechanically applying the conventional
wisdom or textbook theory. However, this attitude may divert from theestablished prescription of the international aid community. The history of donor-recipient relationships shows many cases of uneasy relations between the international aid community and developing countries when the latter do not follow the standard prescription. Thisimplies that exploring export capacity building is also an endeavor ofdeveloping ownership.
From this viewpoint, the experiences of Thailand in the 1980s provide
valuable hints for policy makers of developing countries. As shown in
the following sections, Thailand’s decision was occasionally quite different from its major donors’ ideas, but Thai leaders skillfully avoided
serious friction.
Understanding “true” ownership
The international aid community has repeatedly emphasized theimportance of “ownership.” In his proposal for a Comprehensive
Development Framework, former World Bank President James
Wolfensohn claimed that “ownership is essential,” and that “countries
23must be in the driver’s seat” (Wolfensohn 1999). Donors are supposed
to suggest suitable policies or best practices through policy dialogue
and technical assistance, but they must not seize the wheel.
While developing countries are urged to establish ownership, it is noteasy for them to maintain “true ownership,” particularly in the postcold war era. How can we distinguish true ownership from “nominal
ownership”? A practical test is rather simple. It is to check whether adeveloping country can choose an alternative that is not granted by theinternational aid community. If this is possible, the wheel is in thehands of the developing country, and true ownership is there. Otherwise, ownership is only in name.
As a matter of fact, an attempt to choose an alternative that is not in
conformity with the prescription or guideline of the international aid
community tends to face the risk of penalty. Malaysia’s saga during theEast Asian financial crisis illustrates such a risk.
Thailand in the 1980s, however, pursued its own way of export capacity building, without notable penalty, in spite of fierce disputes with
influential donors. Thai leaders avoided confrontation with donors
without significant compromise. This case of securing true ownershipwithout significant cost holds valuable policy implications for otherdeveloping countries as they suffer between (i) maintaining amicable
donor-recipient relations; and (ii) maintaining ownership. This is thereason why this chapter focuses its attention on what occurred in Thailand in the 1980s.
Export structure transformation in Thailand
Thailand’s export structure has undergone persistent change since the1970s. Traditional export commodities such as rice, rubber, maize,
tapioca, sugar, and tin were gradually replaced by manufacturing
goods, such as textile goods, jewelry and precious stone accessories,
integrated circuits (IC), and canned seafood (Table 2). Since the late1980s, various technology-intensive industrial products, including24True Ownership and Policy Autonomy

electrical and electronics products, became major export goods.
The transformation of the export structure from primary to manufacturing goods became an urgent and central policy goal in the early
1980s as stagflation in the advanced economies and a depressed international commodities market, due to the second oil crisis, hit Thailand. The Thai economy suffered from deterioration in the terms oftrade, as shown in Table 3.
Under these macroeconomic conditions, strengthening export capacity
became an urgent task.
Table 2: Thailand's Top 10 Export Commodities: 1973-1986
1978
Tapioca
Rice
RubberTin
Textile goods
Maize

1980
Rice
Tapioca
RubberTin
Textile goods
Maize

7 Sugar
8 Shrimp

Sugar
IC

IC
Jewelry andprecious stone
accessories

9 Jewelry andprecious stone
accessories
10 Teak

Jewelry andprecious stone
accessories
Shrimpseafood

1
2
3
4
5
6

1973
RubberRice
Maize
TapiocaTin
Textile goods

Canned1984
Rice
Textile goods
Tapioca
Rubber
Maize
Jewelry andprecious stone
accessories
IC
Tin

1986
Textile goods
Rice
Tapioca
RubberIC
Jewelry andprecious stone
accessories
Canned seafood
Apparel

Sugar

Maize

Sugar

Source: JETRO Daily, various issues.

Table 3: Thailand's Terms of Trade: 1975-1985
1975
116.0

1980
100.0

1981
87.0

1982
79.0

1983
85.0

1984
83.0

1985
80.0

Source: Warr and Nidhiprabha (1996).

25

2. Developing Hard Institution: The Case of
the Eastern Seaboard Development Plan
Evolution of the plan
To compete in the international market, export industries should be
supported by efficient and workable infrastructures. In the 1970s, agroup of Thai technocrats recognized that their country’s competitiveness had suffered from the overcrowded and inefficient operation of
Klong Toey, Bangkok’s river port, and from serious traffic congestionin the metropolitan area.

To attempt to overcome these constraints, the technocrats drafted a
blue print for the Eastern Seaboard Development Plan (ESDP). This
was a gigantic regional development plan sited in Bangkok’s southeast,
composed of two industrial complexes (Laem Chabang and Map Ta
Put) with deep seaports and a wide variety of utilities, such as residential areas and water pipelines. Feasibility studies of the plan were supported by the Japanese government through technical assistance fromthe Japan International Cooperation Agency (JICA).
Setbacks
The ESDP was adopted as a flagship project of the Fifth Five-Year Plan
(1982-86). However, on November 13, 1985, the Thai government
unexpectedly announced it was freezing the plan to conduct a full
examination. According to a Bangkok-based newspaper, this action was
initiated by a group of fiscal hardliners who were concerned about theheavy fiscal burden the plan’s implementation would impose and who
advocated a belt tightening policy (The Nation, 22 November 1985). It
was also revealed that the World Bank was behind them; the Regional
Mission Chief of the Bank sent a letter to Dr. Snoh Unakl, Secretary
General of Thailand’s National Economic and Social Development
Board (NESDB), urging the elimination of two deep seaport projects(The Nation, 28 November and 2 December 1985).

The Thai economy at the time suffered from the macroeconomic
26

True Ownership and Policy Autonomy

imbalances shown in Table 4. These were caused by oil shocks, global
stagflation, and a slump in the prices of primary goods. The fiscal
deficit problem was particularly serious.
Table 4: Thailand’s Macroeconomic Imbalance in the Early 1980s(%)

Current account deficit/GDP
Fiscal deficit/GDP

1981
7.1
7.1

1982
2.7
7.6

1983
7.3
5.7

1984
5.1
7.3

1985
4.1
8.6

Source: Warr and Nidgiprabha (1996).

At a crossroads
Thai leaders were faced with a dilemma. On the one hand, constructing a modern infrastructure was an urgent task needed to strengthen
export capacity. On the other hand, decisive measures were needed tocope with the twin deficits. Attaining these two goals simultaneously
would be highly difficult. The essential features they faced are illustrated in Table 5.
Table 5: Choices Faced by the Thai Government in 1985
Economic stagnation(Probability: unknown)

Recovery of growth(Probability: unknown)

Execute ESDP as planned(Alternative 1)• Increase in fiscal burden
and external borrowings(the second Philippines)• Realization ofinternationally competitive
industrial area
• Increase in FDI• Modernization of economic
structure

Postpone theimplementation of ESDP
(Alternative 2)• Reduction in fiscal burden
and external borrowing• Increasing infrastructure
bottlenecks• Deterioration of living andenvironmental conditions in
Bangkok• Deterioration of investment
environment

Source: Shimomura (2003).

27

Two of Thailand’s important donors had different views on this issue.
While the Japanese government recommended the execution of theplan according to the schedule, the World Bank strongly suggested that
the Thai government postpone implementation. There were also two
camps among Thai leaders; a group of macroeconomists urged postponement, while technocratic engineers preferred early construction.
In the meantime, both the World Bank and the Japanese government
supported the construction of a natural gas-based fertilizer project by
the National Fertilizer Corporation (NFC), while many Thai experts
were skeptical about the project’s financial feasibility.
Choices made by the Thai government
The cabinet decision was made on 24 December 1985 to freeze thewhole plan. The construction of Laem Chabang industrial complex,
however, which was designed to promote export-oriented labor-intensive industries, was resumed in October 1986. By that time, it had
became apparent that the infrastructure bottlenecks were serious constraints on the absorption of foreign direct investment, and the Thaiauthorities were receiving many complaints from foreign investors
about the long queue at the port of Klong Toey, the lack of available
land for plant construction, and road congestion around Bangkok.

In contrast, the construction of Map Ta Put industrial complex, which
was designed for heavy industries, was frozen until early 1988, when
new factories construction began to spill over from Laem Chabang
into this neighborhood. The government finally cancelled the controversial NFC fertilizer plant, despite the support for the project by theWorld Bank group and the Japanese government. Our simulationshows that if the project had been implemented, the result would havebeen a negative return on investment due to foreign exchange rate
depreciation and volatile fertilizer prices.

28

True Ownership and Policy Autonomy

Table 6: Simulation on the NFC Profitability (US$ million)
Revenue
1987
1988
1990
1991
1992
1993
1994
1995
1996
1997

170.6
183.6
162.7
263.6
316.3
265.9
149.0

Profit before tax New investment

-33.2
-33.4
-676.6
36.0
91.4
43.6
-70.6

15.8
202.3
410.0
154.8
42.5

Investment after
depreciation

787.9
750.4
712.9
675.4
637.9
600.4
675.4

Profit before tax (average): -4.8
Investment after depreciation (average): 675.4
POI = (-4.8/675.4) x 100 = -0.71%
Notes: Start of construction: 1987
Start of commercial production: 1991
Based on the assumption of F/S except exchange rate and fertilizer price

Table 7: Foreign Exchange Rate and International
Fertilizer Price Trends (US dollar)

1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997

Yen per US dollar(average)
144.6
128.2
138.0
144.8
134.7
126.7
111.2
102.2
94.1
108.8
121.1

International price of urea
fertilizer(*)
100
132
88
158
152
145
115
187
225
189
106

Source: Economic Planning Agency of Japan, ERTECON.
(*) End of year, bulk, per ton

In short, Thai leaders bought time in order to improve fiscal balanceby delaying the construction of two industrial complexes for one tothree years. After recognizing strong demand for the industrial com29

plexes, they resumed implementation. The NFC fertilizer project wascanceled due to infeasibility.
It should be stressed that the decision taken by the Thai government
was not in conformity with the wishes of its two leading donors: theWorld Bank and the Japanese government. Overcoming the rivalry
between opinion leaders, Thai leaders reached a workable solution on
their own. Further, their choices turned out to be basically appropriate,particularly in the case of the NFC fertilizer plant. This is an impressive example of true ownership.

3. Developing Soft Institution: The Case of
the First White Paper on Thai-Japanese
Economic Relations
Mission of the First White Paper
In June 1985, the Thai government submitted the White Paper on the
Restructuring of Japanese-Thai Economic Relations to the Japanese government. The purpose of the White Paper was to list ways of making
Thai products more competitive in the international market so as toreduce the trade imbalance between the two countries.

In the frustrating economic conditions of the early 1980s (refer toTables 3 and 4), Thai leaders were irritated by their growing trade
deficit with Japan, in particular the stagnant growth in exports toJapan (Table 8). From the viewpoint of the Thai leaders, tackling thisissue was crucial for improving macroeconomic performance. In thisregard, it is to be stressed that the White Paper was drafted by a committee with active participation by private sector representatives. In
other words, it was a concerted action among public and private leaders of Thailand.
The White Paper offered its own diagnosis of the problem and prescription for improvement. The White Paper was prominent among30

True Ownership and Policy Autonomy

Table 8: Trade Balance between Thailand and Japanin the Early 1980s (in million US dollars)
1980
1981
1982
1983
1984
1985

Imports from Japan
1917
2251
1907
2506
2425
2030

Exports to Japan
1119
1061
1041
1019
1040
1027

Trade deficit
798
1190
866
1487
1385
1003

Source: Shimomura (2004).

ASEAN member countries’ joint actions toward the opening of theJapanese market, as it was the most critical and well-organized expression of frustration and included a set of practical proposals.
The White Paper’s diagnosis
As Table 8 shows, the level of exports from Thailand to Japan was very
disappointing. The stagnation could partly be explained by the J-curve
effects caused by currency depreciation in 1981 and 1984. However,the White Paper found the export structure to be the fundamental element causing the stagnation; around 80% of Thai exports to Japan
were primary goods. In addition, Thai leaders felt strong displeasure at
Japan’s discrimination against Thailand in its program of market opening. Custom duty reduction in the case of boneless chicken was repeatedly referred to, as the rate of reduction for US products was morefavorable than that for Thai products.

Regarding the dominant export structure, the White Paper claimed
that the crucial reason was the pattern of direct investment from Japan,
Thailand’s largest investor. According to the White Paper, more than
80% of Japanese direct investment was for import substitution, rather
than export promotion. In other words, most Japanese investors
looked toward the domestic market in Thailand. The White Paper
regarded this as the most fundamental point to be tackled to improve
the frustrating situation.

31

The White Paper also dealt with Japan’s aid. According to the White
Paper, the cream of the contracts under Japan’s Yen Credit (aid loan)
program was awarded to Japanese companies, while the procurement
condition was already completely untied. The White Paper claimed
that Japanese consultants significantly manipulated the decision making. The White Paper was also concerned about the tied procurement
condition under Japan’s grant aid.
The White Paper’s prescription
Based on the above analysis, the White Paper made various proposals,
some of which were unique. In essence, the White Paper urged theJapanese side to introduce better coordination among trade, investment, and aid in order to assist Thailand to improve export performance.

In order to increase exports to Japan, the White Paper proposed targets
in four specific areas: (i) the growth rate of exports to Japan; (ii) thegrowth rate of exports of manufacturing products; (iii) the market
share of Thai products in the Japanese market; and (iv) the amount ofexports of “Japanese trading companies (sogo shosha)” to Japan. The lasttarget was a unique idea of “utilizing the capacity of Japan’s private sector,” in the White Paper’s terminology. All the leading Japanese trading
companies registered their Bangkok branches as Thai companies. As
Thai companies, the White Paper argued, they were responsible forpromoting Thai exports to Japan, and specific export targets for thesecompanies were introduced.
In the attempt to develop export promotion-oriented direct investment
from Japan, the White Paper also specified priority areas, such as smalland medium-sized industries, agro-industries, metal industries, andelectronics. The purpose was to urge the Japanese government to give
appropriate guidance to the private sector.
Japan was requested to give aid that prioritized strengthening the competitiveness of Thai industries.
32

True Ownership and Policy Autonomy

Japan’s response
In response to the joint request from the ASEAN member countries, inAugust 1985 the Japanese government launched a set of action plans toopen its market further, including the reduction of custom duty on
Thai boneless chicken.

One notable feature of these action plans was the emphasis on“encouraging the private sector,” reflecting the basic idea of the White
Paper. Based on the Thai proposal, the Japanese public and private sectors worked toward “making Thai products marketable,” sometimes
jointly and sometimes separately. Various public and private actors
were in charge of the transfer of technology, knowledge, and knowhow to Thai counterparts. While Japan External Trade Organization(JETRO) played an important role in coordination, private companies,
large and small alike, made valuable contributions by sending experts
and craftsmen, receiving Thai missions, and organizing seminars andexhibitions. A representative case was the dispatch of a group of experts
in the skill of “setting” (attaching a precious stone precisely to a ring).
The accumulation of these activities assisted Thai export industries in
improving their international competitiveness (Shimomura 2004).
When we review Japanese newspapers in 1985, we find that the Japanese side regarded negotiations with Thailand as very tough andexplored solutions by accepting various proposals of the White Paper.
The Japanese side was serious, particularly because of widely spreading
anti-Japanese sentiment among Thai people. Thai students launchedboycott of Japanese goods in 1984, and farmers had a wave of big
demonstrations against the Japanese government’s decision on the custom duty on Thai boneless chicken; on one occasion, farmers left a lotof chicken in the yard of the Japanese embassy, causing panic among
the diplomats.
Under these circumstances, the Japanese side placed priority on reversing growing friction and started the technical transfer of soft institution in the field of export promotion.
33

4. Conclusion and Policy Implications
As the analysis of the two cases suggests, the Thai government in the
1980s demonstrated a strong capacity for managing donors and steering its development process to achieve the national goal of export
capacity building. The Thai experience provides valuable insights into
the crucial elements of the ownership to be possessed by today’s developing countries.
By the early 1980s, Thai leaders had recognized the urgency of building export capacity as a way to build a self-reliant economy. A notablefeature of Thailand is its capacity for designing concrete plans forindustrial structure transformation and implementing them. In doingso, it addressed both the hard and soft aspects of development policies
and measures, i.e., physical infrastructure development (hard) andexport promotion strategies (soft). Thai leaders also demonstrated
pragmatism in adjusting their policies and measures in response to fiscal crisis.
Thai authorities took the initiative and assumed responsibility forsteering this process by revising the ESDP and formulating proposals
for the restructuring of Japanese-Thai economic relations. While Thailand’s decision was sometimes not in accordance with the intentions ofinfluential donors, Thai leaders were able to present a set of workable
solutions of their own and successfully negotiate with the two dominant donors, the World Bank and the Japanese government. It was theThai government which requested the Japanese government to better
coordinate trade, investment, and aid to assist in improving Thailand’s
export performance. In this sense, aid was fully integrated into Thailand’s policies and its export capacity building measures.
Current global debates tend to focus on such issues as the harmonization of aid procedures and aid modalities as measures to enhance recipient ownership. But the nature of ownership demonstrated by Thailand in the 1980s goes beyond the scope of current debates. It is much
34

True Ownership and Policy Autonomy

deeper in policy content and stronger in policy autonomy. The Thai
experience offers valuable insight into what “true ownership” is.
The Thai experience also shows that the people of developing countries
often have better knowledge of the realities in their societies thandonors do, and they therefore may have better solutions. This suggeststhat donors should listen to and learn from the wisdom of developing
societies more carefully, together with making greater efforts to support
the endeavor of local capacity building.

35

References
Radelet, S., & Sachs, J. (1997). Asia’s reemergence. Foreign Affairs, 76(6), 4459.
Shimomura, Y. (2003). In search of endogenous elements of good governance:
The case of the Eastern seaboard development plan in Thailand. In
Y. Shimomura (Ed.), The role of governance in Asia: Vol. 2. Asiandevelopment experience (pp. 166-189). Singapore: Institute ofSoutheast Asian Studies, Japan Institute of International Affairs, &ASEAN Foundation.
Shimomura, Y. (2004). Sangyo ikusei shudan no tayoka wo motomete (Seeking diverse measures for industrial development—Implications ofThailand’s experiences). In I. Kuroiwa (Ed.), Kokka no seidonouryoku to sangyo-seisaku [Institutional Capacity of the State andIndustrial Policy] (pp. 209-224). Tokyo: Japan External Trade
Organization.
Warr, P., & Nidhiprabha, B. (1996). Thailand’s macroeconomic miracle: Stableadjustment and sustained growth. Washington, DC: World Bank.
Wolfensohn, J. D. (1999, January 21). A proposal for a comprehensive development framework. Memo to the Board, Management and Staff ofthe World Bank Group.

36Chapter 2
Fostering True Ownership in Vietnam:
From Donor Management to Policy
Autonomy and Content
Izumi Ohno and Kenichi Ohno

1. Introduction
This chapter analyzes the type of ownership demonstrated by the Vietnamese government. Although ownership is a multi-dimensional concept, we focus on just two of its aspects: (i) donor management; and(ii) policy autonomy and content. It is shown that the Vietnamese government excels in the first aspect while there is much to be desired in
the second aspect. Vietnam still lacks effective internal mechanisms todesign and implement developing policies. To establish “true ownership” and realize sustainable growth and poverty reduction, Vietnam
needs to go beyond skillful management of donors and strengthen thesecond aspect of the ownership.
Donor management refers to the capability of owning the relationshipwith the donor community. This requires the leadership in policy dialogue, coordination of diverse requests, selective adoption of donor
advice, handling friction with diplomatic grace, and maintaining37

national pride. This capability is required and exercised mainly by arelatively small segment of the government, namely the administrative
body in charge of aid receipt (the Ministry of Planning and Investment(MPI) in the case of Vietnam).
By contrast, policy autonomy and content are concerned with owning
development policies. This requires the capacity for identifying national development goals, rallying human and nonhuman resources toward
these goals, setting coherent and realistic action plans and timetables,
executing them without delay, responding to unforeseen situations,
coping with income gaps and other problems generated by growth,management of globalization and associated risks, and so on. As such,it is a much broader task than donor management. It calls for the execution of development itself, of which the mobilization of ODA is
only a part. It must be supported by the concerted actions of alladministrative bodies both horizontally and vertically. In fact, intragovernmental coordination is the prerequisite for owning policy autonomy and content.
In the following, we will first explain the context of Vietnam’s aid anddevelopment in the recent years, and then analyze the type of its ownership in light of the two aspects mentioned above. In doing so, we will
pay attention to four cases: (i) the formulation of growth-oriented
Poverty Reduction Strategy Paper (PRSP); (ii) the management of aid
harmonization process; (iii) the need to concretize the content ofgrowth strategies; and (iv) challenges of internal harmonization andpublic administration reform. We will conclude by suggesting implications for future challenges and the role of donors in Vietnam.

2. The Context of Vietnam’s Aid and Development
Growth, globalization and poverty reduction
In 1986, Vietnam launched a domestic economic reform called Doi
Moi. Around 1992, it initiated a vigorous process of international inte38

True Ownership and Policy Autonomy

gration vis-à-vis the Western countries and international organizations.
The country restored diplomatic relation with the US and joined
ASEAN in 1995, joined APEC in 1998 and signed a US bilateral trade
agreement in 2001. Negotiations for WTO accession are continuing.
Within a relatively short period of ten years, the Vietnamese economy
has come to be deeply integrated into the global economy throughtrade, investment and aid. The synergy of domestic liberalization andexternal opening provided the engine for high economic growth,which has averaged at 7 to 8 % per year. The growth is broad-based,
and Vietnam has made remarkable achievements in poverty reduction
over the past decade. Between 1993 and 2002, the proportion of the
population living below poverty line declined from 58 % to 29 %.
Nevertheless, Vietnam still faces many challenges. The latest Vietnam
Household Living Standard Survey (VHLSS 2003) shows that the rateof poverty reduction has slowed and that disparities between rural andurban tend to increase. While the rates of its economic growth are fairly good, they are not commensurate with the growth of investment orwith the country’s potential and requirement. The investment, production and business environments are still facing many difficulties andbottlenecks which lead to high investment and production costs.
Aid partnership
Throughout the 1990s, the nature of Vietnam’s aid relationships has
significantly transformed. While the UN agencies and Sweden have along history of assisting Vietnam, other donors including Japan, theWorld Bank, the ADB, Germany, France, Denmark, Australia and UK
resumed full aid programs to Vietnam by the mid-1990s. The overalllevel of aid jumped rapidly from 1993 to 1994.

As a low-income country with per capita income of US$480 (WorldBank data on 2003), Vietnam cannot isolate itself from the influenceof global aid debates if it wishes to attract sufficient aid flows. For thisreason, particularly since 1999, the Vietnamese government has been
actively engaged in aid partnership activities, following the principles
39

of the Comprehensive Development Framework (CDF) introduced by
the World Bank. These include the formulation of the Vietnamese version of the Poverty Reduction Strategy Paper (PRSP)—i.e., “Comprehensive Poverty Reduction and Strategy Paper” (CPRGS)—and the participation in aid harmonization discussions. Vietnam became the first
CDF pilot country in East Asia in 1999. This led to the establishmentof more than twenty partnership groups. Vietnam completed a FullPRSP ahead of other East Asian countries in May 2002.
Currently, there are 25 bilateral donors (including 21 making aid
pledges on an annual basis) and 16 multilateral agencies. With goodtrack records of growth and poverty reduction, Vietnam enjoys highaid flows. Since 1995, donor pledges at the Consultative Group (CG)have exceeded US$2 billion (annual figures), reaching a record-high of
US$3.4 billion in 2004. Vietnam is now the largest IDA-only borrower from the World Bank. During FY2001-2003, Vietnam ranked top
four among the recipients of Japan’s ODA (net disbursement base),
together with such countries as Indonesia, China, the Philippines, andIndia.
Low aid dependency
Although Vietnam receives high levels of aid for a country of its size, it
is not heavily aid dependent—if measured by the macroeconomic
effects of aid and compared to the average of low-income countries in
Sub-Saharan Africa or Latin America. In 2001, aid accounted foraround 4.6 % of GDP and one tenth of imports. Aid’s share in thegovernment budget is relatively small, at 18 % of government revenues
and at about 15 % of investment. Aid is just one of several sources offoreign exchanges (IMF and OECD/DAC data). In financial terms therole of aid has been modest, while export revenues are the most important source. Also, FDI, private remittances, and tourism receipt are asimportant as aid receipt.

It is notable that such favorable situation has emerged only recently.
Until the 1980s Vietnam was a typical aid dependent economy, with40

True Ownership and Policy Autonomy

aid paying for over half of imports, nearly three-quarters of investment
Table 9: Aid as a percent of Macroeconomic Aggregates (2001)
Unit: (%)

VietnamBangladesh
Tanzania

GDP

Imports

4.6
3.3
14.3

9.4
18.2
89.2

Forex.
Revenue
7.0
14.1
41.8

Investment

Gov’t Exp.

14.8
13.1
83.8

17.9
22.8
75.0

Source: IMF Statistical Appendix (2003); IFS (2003); OECD (2003).
Note: The aid data (gross disbursement) are based on donor report to OECD/DAC, which may notcoincide with those reported by the government.

Figure 2 : Selected Sources of Foreign Exchange Inflows(average of 1999-2001)
Unit: $mn

14,000.0
12,000.0

Exports

10,000.0

FDI Unflows
Private Transfer

8,000.0

ODA Inflows

6,000.0
4,000.0
2,000.0
0.0
VietnamBangladesh

Tanzania

Source: IMF Statistical Appendix (2003); OECD(2003).

and over two-thirds of government expenditure.1 It was the growth
turnaround and stabilization, resulting from Doi Moi that had brought
about remarkable changes on the fiscal side and reduced Vietnam’s aid
dependency. Major changes included: (i) a large increase in revenue
1 After unification (in 1975) until the late 1980s, Vietnam heavily depended on aid from the
ex-Soviet Union. During the period prior to unification (1955-1975), the US provided massive aid to South Vietnam, the largest of any other aid provided by the US to a single country
or territory during 30 years after the World War II. South Vietnam alone accounted for onesixth of the total US aid (both economic and military aid) to foreign countries during this period (economic and military) (Dinh 2000).

41

and the corresponding rise in public expenditure; (ii) a switch from
non-tax to tax revenue; (iii) substantially reduced net transfers to stateowned enterprises (SOEs); and (iv) a large increase in the expenditure
share of the social sectors. The order of magnitude of all these changes
is such as to accord a relatively small role to aid (Donge et al. 1999).

3. Donor Management—Selectivity andDiversity in Dealing with Donors
Vietnam is often praised by donors as one of the model countries withstrong ownership (Donge et al. 1999; Jerve et al. 2003; Pincus andThang 2004). So far, the government has skillfully managed its relationship with donors. It has kept a restrained relationship with donors
and made clear its wish to retain selectivity and diversity in obtaining
donor advices. Although partnership groups are active, their role has
been primarily to facilitate information sharing and coordination ofassistance among donors. This is quite different from the practices inmany low-income countries, where more open, extensive relationshipprevails or is implicitly assumed. Particularly in highly aid-dependent
countries in Sub-Saharan Africa, partnership groups discuss intensively
the policy framework and conditionality (overall and sectoral), budgetary allocation, and performance monitoring—because aid finances
substantial parts of the government’s core functions. And donors areunited behind this process.
Despite such a restrained attitude toward donors, Vietnam has maintained its status as a popular aid recipient. Not so many low-income
countries have successfully managed their relationship with donors andattracted considerable amount of aid—like Vietnam does.
Factors affecting Vietnam’s donor management
At least three factors have contributed to shaping Vietnam’s uniquestyle of donor management. First, as noted before, Vietnam’s growthand poverty reduction record over the past decade, combined with the42

True Ownership and Policy Autonomy

country’s manageable external debt and healthy export growth, afforded the government an unusual degree of bargaining power vis-à-vis
donors (Pincus and Thang 2004).
Second, historically, national sovereignty has been a cornerstone in
Vietnam’s external relationships. A strict separation between external
advice and domestic decision-making process exemplifies Vietnam’s
nationalistic bent to donor-government relations. The World Bankfunded CDF case study for Vietnam confirms that the government
regards ownership as the most important of the four CDF principles(Jerve et al. 2003). The government is sensitive to any form of aid conditionality and shows a strong resistance when donors push on policy
reform.2 The existing literature frequently cites tensions between for
instance, the government and the IMF on the audit of the State Bankof Vietnam under the Poverty Reduction Growth Facility (PRGF) conditionality, and the World Bank on health sector policy and stateenterprise reform (Pincus and Thang 2004; Donge et al. 1999; Jerve etal. 2003).
Third, Vietnam has unified institutional setting for aid management.
The Ministry of Planning and Investment (MPI) is a powerful ministry, which holds centralized functions for development planning, FDI
absorption and aid coordination. MPI is responsible for policy formulation (“Strategy for Socio-Economic Development in the Period 20012010” or the so-called Ten-Year Strategy, the “Seventh Five-Year Planfor Socio-Economic Development 2001-2005” or the so-called Five-Year
Plan, CPRGS, and so on), prioritizing and channeling of internal andexternal resources for socio-economic development (capital expenditures based on the Public Investment Program), as well as foreign
investment promotion. Within MPI, the Foreign Economic Relations
Department coordinates all types of aid (grants and loans) with multi2 Until recently, foreign advisers assigned to MPI are not allowed to have offices within theministry. They are normally located in donor agencies’ local offices and visit MPI when necessary. The first acceptance was granted in August 2004 to a Japanese adviser, who is incharge of coordinating a JICA-supported capacity development project in MPI.

43

lateral and bilateral donors, and serves as the link to line ministries andagencies and provincial governments.3 The Ministry of Finance (MOF)
is another important organ charged with the allocation of recurrent
budget and the negotiations with legal agreements with donors; but its
role is largely confined to the treasury.
The following two cases illustrate how Vietnam has dealt with donors
while maintaining autonomy, through: (i) the formulation of thegrowth-oriented PRSP (CPRGS); and (ii) the management of aid harmonization process. Both are very popular and highly debated agenda
in global aid partnership. Generally global debates tend to dominate
these undertakings, but the two cases show how Vietnam has successfully incorporated country-specific factors into the PRSP and harmonization process. Moreover, through these cases, Vietnam has effectively appealed to donors for the importance of adapting to diversity.
Case 1: CPRGS Formulation and Expansion
There are two aspects that make Vietnam’s PRSP very unique, compared to early PRSPs: its strong growth-orientation including comprehensive reference to the role of large-scale infrastructure in pro-poor
growth; and its status as supplementary to the existing strategic documents such as the Five-Year Plan and Ten-Year Strategy.
Making PRSP growth-oriented
The Vietnamese government formulated a growth-oriented PRSP in
May 2002, called CPRGS. This was the first PRSP in Asia which
sharply differed from early PRSPs, typically those in Sub-Sahara
African countries, that had focused on social policies and direct-poverty targeting programs. MPI, in coordination with other ministries,
played a central role in the preparation of CPRGS. CPRGS was pro3 MPI is a lead agency in preparing a national list of priority project/program and mobilizing

donor resources. Vietnam’s low aid dependency implies that aid is primarily for capital
expenditure (handled by MPI) rather than recurrent expenditure (handled by MOF). In addition, MPI is a focal point of high-level donor coordination, such as the Consultative Group
meetings (biannual) and international forums of ODA.

44

True Ownership and Policy Autonomy

duced on the government’s own schedule, written by Vietnamese in
the Vietnamese language, and only later translated into English fordonor input. Moreover, the Vietnamese government renamed PRSP to
CPRGS, adding the terms “comprehensive” and “growth.”
More recently, the government has expanded CPRGS by adding a newchapter on the role of large-scale infrastructure in growth and poverty
reduction. CPRGS expansion was proposed by the Japanese government at the 2002 CG meeting, and agreed by the Vietnamese government and other donors. The revised CPRGS, including the new chapter on large-scale infrastructure, was approved by the Prime Minister in
November 2003 and presented at the 2003 CG meeting.4 The newchapter recognizes the interaction between growth and poverty reduction, especially the important role of large-scale infrastructure inachieving pro-poor growth—directly and indirectly—through economic activities such as labor movement between regions, sectors, etc.
and also contributing to enhanced social equity through income redistribution by tax, finance and investment policies to help the poor.5
With explicit reference to large-scale infrastructure as one of thegrowth promotion measures, CPRGS has become further comprehensive and consistent with the government’s Public Investment Program(PIP).
PRSP as supplementary document
CPRGS also differs from early PRSPs in its relationship with the existing planning framework. Vietnam has the existing policy configuration, where all sector plans, public investment plans, and annual budget allocation are guided by the two core documents—i.e., the Ten-Year
Strategy and the Five-Year Plan. These were reviewed by the Communist Party and concerned ministries and approved by the Party Con4 GRIPS Development Forum assisted the Vietnamese government in this process, by provid-

ing an analytical framework for the role of large-scale infrastructure in growth and poverty
reduction. See GRIPS Development Forum (2003).
5 The Comprehensive Poverty Reduction and Growth Strategy (CPRGS), revised, November
2003. The Socialist Republic of Vietnam.

45

gress. They tower above numerous other official documents in terms oflegitimacy and accountability. Here, CPRGS is a supplementary document to the two planning documents and is never intended to dictate
overall budget allocation (Figure 3).6 Certainly, PRSP can reinforce theexisting development plans with special attention to poverty reduction
in a cross-cutting manner and the participatory process. However, it is
not expected to become an overarching document by replacing theexisting core documents. This is different from the case in which PRSP
serves as a primary document, and the operational procedures of thebudget, sector plans and receiving aid are all governed by PRSP (Ohno
2002).

Figure 3: Two Prototypes of PRSP【PRSP as a supplementary document】 【PRSP as a primary document】

Existing
Development
Plan

Existing
DevelopmentPlansymbolic

governPRSP
PRSP

Sector Plans
governsupplement
BudgetSector Plans,budget, MTEF, aid
procedures

6 This view coincides with the findings of DFID-funded study on Vietnam’s PRSP. The study

states that reflecting its status as an action plan of the Five-Year Plan rather than a new policy
statement, the CPRGS itself was not submitted to the assembly for approval but instead was
signed by the prime minister. It also points out that one of the major motivations for drafting
the CPRGS was the government’s desire to access concessional financing from the WorldBank and IMF (Pincus and Thang 2004).

46

True Ownership and Policy Autonomy

For example, in Tanzania (as a front runner of PRSP in Sub-SaharanAfrica), the newly-introduced PRSP exerts a stronger influence thanthe existing plans over the budgetary and legal framework.
The Vietnamese government regards CPRGS as an action plan thattranslates the Ten-Year Strategy, the Five-Year Plan and sector policies
into concrete measures. The economic goals and budget allocation are
simply copied from the Ten-Year Strategy and the Five-Year Plan.
However, to complement these plan and strategy with a strong accent
on growth, CPRGS emphasizes the “quality” of growth and proposes
ways to minimize income and regional disparities, cut poverty andachieve social equity in the process of rapid growth.
In fact, the recent studies suggest that CPRGS is not a well-known
document within government circles (Norlund et al. 2003; Pincus andThang 2004; Conway 2004). Responsibility for its production was
assigned to one department within MPI. Even within central government agencies knowledge of CPRGS is not widely-spread. Within theline ministries, awareness of the document is limited to those individuals directly involved in the process. Unlike the Ten-Year Strategy, it was
not disseminated widely or publicized through the mass media. Familiarity with the document is even more limited at the provincial level.
Also, there exists confusion at the central and provincial levels regarding the relationship between the Ten-Year Strategy and CPRGS, andthe steps that must be taken to implement the latter (Pincus andThang 2004).
In sum, the growth-orientation of CPRGS is built on the existingdevelopment visions (such as the Ten-Year Strategy and the Five-YearPlan) which clearly spell out East Asia’s aspiration for economic catchup.
Case 2: Aid Harmonization
Harmonization is an important means to help achieve greater aid effectiveness, by reducing the transaction costs of aid delivery. In recent
47years, various initiatives have been launched to simplify and harmonize
donor practices, with substantial involvement of recipient countries.
Vietnam has succeeded in adding diversity to harmonization andmodality debates and managing procedural harmonization—by donorgroup.
Adding diversity to harmonization and modality
debatesVietnam is one of the 13 pilot countries selected for OECD/DAC
Harmonization Task Force and has been actively participating in the
Task Force discussions such as the Rome High-Level Forum on Harmonization (February 2003) and the Pairs High-Level Forum on Aid
Effectiveness (March 2005), and the hosting of the Asian regional
workshops on aid effectiveness (January and October 2003). Throughthese occasions, Vietnam has emerged as a model distinct from those
widely practiced in Sub-Saharan Africa.

In Sub-Saharan Africa, the harmonization issue is linked to a shift to
new aid modalities, such as budget support and pooling funds under
the Sector-wide Approach (SWAp).7 The underlying assumption is that
donors unify aid procedures (and modality in an extreme case) andprovide support through the government’s systems. This is understandable because harmonization and modality discussions have emerged,
primarily to respond to the problems associated with stand-alone projects—e.g., high transaction costs of aid delivery, donor-driven projects
leading to inefficient public spending, and parallel off-budget systems
and proliferation of Project Management Units (PMUs) undermining
the effectiveness of government systems and accountability. Donorimposed, policy conditionality under the Structural Adjustment Program has also proven its limitations. Under such circumstances, a high
7 The defining characteristics of a SWAp are that all significant public funding for the sector

supports a single sector policy and expenditure program, under Government leadership,
adopting common approaches across the sector, and progressing towards relying on Government procedures to disburse and account for all public expenditure, however, funded (Brown
et al. 2001).

48

True Ownership and Policy Autonomy

priority is placed to build the core functions of the government andprovide essential social services. Budget support is expected to help
building the government’s systems, through enhanced ownership.
Donors are encouraged to act jointly to support these efforts, byadopting new aid modalities and harmonizing their procedures consistent with the government’s systems.
By contrast, harmonization and modality issues are more loosely linked
in Vietnam. Project aid continues to be dominant in Vietnam. Major
donors—Japan, the World Bank, and the ADB—provide project aid invarious sectors. The government strongly argues for the diversity of aid
modalities and treats the issue on new aid modalities part of the broad
harmonization agenda. Of course, Vietnam is not free from problems
with the transaction costs of aid delivery and those faced by SubSahara African countries.8 But, with the government’s core functions
being in place (although not perfect) and with low aid dependency, thenature of Vietnam’s development priority is different from that of SubSaharan Africa (Ohno and Niiya 2005).
Moreover, the government is cautious about the full-scale introductionof budget support because it is normally accompanied by policy conditionality. The government’s plan is to first build awareness of new aid
modalities, and then pilot these on a small, manageable scale in termsof sector or geographical areas before replication (MPI 2003). Currently, “general budget support” is provided through the World Bank’s
Poverty Reduction Support Credit (PRSC)-III, with the cofinancing ofbilateral donors9; but its scale is limited relative to the total aid receipt.
In April 2005, DFID formalized its “targeted budget support” to thegovernment’s existing national poverty reduction program (Program#135) and rural transport on a pilot basis (in two provinces). Discus8 For example, see OECD (2002) and JICA/CIEM (2003).
9 PRSCs-I & II were co-financed by UK, Denmark, Netherlands, and Sweden through thetrust funds established in the World Bank. From PRSC-III, Japan (JBIC loan) has joined cofinancing. So, the form of participation of these bilateral donors is not strictly “general budget
support” as practiced in Sub-Saharan Africa.

49

sions are underway to extend “targeted budget support” in primaryeducation. There is a SWAp pilot in the forestry sector, supported by aWorld Bank project and the trust fund of four donors. The government interprets SWAp as a sector policy framework, under which projects and non-projects coexist in an integral manner.
Managing aid harmonization by donor group
In Vietnam, Decree 17-CP, promulgated in May 2001, lays the foundation for all the harmonization efforts. The decree established thecommon framework for ODA-related procedures and regulations by:(i) regulating the management and utilization of all types of ODA
resources including both grants and loans and covering balance of payments support, program aid, project aid, technical assistance; (ii) establishing the procedures and regulations governing all stages from project
identification to monitoring and evaluation; and (iii) clarifying the
responsibilities of various Vietnamese agencies involved in the ODA
process. More recently, the government elaborated an Action Plan on
Simplification and Harmonization of ODA Procedures, and presented itat the December 2003 CG Meeting, together with a proposal for comprehensive capacity building program for ODA management. Thisaction plan is guided by the principles of: (i) country-owned; (ii) country-led; and (iii) diverse modes of ODA delivery within a common
framework.

Based on the above principles, the Vietnamese government is encouraging the donor community, by donor group, to simplify and harmonize respective procedures. Its approach is to treat donors separately
group by group, rather than jointly, under a common framework
established by the government, and to create room for diverse voices.
More specifically, four different donor groups are working to simplify
and harmonize respective procedures, especially in terms of timing anddocumentation formats used in the different stages of the project cycle.
The groups include: (i) 5 Development Banks (the World Bank, ADB,JBIC, KfW, and AFD); (ii) Like-minded Donor Group (LMDG con50

True Ownership and Policy Autonomy

sisting of Canada, Denmark, Finland, Germany, Netherlands, Norway,
Sweden, Switzerland and UK); (iii) UN system (UNDP, UNICEF, andUNFPA); and (iv) EU (Member States and the European Commission) (Box 1). Since loan aid accounts for nearly 80% of aid commitment in Vietnam (two-thirds on a disbursement basis)10, procedural
harmonization among 5 Banks should significantly improve the efficiency of aid delivery (Figure 4). LMDG and EU pay special attention
to the introduction of SWAp and budget support (such as PRSC)
because they consider such aid tools an effective way to reduce transaction costs in aid delivery and collectively support the implementationof key elements of CPRGS.
In addition, bilateral effort is underway between the Japanese government and MPI, focusing on Japan’s grant aid and technical assistance,
to address the selected issues identified by the JICA-commissioned
study on transaction costs of aid delivery.11

Figure 4 : Foreign Aid: Grants versus Loans(average of 1999-2001)
Vietnam
GrantsLoans

Bangladesh
Tanzania
0%

20%

40%

60%

80%

100%

Source: OECD (2003).
Note: Gross disbursement base.

10 Cumulative figure during 1993-end of 3rd quarter of 2003. MPI data presented at the 2003
CG Meeting.
11 The JICA/CIEM study collected the voices of recipients on 80 projects (i.e., rural development, health, education and training, and transport). The study finds that the burdens of transaction costs differ, at each stage of projects, with most transaction costs being felt at thestages of project design, appraisal and implementation.

51

Box 1 : Aid Harmonization by Donor Group
Currently, four groups of donors (with similar aid schemes) and someindividual donors are working to simplify and harmonize respective procedures, guided by a common and coordinated framework established by the
Vietnamese government. The progress as of June 2004 includes:• 5 Banks: In May 2002, the World Bank, the ADB, and JBIC (Japan)
agreed a joint statement to harmonize the areas of procurement, financial
management, environmental and resettlement issues. This was joined by
KfW (Germany) and AFD (France) in 2003. The coverage of harmonization efforts by the 5 Bank Group centers around the five agreed priorities: (i) project preparation practices and procedures; (ii) procurement
process; (iii) financial management; (iv) environmental and social safeguard policies and practices; and (v) portfolio management.
• LMDG: In 2001, the LMDG undertook a study to compare six donor
practices and examined options for harmonization.* On the basis of thisstudy, the group is working on the standardization of documents andprocedures, also applicable to the government. Their work includes theinitial analysis of project reporting formats and current public procurement institutional framework, as well as stock-taking of project management training. The LMDG also promotes capacity-building support,
common development vocabulary, and wider use of multi-donor financing mechanisms.
• EU: The Hanoi-based representatives of the twelve Member States
involved in cooperation with Vietnam and the EC Delegation agreed onan Action Plan for Harmonization and Coordination in May 2003. The
plan is based on the preceding efforts (e.g., the EU local cost norms) andtakes a practical approach, focusing on the coordination of efforts at different phases of the project cycle in certain sectors (i.e., health, education, trade, private sector development, and governance) and one geographical area (i.e., the Central Highlands).
• UN Group: As part of the UN global initiative for simplification andharmonization among the member of the UN Development Group52

True Ownership and Policy Autonomy(UNDG), the UN Country Team in Vietnam is preparing its Common
Country Assessment and UN Development Framework for 2006-2010
in consultation with the Vietnamese government (to be ready by end2004). Subsequently, UNDP, UNICEF, and UNFPA will develop theCountry Program Documents (high-level agreement between agencies
and government) and Country Program Action Plans (more detailed
programming documents) under common formats.
• Japan’s grant aid and technical assistance: As a follow-up to the
JICA/CIEM study (March 2003), bilateral effort is underway between
the Japanese government and MPI to address the selected issues identified by this study (“Sit down and Talk” initiative). Through a series of
discussions, a Joint Action Plan has been finalized by June 2004, which
focuses on: (i) strengthening of dialogue; (ii) information sharing on procedures; (iii) improving transparency; and (iv) participation and capacity
building.
* Grant Thorton (2001).
Source: elaborated by the author, based on MPI (2003) and MPI (2004).

4. Policy Design and Implementation—Need forGreater Coherency in Policy and Institutions
The above achievements are laudable for a low-income country. Nevertheless, this does not mean that Vietnam satisfies the requirements forthe other level of ownership—i.e., the capacity for effective policy
design and implementation. The strength of Vietnam’s ownership,especially its skillful donor management, is largely confined to theoverall aid coordination and negotiation by MPI and exercised by relatively a small segment of the government.
Now that Vietnam counts on diverse sources of funding for development—such as budget, export earnings and FDI—in addition to aid,
there are many actors involved in the process of development-related
activities. Vietnam needs to improve the content of development policies, not limited to donor management, and to strengthen the capacity
53

for coordinating policies and procedures among different levels of thegovernment, private firms, and civil society.
Features of Vietnam’s internal administration
Vietnam’s public administrative system is highly fragmented, and decision making requires consultations among many fractious constituencies.12 The existing literature cites such problems as lack of overall
strategic vision, lengthy consultation, and conflicting outcomes(Donge et al.1999; McCarty 2001; Pincus and Thang 2004; Conway
2004). Vietnam’s decision making takes place in a complicated web ofvertical and horizontal authorities. Responsibility is diffused and theprocess is not transparent. Policies lack clarity and consistency, andresponse is slow when speed is needed. Thus, there exist dual systemsof accountability—one for dealing with donors, and the other forcountry’s internal affairs. Seemingly a strong state of Vietnam may notnecessarily hold domestically.

The following two cases illustrate how Vietnam’s internal system ofaccountability constraints the government in exercising effective policy
and institutional responses. We focus on the challenges of: (i) concretizing the content of growth strategies; and (ii) integrating ODA
management in the internal administrative system. The former can becontrasted with Vietnam’s strong growth orientation in the CPRGS(Case 1 above), while the latter can be compared with aid harmonization (Case 2 above).
Case 3: The Content of Growth Strategies
To become an industrial country by 2020 is the national goal for Vietnam. As shown in Case 1, the official documents—typically the TenYear Strategy, the Five-Year Plan, and the CPRGS—give numerical
growth targets up to 2010. Beyond these, however, details are not
12 McCarty (2001) calls such Vietnamese style of decision-making “consensus governance.”

Consensus governance involves a conscious choice not to delineate lines of authority andresponsibility. Power is to be shared as widely as possible. Extensive consultations are
required, involving protracted delays to accommodate the various concerns of stakeholders.

54True Ownership and Policy Autonomy

spelled out. After eighteen years since the Doi Moi reform, and afterroughly a decade of serious international integration, Vietnam is still
not prepared to take full advantage of trade and investment liberalization for economic development. The fact that international integration
comes with both challenges and opportunities is generally well understood, but concrete action to raise international competitiveness is slow
to emerge.
Lack of realistic industrial vision
The reform process in Vietnam sharply differs from the experience of
the East Asian tigers. It was not a matter of an all-powerful leader at
the top enacting the recommendations of insulated technocrats (Ffordeand de Vylder 1996; Riedel and Turley 1999; Wattez 2001).13 There
was no articulate overall and long-term strategic framework or
roadmap to guide the Doi Moi reform process. The decision making
on reform has been characterized by a gradual, step-by-step, and trial
and error approach.

Such decision-making style did work in the 1980s—when Vietnam
needed to manage the transition to a market economy and external
opening while maintaining political stability. However, it is an open
question whether or not Vietnam’s policymakers and institutions havethe qualities needed to execute effective development policies in theage of globalization (Riedel and Turley 1999; Ohno 2004).
Current economic decision making is too decentralized, and various
elements of industrial policy are not united. The challenge now is nolonger to maintain the delicate social balance under international isolation, but to raise productivity, encourage investment, and competewith formidable regional rivals under increasingly free trade. It is essential that the government provide a clear industrial vision—in terms ofboth the direction of overall industrialization and specific strategies for
13 The World Bank’s East Asian Miracle report also stresses the vital role of economic tech-nocrats in formulating and implementing rational economic policies in high-performing East
Asian economies (World Bank 1993).

55

individual key industries—as well as a stable policy environment inwhich domestic and foreign businesses can operate.
At present, industrial strategy (Ministry of Industry: MOI), FDI andODA (MPI), trade negotiations (Ministry of Trade: MOT), tariffstructure (MOF) and technical standards (Ministry of Science andTechnology and Environment: MOSTE) are dealt with by different
ministries with little coordination in substance. Various measures suchas industrial promotion, enterprise reform, FDI absorption, and tradeand investment policy are not integrated. The lack of transparency andcertainty in policy environment remains the most serious obstacle forboth domestic and foreign firms. Under these circumstances, it is very
difficult to introduce policies for individual industries in an economically meaningful manner.14
While aid donors praise Vietnam, the foreign business community bitterly criticizes Vietnam’s economic policy as one of the worst in East
Asia. The poor business environment, especially the lack of predictability, is cited as the main reason why Vietnam loses so many investment
projects that might have come had the policy been more conducive.15
Policy inconsistencies are routinely reported in the newspapers. For
example, domestic garment exporters complain that the allocation ofexport quotas to EU is nontransparent, inefficient and unfair. The
admission of as many as fourteen foreign automobile manufacturers in
Vietnam’s tiny market, coupled with unstable tax policy, is driving
these producers to despair. In 2002, local and foreign assemblers of TV
sets were alarmed that the announced tariffs for 2003 and beyond had
a reverse structure which favored importing finished products to local
production. This inadvertent distortion was corrected in the tariff revision of July 2003, but a similar problem remains for home appliances.
14 For the more detailed explanation of the problems in industrial policy, see Kenichi Ohno
(2004).
15 The recent research by Vietnam Chamber of Commerce and Industry (VCCI) shows thatnearly one third of enterprises are not satisfied with the public reform progress and most ofthem agree that business license procedures are still complicated, costly and time consuming(World Bank 2004).

56

True Ownership and Policy Autonomy

In September 2002, the Vietnamese government suddenly announced
new quotas for importing motorbike parts, which were immediately
allocated to individual motorbike assemblers based on their businessplans submitted to MPI years ago at the time of investment approval.
Such a regulation is unheard of anywhere in the world. A few Japanese
factories were forced to stop operation as they had already used up thenumber of parts allocated to them for 2002. Among Japanese
investors, this incident became the symbol of Vietnam’s irrational
industrial policy. It was reported widely in the Japanese press. This andother problems prompted the Japanese government to launch theJapan-Vietnam Joint Initiative16 and revise its aid policy in 2003, making the general quantitative direction of Japanese ODA to Vietnam
conditional on the policy efforts of the Vietnamese government,
including the speed of improvement in the business condition.
Case 4: Challenges of Internal Harmonization
At the central level, MPI has skillfully handled the discussions on aid
harmonization, by treating donors group by group. But, this does notnecessarily mean that Vietnam’s ODA management capability is satisfactory. Donors constantly complain about the problems with slow
ODA disbursements and implementation at the line ministries andprovincial levels.17 Complex arrangements for decision making related
to ODA, a lack of donor understanding of the Vietnamese system, anda lack of government capacity and understanding of donor requirements resulted in major delays in project approvals and implementation.
16 The official title is “Japan-Vietnam Joint Initiative to Improve Business Environment witha View to Strengthen Vietnam’s Competitiveness.” This initiative was first proposed by theJapanese Ambassador Mr. Norio Hattori at the December 2002 CG meeting and was launchedin April 2003 when Prime Minister Phan Van Khai visited Tokyo and agreed with Prime Minister Junichiro Koizumi. A Joint Committee was formed of representatives of the Vietnameseand Japanese governments and Japanese business community.
17 The World Bank’s Country Portfolio Performance Review (CPPR), completed in October
2003, shows that between FY2000 and FY2003, disbursements on investment credits almost
doubled (from $160 million to $298 million), with the disbursement rate increasing from 12.1
% to 14.3 %. But, it also notes that the number of projects facing implementation issues has
increased over the past few years (World Bank 2004).

57

Incompatibility between ODA management andinternal administrative systems
As Case 2 shows, Decree 17-CP in 2001 provides a common framework for the management of donor harmonization; but its application
has met with a number of problems. The decree has been interpreted
inconsistently at different levels of administration. Also, much work
remains to better integrate ODA in regular development administration and harmonize national procedures with international standards.
In this regard, the government is currently revising Decree 17-CP, tomake it compatible with the related internal regulations (such as construction law, land management law, procurement ordinance), clarify
the responsibility of respective agencies in the ODA-related procedures, and incorporate the latest aid practices into the legal framework.
(The revised decree is to be finalized in 2005.)

Harmonization in the Vietnamese context is more difficult than the
management of harmonization of donor practices. First, there aremany inconsistencies of policies and regulations within the Vietnamese
administrative system. There is ambiguity over responsibilities in
implementing regulations. Specific problems include: (i) inconsistencies between policies/guidelines made at the central level and practices
at the provincial level; (ii) multiple-doors accountability system, where
technical departments at provincial level have to report to both higher
level in the ministry and to the provincial People Committee; and (iii)poor coordination among related ministries/agencies and between central-provincial levels, and so on.18 There is a need to advance harmonization internally among Vietnamese agencies involved inprojects/programs funded by the donors (Luan and Loi 2004).
18 This is not peculiar to ODA management. Le Thuc Duc et al. (2003) gives an example ofthe implementation of the Foreign Investment Law (revised in 2000), as follows: “Provinces
and respective ministries have to issue the detailed guidelines for implementation of the Law.
However, this process has been delayed and the Law had been interpreted inconsistently at
different levels of administration. Problems have arisen as contradicted directives encounter
each other in practice. The middle rank authorities often do not know how to solve these
problems and wait for guidelines from the relevant ministries, branches or other competentbodies.”58

True Ownership and Policy Autonomy

The JICA/CIEM study (2003) reveals that not negligible transaction
costs are attributable to the Vietnamese system. It cites a concrete
example of complicated internal procedures for project appraisal andapproval as follows:...a number of problems occurred in getting approval from theVietnamese side which created a number of burdens for therecipient agency and its sectoral ministry. Although the government has developed clear procedures and timetables for issuing
ODA project approval, these procedures were not strictly followed. Submission of the project documents to MPI and otherline ministries was asked for twice after a series of delays andproblems with the sectoral ministry in charge. As a result it
took 20 months to get approval for the operation of the project. In addition, a range of unclear rules also added to the costs
that the project had to bear, such as the importation of a car forthe project…[section continues] (JICA/CIEM 2003: 23).
Second, there are many incompatible procedures and requirements
concerning budget allocation and use between the donors’ side and theVietnamese side. This is because Vietnam’s political and administrative
systems significantly differ from respective systems in donor countries.
Harmonization, then, would require Vietnamese government to speed
up Public Administration Reform (PAR), taking into account therequirement of the relationships with donors. The government’s Action
Plan on Simplification and Harmonization also recognizes the need tofurther streamline and simplify the internal ODA management procedures in parallel with the PAR process (MPI 2003).
Since 1986, there have been a series of efforts to implement administrative reforms across the state sector in order to match the role andfunctions of the state more closely with the changes being wrought in
the economic system. One of the major initiatives was the adoption of
the Resolution on Public Administration Reform at the eighth Plenumof the seventh Party Congress in January 1995. PAR is recognized as
critical for further economic reform and the transition process. Also,
there has been a growing involvement of donor agencies in the reform59

program, with UNDP playing a lead role in providing and coordinating the technical assistance.
Yet, it is widely viewed that progress of the PAR program is slow incomparison with the requirements of the transition (Painter 2003). A
general framework for PAR (Comprehensive Administration Reform Program 2001-2010) was developed, and four key areas for reform havebeen identified, i.e., institutional, administration, human resources,
and public finance. But, as the former representative of UNDP/Vietnam emphasizes, the lack of a strategy to guide the process, wellanchored in the higher economic and social goals of the country has
contributed to slowing down PAR. This is partly because the PAR
process is closely tied to reforms in legislative and judicial branches, aswell as renovation of the political system (Wattez 2001).
In sum, true harmonization in the Vietnamese context can beachieved—only if refined procedures and mechanisms are integrated
into regular administrative system of the Vietnamese government.

5. Future Challenges and Implications for
the Role of Donors in Vietnam
As our analysis suggests, the Vietnamese government has demonstrated
high capacity for donor management—namely, through the CPRGS
formulation and aid harmonization processes. Nevertheless, Vietnam
has not yet developed the effective economic policy decision structure
like the ones advanced East Asian economies had established during
the period of economic take-off. Vietnam’s seemingly strong capacity
for dealing with donors should not be confused with the capacity forpolicy and institutional response for improved global performance.
Further efforts are required to concretize growth strategies and reformthe domestic administrative system and procedures, in order to sustain

60

True Ownership and Policy Autonomy

poverty-reducing growth and catch up with the East Asian tigers. Thisshould be the way to foster “true ownership” in Vietnam and help theVietnamese to help themselves.
Then, how can donors support fostering “true ownership” in Vietnam?
The four cases above suggest that this may require a rethinking of“doing aid” in Vietnam. Donors should be more sensitive to the natureof Vietnam’s ownership and recognize that there are limits to the extent
of donor influence. The government welcomes better coordination ofaid at an operational level, but not at the expense of diversity in bilateral relations (Jerve et al. 2003). The government listens to donor
advice, but never accepts it blindly. It picks up new ideas and selectively adopts them.
In sum, emerging lessons for “doing aid” in Vietnam are to: (i) workwith the existing institutions, based on an incremental approach(instead of imposing another, new institutional framework); (ii) makedonor assistance relevant to and integrated into the national agenda;
and (iii) identify entry points carefully and sharpen targeting of theirassistance (to be realistic and practical). To this end, donors must accumulate deep knowledge of Vietnam (Wattez 2001; McCarty 2001).
Donors may also wish to increase the quantity and quality of policy
debates and stimulate domestic policy research and training. These
activities require long-term investments, but should produce outputs
in the form of the second generation of policy makers and officials(McCarty 2001).
In this regard, the government’s recent decision, announced at theDecember 2004 CG meeting, to integrate the next CPRGS into theEighth Five-Year Plan (2006-2010) signals that aid partnership in Vietnam has reached a new stage. The government declared its intention toformulate the next Five-Year Plan, by taking CPRGS approach, such as
outcome-oriented planning and the broad-based participatory61

approach.19
By now, donors have well understood that: (i) CPRGS will never attainthe political salience of the Five-Year Plan and the Ten-Year Strategy;(ii) the CPRGS roll-out (at the provincial level) has met limited success; and (iii) continued reference to CPRGS may prove counterproductive in this context, with a risk that CPRGS is seen as either a“donor’s document” or document imposed on local government andline agencies by central planners such as MPI (Pincus and Thang
2004). The Vietnamese government also appears to have learned thehigh transaction costs of maintaining dual policy processes and theneed to strengthen its existing policies and institutions to meet with
the international standards.
The next planning cycle offers a promising opportunity for both thegovernment and donors to further strengthen Vietnam’s current ownership. By working with the existing policy and institutional framework, there will be greater chances for donors to engage the Vietnamese policymakers in the substance of policy debates and required
institutional reforms, such as the content of growth strategy and specific aspects of public administration reform. Donor support, if well integrated in the government’s own agenda and carefully targeted, has better chances of bringing results.

19 Based on the Prime Minister’s Directive 33, issued in September 2004. At the mid-year CG
meeting in 2004 (held in Vinh), the MPI authorities hinted their preferences that the CPRGS
would be integrated into the next Five-Year Plan(see Press Release http://www.worldbank.org.vn/news/press52_01.htm).

62

True Ownership and Policy Autonomy

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Brown, A., Foster, M., Norton, A., & Naschold, F. (2001). The status of sector
wide approaches (ODI Working Paper 142). London: Overseas
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Central Institute for Economic Management. (2003). Assessment of enterprise
law implementation, UNDP Project VIE/01/025. Hanoi: Author.
Conway, T. (2004). Politics and the PRSP approach: Vietnam case study (ODI
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Do, D. D. (2000). Vietnam-United States economic relations. Hanoi: The Gioi
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low income country. Programme aid to Vietnam (SIDA Evaluation
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Ferma, E., & Johansson, L. (2002). Who is driving policy? —a discussion concerning the co-operation between Vietnam and the World Bank. Lund,
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Fforde, A., & De Vylder, S. (1996). From plan to market: The economic transition in Vietnam. Boulder, Colo.: Westview Press.
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reduction strategy paper (PRSP) process and arrangements under thepoverty reduction and growth facility (PRGF). Washington, DC:
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Management. (2003). Study on Donor Practices in Vietnam—Grant
Aid and Transaction Costs, Listen to the Voice of the Recipient.
Jerve, A. M., Mallon, R., Nishino, K., Han, M. T., & Kullenberg, L. (2003).
Evaluation of the comprehensive development framework (CDF): Vietnam case study. Bergen: Chr. Michelsen Institute.
Le, T. D., Nguyen, T. T. H., Nguyen, V. T., & Pham, A. T. (2003, December). Trade capacity building and private sector development in
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Ministry of Planning and Investment. (2004, June). Progress report on simplification, harmonization and capacity building for greater aid effectiveness. Report prepared for the Mid-Term CG Meeting, Hanoi.
Norlund, I., Tran N., & Nguyen, D. T. (2003). Dealing with donors—The politics of Vietnam’s comprehensive poverty reduction and growth strategy(Policy Papers). Helsinki: Institute of Development Studies, University of Helsinki.
Ohno, I. (2002). Diversifying PRSP—The Vietnamese model for growth-oriented poverty reduction (Policy Note No.2). Tokyo: GRIPS Develop-

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ment Forum.
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shifts or business as usual (pp. 208-226)? New York: Routledge Curzon.
Pincus, J., & Nguyen, T. (2004). Country study vietnam (Poverty reduction
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open market economy in Viet Nam (Technical papers No.152). Paris:
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Wattez, E. (2001). Capacity building challenges and governance in Vietnam:
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66

Chapter 3
Challenge of Managing Donors in Cambodia:
Review of the Process of Preparing
the National Poverty Reduction Strategy
Masashi Nagasu

This chapter reviews Cambodia’s strive for acquiring ownership fromdonors, as the country moves on to the development process after thereconstruction period. It focuses on the process of the preparation of
the National Poverty Reduction Strategy, NPRS (the Cambodian version of PRSP)—which was characterized as two competing and conflicting initiatives by two Banks—and the government’s coping strategy
for donor management. Building capacity for donor management is
the first challenge faced by Cambodia.

1. A Donor-driven Country?
Cambodia is a country heavily dependent on external assistance. An
official of an international institution once described as a “donor-driven country.”1 This somewhat impolite expression refers to the country’s
1 A UNDP study (2002) also notes that the situation in Cambodia would normally bedescribed as a classic case of donor-driven, and to a certain extent, inefficient, and overlapping use of resources (UNDP 2002). Also, see Godfrey et al. (2000).

67

dependence not only on external assistance funds but also on foreigntechnical assistance in designing development policy, programs, anddevelopment projects.
Cambodia has received a large amount of external assistance from anumber of donors. These include international organizations such as
the International Monetary Fund (IMF), the World Bank, the AsianDevelopment Bank (ADB), and the United Nations Development Program (UNDP), as well as bilateral donors such as Japan, France, US
and Australia. In 2001, the total amount of external assistance approximated US$243 million, corresponding to 38% of the government’s
annual budget (the data by the Ministry of Economy and Finance).
Japan, the World Bank, and the ADB are the three largest donors in
Cambodia. The external assistance covers both capital and technicalassistance, as in the case of other recipient countries. Technical assistance usually refers to technical advice to the government officials. But,
here in Cambodia, the assistance is largely comprised of the provisionof services substituting for those of government officials: the preparation of laws and regulations, government documents and negotiation
with donors. That is, in Cambodia, the most of foreign advisors andconsultants substitute or supplement the work of governmental officials. As a result, many of development policies and programs are conceived, prepared and proposed essentially by foreign donors in Cambodia. This is what the above “donor-driven country” refers to.

2. Why a Donor-driven Country?
Cambodia’s heavy dependence on external assistance—not only interms of funds but also development policy and programs—comesmainly from its historical and political background. Three issues areworth noting.
First, since its independence from France in 1953, Cambodia experienced frequent, unusually dramatic changes in its political and eco68

True Ownership and Policy Autonomy

nomic regimes: market economy under the Kingdom of Cambodia led
by Prince Sihanouk from 1953 to 1970; market and war economy
under the Khmer Republic led by Lon Nol from 1970 to 1975; agrarian centrally planned economy under Democratic Kampuchea controlled by Khmer Rouge from 1975 to 1979; Soviet-style centrally
planned economy under the People’s Republic of Kampuchea controlled by Cambodian People’s Party (CPP) from 1979 to 1989; liberalized centrally planned economy under the State of Cambodia controlled by CPP from 1989 to 1993; and transition to a market economy under the Kingdom of Cambodia led by coalition of CPP andUnited Front for an Independent, Neutral, Peaceful and Cooperative
Cambodia (FUNCINPEC) from 1993 to present (Kato et al. 2000;
see also Table 10).
It is not surprising that the government under each regime was unable
to develop the necessary institutions and human resources, due to frequent change in the political and economic systems. In particular, thetotal destruction of institutions and human resources by Khmer Rougeleft devastative impact over the country. The regime not only abolishedmarket mechanism, but also killed many citizens. They executed large
numbers of educated civil servants and professionals. This even now
leaves large scarves in the society and vacuum of human resources. You
find in the present government only limited number of qualified officials of the generation who were at high education then. In addition,
the international embargo and enforced isolation of the country fromthe international society stunted its development and ability to recoverfrom the mass destruction wrought by the Khmer Rouge regime (Katoet al. 2000).
Second, aid infusion during the post-war, reconstruction period has
made the government extremely reliant on donors. Between 1992 and1993, the United Nations Transition Authority (UNTAC) served as
the temporary government and held election. Such UN operation tocreate a new government led to massive assistance by the UN agencies
and bilateral donors to sustain this newly-born government. From69

1992 to 1995, Cambodia received US$1.72 billion in UNTAC funds
and US$1.3 billion in emergency relief and development assistance.
These are huge aid flows into a single country in a four-year period(McAndrew 1996). It is natural that a government has tried to learn
the manner of its existence from those who provide basis of existence.

Table 10: Change in Political and Economic Systems in Cambodia
Era(Name of State) Legal System
Pre 1953
French based
Civil Code andjudiciary1953 – 1970
French based(The Kingdom of Civil Code andCambodia)judiciary1970 – 1975
French based(The Khmer
Civil Code andRepublic)
judiciary
1975 – 1979
Legal system(Democratic
destroyed
Kampuchea)

1979 – 1989
(The People’s
Republic of
Kampuchea)
1989 – 1993
(The State of
Cambodia)

1993 – present(The Kingdomof Cambodia)

Political Power Economic System

Under the French Held by French Colonial typeProtectorate
Constitutional
Monarchy
Republic

Held by Prince Market and thenSihanouk asnationalization
Prime Minister
Held by Lon Nol Market, wareconomyAll previous
Khmer Rouge
systems
abolished,extreme Maoist
agro-communism
VietnameseCommunist party, Cambodianoriented
centralPeople’s Partymodel
committee, andlocal committees
Greater
Communist party, Cambodian
economic rights central
People’s Party
committee, andlocal committees
French based
Constitutional
Civil CodeMonarchycombined with
common law incertain sectors

Source: Kato et al. (2000), p.6.

70

Political System

Agrarian,centrally planned

Soviet-style
central planning

Liberalized
central planning

Shared between Transition to a
FUNCINPEC
market economy
and CPPTrue Ownership and Policy Autonomy

Box 2: History of Aid Infusion without Control• When Cambodia started economic liberalization in late 1980s, multiand bilateral donors used NGOs as substitutes for Cambodian institutions to channel increasing humanitarian assistance to Cambodia. One
long-term expert of Cambodia’s development noted that “this served toshift control of reconstruction process and agenda out of Cambodian
hands to the donors and aid agencies, and virtually excluded many Cambodians from participation in the process” (Mysliwiec 2003).
• The new government established under the 1993 Constitution operated
in a fragile political environment where former conflicting parties
formed a coalition government while the civil war against Khmer Rougecontinued along the Thai border. As a result, the government was not
fully prepared to take leadership of development cooperation at a time
when donors were sending hundreds of missions to Cambodia to develop their projects. Real commitment to coordination among donors did
not take root, and many donors have missed opportunities to tap in local
knowledge, experiences and institutions that Cambodians in fact had
had in the pre-UNTAC period (Mysliwiec 2003).
Quoted from the Council for the Development of Cambodia (2004), pp.1-2.

Third, the fragile political basis of the government compelled its
employees to act opportunistically not making decision by themselves
and leaving the matters in the hand of fund providers. The new government was that of coalition of CPP and FUNCINPEC, the two larger parties, and for the first 5 years the top of the two parties shared thepower as co-prime ministers. Each ministry has had representatives
from both of them as co-minister or state secretaries. Therefore, it issafer for government officials not to make decision by themselves andto leave matters in the hands of donors.

71

3. Strategy for Donor Management –“Leave the Matter to the Donors”
As explained above, the government had not been equipped with adequate institutions and human resources when massive aid started toflow into the country. But, the government had to deal with a numberof donors to earn funds for rehabilitation and reconstruction of thecountry. The donors were willing to provide lots of funds for the projects of this poor country which had survived massive massacre by leftist extremists and long-period of civil war; however, the funds would
be delivered only when the government follows the practices thedonors consider appropriate. Unfortunately the government officials
were not familiar with such practices. Furthermore, an official’s mistake in handling foreign-assisted projects could be fatal for him (orher) to survive in the ministry in the fragile political environment.
Under such circumstances, the best approach is to leave the matter tothe donors, those who determine which are appropriate practices.
Thus, in Cambodia, foreign donors have conceived the ideas of mostprojects (of course based on the needs formulated through consultation
with Cambodian officials), proposed them to the government, prepared them, and financed them. Only the involvement of the government has been consultation made by donors from time to time andapproval for the project before the final decision of finance. Therefore,
in Cambodia the discretion of donors is much greater, and that of government much smaller, than in other neighboring countries. Consequently, it is not that the government decides which donor should
finance certain projects, but that the donor(s) decide which projects
should be financed, and design them. The government respects theinterest and initiative of donors, and let the donor process the project.
Under this approach, certainly the government’s discretion is smaller,
but the government can receive much more funds because donors arewilling to finance projects prepared under their initiative. As a result,reliance on donors in selecting and designing projects becomes the72

True Ownership and Policy Autonomy

government’s strategy. In a sense, this might be rational behavior by thegovernment for “aid maximization.”

4. Management of Two Competing Donors –Processing PRSP and SEDP II
As mentioned above, reliance on donors in designing projects has been
a compelled strategy of the Cambodian government. The government
adopted the same strategy for the preparation of a national development framework such as Five-Year Development Plans. Donors, inparticular international institutions, are strongly interested in sponsoring and taking initiative for formulating such development framework.
This is because the sponsoring institutions can exercise significant
influence over the direction and contents of the strategic plans, andconsequently the projects to be prioritized under the plans (includingones to be financed by other donors). In this regard, the process of the
preparation of two planning documents—the Second Five-Year SocioEconomic Development Plan 2001–2005 (SEDP II) and the National
Poverty Reduction Strategy (NPRS, the Cambodian version of
PRSP)—are important examples. In the preparation of these two documents, the government followed, as usual, the donor-relianceapproach, by respecting the donor initiative and not taking its own initiative in order to maximize the receipt of external assistance. We willsee below how the Cambodian government has handled the formulation of SEDP II and PRSP.
Institutional setting and a variety of programs
and plans
We will start by explaining the current institutional setting related tonational development planning.

The Ministry of Planning (MOP) is in charge of national development
planning. In addition to the preparation of SEDP, the important taskof this ministry is the preparation of Public Investment Program (PIP),
73

which is a list of candidate investment projects submitted by each line
ministry. PIP constitutes a part of the government’s documents submitted for the Consultative Group Meetings, on which basis donors
examine and align their assistance. PIP is attached to the national
budget. The ADB has supported the MOP and provided technicalassistance to reinforce the capacity, including the elaboration of PIP.
The Ministry of Economy and Finance (MEF) is in charge of thenational budget. The MEF organizes and implements the national
budget with the oversight of Council of Ministers and the Parliament.
MEF is a powerful ministry because government funds, domestic or
external origin, become available for each investment project only
when the ministry approves the use of the fund for that project. The
inclusion of an investment project in PIP does not mean that thenational budget (both domestic and foreign assisted) can be used forthe project. In the light of the power and importance of MEF, international institutions provided technical assistance to this ministry, such as
Technical Cooperation Action Plan (TCAP), Mid-term Expenditure
Framework Program (MTEF) and Priority Action Plan. Since MEF
handles loan aid, the IMF, the World Bank, and the ADB have been
particularly interested in supporting the ministry. But, IMF is the mostinfluential in terms of the number of technical advisors and lending
operations directly related to the national budgeting.
The Cambodian Rehabilitation and Development Board (CRDB)
within the Council for the Development of Cambodia (CDC) is
responsible for requesting foreign assistance, in particular technicalassistance and grants, and handling the relationship with donors. Designated as partnership focal point within the government, the
CDC/CRDB manages annual Consultative Group Meetings andmakes arrangements of the meetings and prepares documents necessary
to this end. More recently, the CDC/CRDB is involved in the issues
on harmonization of aid procedures. UNDP has assisted CDC as thecenter of aid coordination and receipt in the government.

74

True Ownership and Policy Autonomy

The above three organs of the government play important roles innational development planning, implementation of development projects, and receipt of foreign assistance. Under such fragmented institutional setting, coordination and cooperation among the three has notbeen good. Different organs deal with loans and grants. More fundamentally, they have three different foreign donor guardians—the ADB(for the MOP), the IMF and the World Bank (for the MEF), and the
UNDP (for CDC/CRDB). Also they have three different programs or
instruments that dictate national planning.
SEDP II vs. PRSPThe Socio-Economic Development Plan (SEDP) is a comprehensive
national development plan over medium-term, aiming at socio-economic development. The SEDP needs to be deliberated and approvedby the National Assembly. In 1996, Cambodia issued its first SEDP
(SEDP I) covering five years from 1996 to 2000. MOP has responsibility for preparing SEDP with oversight from the Council of Ministers. Since MOP had limited capacity at that time, substantial support
was provided by ADB and UNDP in preparing SEDP I. The ADB
expatriate consultants did much of the writing, and the drafting wasdone in English (World Bank 2004a). SEDP II is the second version
following SEDP I. ADB has continued to assist MOP to prepare
SEDP II by providing technical assistance. SEDP II focuses on poverty
reduction, reflecting the recent discussions among development partners. It also emphasizes the participation as a principle of preparation(Royal Government of Cambodia 2002).

The PRSP is a document that describes a strategy aiming at poverty
reduction in a country. In 1999, the IMF and the World Bank (theBreton Woods Institutions: the BWIs) proposed this new document. It
was originally introduced to serve as a condition for debt relief under
the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative.
PRSP was intended to guide the allocation of those resources freed bydebt relief into poverty-reducing activities. Then, it became requirements for providing the BWIs’ concessional loans. Furthermore,75

“PRSPs are now envisaged as the centerpiece for policy dialogue andnegotiations in all countries that receive concessional financing fromthe BWIs” (Chavez Malaluan and Guttal 2002: 2). Therefore, Cambodia had to go through the PRSP process (i.e., the formulation of a newplanning document, the NPRS) in order to receive concessional loans
from the BWIs and to maintain the relationship with the two institutions.
According to the World Bank’s guidelines for PRSP preparation, a
PRSP is a document that describes strategies which should be: (i)country-driven involving broad-based participation; (ii) results-oriented focusing on benefiting the poor; (iii) comprehensive in recognizing
the multidimensional nature of poverty; (iv) partnership-oriented
involving participation of development partners; and (v) based on along-term perspective for poverty reduction. Recognizing the not-preparedness of many recipient countries to elaborate such a complete
PRSP, the World Bank and IMF allow those countries to prepare an
Interim PRSP (I-PRSP) outlining the country’s existing poverty reduction strategy and providing road-map for the development of the full
PRSP (World Bank 2004b).
Two competing and conflicting initiatives
In late 1999, the ADB had already started assisting MOP in the preparation of SEDP II. Being the leading donor for Cambodia and in thelight of their support to the previous SEDP, ADB naturally considered
it essential to sponsor and influence the coming overall development
framework for the country. On the other hand, since Cambodia is oneof the poorest countries and qualified for concessional loans of the
BWIs, the two institutions identified Cambodia as qualified for a
PRSP initiative (World Bank 2004a). In early May 2000, the government launched the PRSP process. At that time SEDP II preparation
had been already underway (see Table 11).

PRSP and SEDP II have similar characters in many respects. Both provide overall framework for development, aim at poverty reduction, and76

True Ownership and Policy Autonomy

Table 11: Timeline of SEDP II and PRSP Preparation
Event
Joint letter of World Bank and IMF proposes I-PRSP schedule.

Date
March 2000

National Workshop was held to launch preparation of SEDP II.
Plan to introduce PRSP was announced at informal meeting
prior to Paris CG Meeting.
The government declared its wish for just one process at Paris
CG Meeting.
1st drafts of the I-PRSP were completed and circulated amongsome embassies and donor institutions.
6th draft of the I-PRSP is circulated among donors and NGOs
in English.
8th draft of the I-PRSP was translated into Khmer and past by
the Council of Ministers.
World Bank and IMF boards accepted the I-PRSP.

May 2000
May 2000
24 May 2000
July 2000

The
government
MEF

August 2000

MEF

27 October
2000
January 2001

Council of
Ministers
World Bankand IMF
January 2001 MEF
5 March 2001 ADB,MOPThe I-PRSP was released in Khmer for the first time.
1st draft of SEDP II was released to donors and NGOs in
English.
The SEDP II was presented at a workshop for government,
22 Marchdonors and NGOs.
2001
2nd draft of the SEDP II was completed. Translation of the
31 Marchdocument into Khmer began.
2001
Workshop to launch the full PRSP was held. ADB suggested
25 April 2001
that the deadline for the SEDP II be extended to October.
World Bank and IMF announced flexibility on the timing andcontent of the full PRSP.
Tokyo CG Meeting urged the government to ensure consistency July 2001
between PRSP and SEDP II.
MOP distributed to donors and NGOs the 2nd draft of the SEDP 23 July 2001
II in English and Khmer, and requested comments.
SEDP II was approved by Council of Ministers.
December
2001
Consultations for the full PRSP began.
April 2002
1st draft of the full PRSP was released at the third National
PRSP Workshop.
2nd draft of the full PRSP was discussed at the final National
PRSP Workshop.
The full PRSP was submitted to Bank and IMF boards.
World Bank and IMF boards accepted the full PRSP.

Key Actors
World Bank,
IMF
MOP, ADBWorld Bank

ADB,MOP
ADB,MOPWorld Bank,
MOP

Consultative
Group
MOP

Council of
Ministers
World Bank,
MOP
August 2002 World Bank,
MOP
NovemberWorld Bank,
2002
MOP
January2003 The
government
February 2003 World Bank,
IMF

Source: World Bank (2004a), combining Table 2 “Timeline of key steps in the SEDP/PRSP processes and
WB/IMF Operations” (p. 9) and Annex 2 “Timeline of SEDP and PRSP preparations” (p. 35) with somemodification of expression.

77

emphasize participatory process in their preparation. Because of thisduplication of the two initiatives, during Consultative Group Meetingin Paris in May 2000, the government expressed preference for only
single strategic plan (NGO Forum on Cambodia 2002).
Apparently, coordination efforts were made between the World Bank
and ADB, but they failed. Since SEDP is mandated by the national
constitution, SEDP cannot be replaced by PRSP. ADB insisted that
SEDP II should be considered to be the Cambodia’s PRSP. On theother hand, for the BWIs, a PRSP, which has to be approved by the
Board of the BWIs and will be the basis of their lending operations,cannot be prepared under the control of any other institution than the
BWIs themselves2 ; it is extraordinary that ADB sponsors the preparation of a PRSP. It appears that the World Bank and ADB wished that
Cambodian government make decision (in favor of the World Bank or
ADB, respectively) (NGO Forum 2001). However, it was impossible
for the government, which relies heavily on donors’ initiatives, to makesuch a decision. The World Bank and ADB are the two leading donors
in Cambodia after Japan, therefore, the government could not be on
the either side. No coordination or compromise was made.
Two processes continued to parallel. With the ADB’s assistance, MOP
and consultants team continued preparing SEDP II and completed its
English draft in March 2001. MEF started preparing I-PRSP and completed it in October 2000. The World Bank held a PRSP workshop in
April 2001, and this was considered to be the formal start of preparation of full PRSP. Apparently the World Bank and ADB had continued
their efforts to coordinate the two strategy and plan. But the workshop
discussions revealed the failure of this attempt because the ADB representative expressed in public strong dissatisfaction with the launch of
2 The recent World Bank’s OED review suggests that the decision was made to launch the

PRSP process in parallel with the preparation of SEDP II. The BWIs felt that the ongoing
SEDP II did not provide a credible alternative to the PRS process and could not be retrofitted
within the required timeframe to comply fully within a minimum set of requirements, including broad government ownership and NGO participation (World Bank 2004a).

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True Ownership and Policy Autonomy

full PRSP process without ADB’s consent. The Finance Minister wasembarrassed and asked for coordination between the World Bank and
ADB.
After this workshop, no news on coordination was reported for sometime, but coordination and negotiation among the World Bank, ADB
and the government appeared to continue; by late July 2001 it wasreported that agreement was reached that: (i) SEDP II should be completed by October 2001; and (ii) the full PRSP should be preparedusing SEDP II as the key building block (Royal Government of Cambodia 2002) and be completed sometime in 2002 (NGO Forum2001).
Actual work was behind this schedule. The Khmer version of SEDP II
was completed in July 2001, and SEDP II draft was approved by theCouncil of Ministers in December 2001, and by the National Assembly in June 2002 (Royal Government of Cambodia 2002). As for full
PRSP (now renamed as the National Poverty Reduction Strategy,
NPRS), the Council for Social Development (CSD), an inter-ministerial body chaired by the Minister of Planning, was appointed as the
body responsible for NPRS, to be assisted by a General Secretariat(GSCSD), which was established in August 2001. The first draft of the
NPRS was released in August 2002, and the second in November
2002. NPRS was presented and approved by the Board of the WorldBank in February 2003.3
Contents of SEDP II and NPRSThis essay does not intend to analyze and compare the contents of
SEDP II and NPRS in detail, but a quick review of the two documents

3 I-PRSP was coordinated by MEF, while SEDP II was prepared under the supervision of

MOP. Later, responsibility for the full PRSP was transferred to CSD, an inter-ministerial
body chaired by MOP (NPRS 2002). But, it should be also noted that the SEDP process ismanaged by a different Under-Secretary in MOP with a different support group. Anothergroup has been responsible for the monitoring aspects of the PRSP—the Poverty Monitoringand Analysis Technical Unit (PMATU), assisted by UNDP (World Bank 2004a).

79

suggest that there is not much essential difference in their contents,
although the documents vary in their style and structure.
SEDP II has simple structure: consisting of main volume and annexes.
The main volume is relatively brief (50 pages) and contains abstract
discussions and arguments. It consists of four parts: Vision, Objective,
Strategies and Policies. After describing a development vision of Cambodia is “a socially cohesive, educationally advanced and culturally
vibrant Cambodia without poverty, illiteracy and disease” SEDP II
defines national development objectives to be: (i) economic growth;(ii) social and cultural development; and (iii) sustainable use of natural
resources. Then, after emphasizing the importance of economic growthfor poverty reduction and macroeconomic stability, it enumerates priority areas to realize the development objectives such as decentralization, and agricultural and rural development. Detailed discussions anddata are contained in annex volume (approximate 240 pages), which
consists of important background papers and sectoral analyses.
The NPRS has a different structure of discussions and arguments. It
has seven chapters and relatively short annexes: As SEDP II does,
NPRS starts with describing a vision for poverty reduction, which isthe same as SEDP II; then, reviews the process of participation. The
document analyzes the poverty situations in Cambodia, presents priority actions for poverty reduction, and discusses financial requirements
for the actions and finally monitoring and evaluation. Compared withthe structure of SEDP II, NPRS places poverty reduction as the core
objective and stresses the process of participation and monitoring andevaluation.
However, in terms of contents, there are no significant differences.
Both documents refer to the same vision and strategies, deal with most
sectors with stressing poverty reduction, and enumerate almost thesame list of priority actions. That is to say, using the same materials,
NPRS simply changes the order of the items of discussions and arguments and stresses different points.
80True Ownership and Policy Autonomy

Box 3: Two Banks, Two Processes, Two Documents
The recent World Bank’s OED review contains the critical assessment of
the Bank’s role in Cambodia’s PRSP process as follows:
What is less obvious, however, is the relevance of the preparation of a
PRSP document for Cambodia in 2001 and 2002. The PRSP was awkwardly timed in the Cambodian context. Work on the SEDP II (supported
by ADB, added) had already started and by law had to be presented to Parliament within a specified time-frame. Once it appeared that the timeframes would overlap, the PRSP became in effect a rival strategy processes
competing for the time and attention of the limited group of senior policy-makers in Cambodia. Instead of working to ensure that the PRSP principles were applied effectively over time, the main priority in Cambodia
was preparation of a PRSP document. An alternative approach would haveallowed a significant start in all the key areas of the PRSP framework andputting in place the building blocks for a properly owned PRSP document
as part of the SEDP III cycle. However, the perception of Bank staff wasthat given the demands of the PRGF this was not an option (World Bank
2004a: 11).
Source: World Bank (2004a).
Note: The title is taken from “Rapid Assessment of the PRSP Process in Cambodia: Two
Banks, Two Processes, Two Documents,” September 2001.

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5. Consideration
In spite of advocating ownership in processing the national plan andstrategy, it is clear that ADB and the World Bank have controlled theprocess. From the beginning, the World Bank and ADB failed torespect the government’s wish to have a single process of poverty reduction strategy. It is well known that a consultant team financed by ADB
prepared the draft of SEDP II. With regard to PRSP (with the exception for I-PRSP which was prepared by a talented MEF official), after
reading the second draft presented for their comments, NGOs andother donors suspected that there must have been major inputs fromthe World Bank or its experts/consultants into the second draft of
NPRS.4 This is because the second draft was totally different from thefirst one, in terms of the structure of the document and the quality ofEnglish language. The simpler evidence of donor neglect of Cambodia’s ownership is that the original text of both SEDP II and NPRS
was written in English, not in Khmer.5
Also it was unfortunate that two similar initiatives went in parallelbecause of the rivalry of the large donors. Indeed, this caused extra
time and human resources of the government. Ideally, the World Bank
and ADB should have cooperated to produce a single national strategy.
However, in the real world each institution has objectives, principles,
agenda and practices of its own. It was impossible to have different
institutions to act jointly disregarding the different objectives, etc.
The problem is that ownership principle was advocated by these initiatives, in particular for PRSP. PRSP is the initiative of the BWIs. It was
4 Even OED Review suggests that NPRS was drafted at least partially by consultants financedby the World Bank, and influenced by advice from the World Bank staff (World Bank
2004a).
5 Language is an important issue in Cambodia. But, both the I-PRSP and the SEDP II weredrafted in English. The I-PRSP was drafted in English and a Khmer copy was not released tothe public before the document was passed by the Council of Ministers in October 2000.
SEDP II was also drafted in English and a Khmer translation was not released until July 2001
(NGO Forum 2001).

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True Ownership and Policy Autonomy

proposed as a part of reform of the BWIs when they were criticizedand called for reform. To the recipients of assistance from these institutions, PRSP is not a genuine initiative proposed by the recipients, but
is rather the conditions imposed by the BWIs to access to their assistance (debt relief and new financial support). Therefore, by nature, it isalmost impossible to advocate ownership for such initiative. In particular, demanding ownership of such capacity-weak recipients as Cambodia is very counterproductive. Any practitioners involved in development of Cambodia know that the government is still young and has
weak capacity to exert ownership for such initiatives. Campaigningownership for such government with weak capacity tends to lead topretense ownership and concealment of inability of the government toexert ownership. This eventually results in ambiguity of responsibility
for the result of initiative and neglect of need for improvement ofcapacity.
Under these difficult conditions, Cambodian government has acted atbest they can. With its two largest donors competing and conflicting
each other, the government cannot be on either side. What it can do isto respond to the requirements imposed by the two donors within thescope it can afford, and to make efforts to mobilize as much funds as
possible from them. The government has implemented this maneuver,and has achieved the goal. In prospect, however, the government
should insist on its position more clearly to the donors as its voice andcapacity increase. As declared in the current NPRS, “the next SocioEconomic Development Plan and the corresponding NPRS will bemerged,” and the government should take advantage of such arrangement to exert genuine ownership over poverty reduction and economic
development policy and strategy (Council for Social Development
2002: 165).6

6 In this regard, the recent study by the Government-Donor Partnership Working Group (CDC2004) finds encouraging signs in a paradigm shift in the thinking and practices of development cooperation in Cambodia, from a decade-long, dominant Donorship to a new National
Ownership. These are particularly evident in the education and health sectors.

83

References
Chavez Malaluan, J. J., & Guttal, S. (2002). Structural adjustment in the nameof the poor: the PRSP experience in the Lao PDR, Cambodia and Vietnam. Bangkok, Thailand: Focus on the Global South, CUSRI,
Chulalongkorn University.
Council for Social Development. (2002). National poverty reduction strategy
2003-2005. Phnom Penh: Royal Government of Cambodia.
Council for the Development of Cambodia. (2004). Practices and lessons
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Cambodia. Paper prepared for Government-Donor Partnership
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Godfrey, M., Sophal, C., Kato, T., Piseth, L. V., Dorina, P., Saravy, T., Savora,
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NGO Forum on Cambodia. (2002). Cambodia’s draft Poverty Reduction Strategy Paper – Has NGO Input Been Included? Available at
http://www.padek.org/prsp03_05_ngo_input.htm
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True Ownership and Policy Autonomy:Managing Donors and Owning Policies
National Graduate Institute for Policy Studies Development Forum

Edited by Izumi Ohno
with contributions from:

Yasutami Shimomura,
Kenichi Ohno,
Masashi Nagasu