Version: Nov. 8 2006

Managing the Development Process and Aid—East Asian experiences in building central economic agencies—
Overview of the Main Report(Draft for comments)
GRIPS Development Forum
Izumi Ohno and Masumi Shimamura
1. Introduction
The experiences of East Asian development suggest the vital importance of utilizing aid to achieve
shared national visions; aid utilization is an integral part of development management. Theseexperiences demonstrate that it is possible for latecomer countries to manage the development process
and aid and to eventually graduate from it, provided the existence of strong national commitment todevelopment, and ownership of the entire development process, and policies and institutions that
promote “shared growth” (World Bank 1993). This is not the case in many parts of the developingworld.1
Why are some countries capable of meeting these prerequisites, and why are the others not? Where do
commitment and ownership come from and under what circumstances? What are the mechanisms anddriving forces for making the governments work for development? This study endeavors to shed lighton these questions by examining the functions and coordination features of central development
administration in three East Asian
One of key ingredients of the “East Asian Miracle” is frequently said to be the creation of central
economic agencies responsible for strategic planning, resource management, and coordination and theexistence of a cadre of economic technocrats insulated from narrow political pressures. Under strong
political leadership, economic technocrats formulated and implemented growth-oriented economic
policies—for example, diversification and upgrading of economic structure or effective managementof natural resource rents—while adhering to macroeconomic stability and addressing social and equity
concerns (“shared growth;” World Bank 1993, Campos and Root 1996, Iwasaki 1996). At the sametime, it is also recognized that today’s successful countries did not necessarily possess strong
institutional bases at the initial stage of development. The East Asian experiences confirm that statebuilding is a dynamic process and that conscious and continuous efforts critically matter.
A central part of our analysis is the coordination mechanisms of central economic agencies, which are
the strategic core centers of development management; we examine key factors affecting theeffectiveness of their operations and institution building. Thailand and Malaysia are the second-tierhigh performers of the “East Asian Miracle” economies—following South Korea, Taiwan, Hong Kong,and Singapore—and are generally considered to have successfully managed the development processwith strong ownership (Muscat 1994, Suehiro and Higashi 2000, Torii 2005). Both countries are now
emerging as donors. During the 1970s–80s, the economies of Thailand and Malaysia achieved major
structural transformation, and these governments made strenuous efforts to build and enhance the1

Botswana is a notable exception in Sub-Saharan Africa.
1

functions of central development administration in order to meet the increasingly complex challenges
of managing development and aid. Therefore, we consider it highly important to learn from their pastexperiences, especially from the late 1950s through the 1980s.
The study also analyzes the experiences of the Philippines, especially after 1986 (the turning point of
democracy restoration), to provide a comparative perspective. During the Marcos era (1965–86), thePhilippines failed to transform its central economic agencies into strategic core centers of development
management. Nevertheless, the post-Marcos era has seen major efforts to reorganize the central
economic agencies and strengthen inter-agency coordination. Furthermore, since 1991 the country has
been implementing one of the most radical decentralization initiatives in East Asia.
A key feature of this study is to bring country perspectives to the center of analysis. Rather thanpresenting universally granted, ideal types of development administration and governance reforms, we
attempt to learn from the real experiences to better understand how the three East Asian countries
organized themselves for pursuing priority development goals and how they coordinated and dealt
with various stakeholders, including donors, while overcoming crises and shocks. With strongemphasis on country perspectives, we hope that this study will serve as a useful reference fordeveloping countries that are making efforts to build and enhance their development administration.
We also hope that the study will add new insights to today’s aid effectiveness debates.
This paper provides an overview of the main report. It first explains the approach and basic premise of
the study, and then discusses the contexts for development management in Thailand, Malaysia, and thePhilippines (i.e., overall development performance, macroeconomic and aid management by central
economic agencies). Next, it summarizes the main findings of the study, touching upon the diversity of
institutional design of central economic agencies, coordination mechanisms for aligning policy andresources with development priorities, strategic use of aid toward “graduation”, and key factors
affecting the effectiveness of central economic agencies. Lastly, it discusses the implications fortoday’s developing countries and donors.
Following this overview chapter (Chapter 1), the main report is organized as follows.
• The evolution of development planning in Thailand, Malaysia, and the Philippines (Chapter 2).
• The role and functions of central economic agencies in the three countries, with special attention
to the coordination mechanisms for policy and resource alignment and the coherence amongdevelopment planning, macroeconomic management, and public investment programming(Chapter 3).
• Aid management, especially the strategic use of aid for attaining priority development goals andbuilding a self-reliant economy toward “graduation.” (Chapter 4).
• A case study of Thailand’s Eastern Seaboard Development Plan—high priority, flagshipinfrastructure investments at the time of structural transformation of the country—as an example
of country-owned development and aid management (Chapter 5).

2. Approach and Basic Premise
2-1.

Scope of Analysis

The study focuses its analysis on (i) the role and functions of central economic agencies and their2

coordination mechanisms, as the agents to manage the transformative development process and (ii)
actors that affect the functions of central economic agencies, such as leaders and technocrats. The
diagrams below illustrate these perspectives (Figure 1).
Ideally, top leadership should provide a long-term development vision and have a strong political will
to realize that vision. The technocrats of central economic agencies assume the responsibility fortranslating the vision into action plans by mobilizing and utilizing both domestic and external
resources. This includes formulating development plans and strategies, articulating priority policies,
programming public investment, and managing resources within hard-budget constraints. The
technocrats are also responsible for coordinating with various stakeholders (line ministries, other stateagencies, local governments, donors, and the private sector) to facilitate the implementation of priority
projects and the delivery of essential public services.

Figure 1: Coordination Mechanisms of Central Economic Agencies (CEA)
Key actors affecting CEA functions

Policy & resource planning,alignment functions

Aid

VisionPolitical will

Utilize

Development plans
Priority policies
Macroeconomic mgt.

Publicinvestment
selection

BudgetLeaderDonorsPrivate &non-govt
activities

Private &non-govt.
stakeholders

CEA Technocrats

Resource
allocation

Other
state
organs

Implementation, service delivery, etc.

Ministries

Local
govt.

Source: Author

The perspectives shown above are consistent with the findings on the “East Asian Miracle” and its
related studies (World Bank 1993, Campos and Root 1996) as well as a wide literature ofdevelopmental states in East Asia (Johnson 1982, Haggard 1990, Wade 1990, Evans 1995, Leftwich
1995, and others)—although their views may differ on such issues as the desirable level of stateinterventions in the market, the degree of state autonomy and embeddedness in the society, and thedegree of tolerance to the authoritarian regime.
Thus, key questions to be examined throughout this study are:• What are the role and functions of central economic agencies in Thailand, Malaysia, and thePhilippines?
3

•
•

•
•

2-2.

How have the coordination mechanisms actually worked? What are the roles of leadership andtechnocrats?
What is the role of development plans in policy and resource alignment, especially in terms ofannual budget process, public investment programming, and aid management? To what extent
have these instruments and resources been used coherently?
How have these countries succeeded (or faced difficulties) in formulating and enhancing suchfunctions and mechanisms, while overcoming crises and shocks?
What are key factors that have affected the effectiveness of central economic agencies?

Basic Premise

Our study is built on two premises: (i) the critical role of central economic agencies in managing thedevelopment process, including aid and (ii) the need to enhance the conventional concept ofownership, based on East Asian perspectives.
Critical role of central economic agencies in managing the development process, including aid
Among a number of administrative and governance reform agendas, we attach great importance tostrengthening central economic agencies at the early stages of development. This is because theseagencies must assume the following strategic core functions, as the agents to manage budget, public
investment, and aid, and to provide the right incentives for private and non-governmental actors2.
Central economic agencies must
• align policy planning and resource mobilization with attaining strategic objectives and• coordinate different interests of various stakeholders—vertically and horizontally, as well as
domestically and externally (including donors).
While the recent decade has witnessed the expanded role of local administration and private sector
activities, this should not be equated with the marginalization of central administration. In fact, there isa shared consensus in the international aid community on the importance of strengthening strategicplanning and management capacity in developing countries and integrating such efforts in the national
development objectives (OECD DAC 2005).
At least two kinds of arguments place importance on the role of central economic agencies. First, it isgenerally accepted that economic cases for central administration exist and require (i) policy
coordination in the presence of scale and scope economies (such as macroeconomic management); (ii)inter-jurisdictional externalities, with spillover effects across localities (such as large-scale
infrastructure development); and (iii) support to local governments through the resource transfer offinancial and technical terms (Bardhan 1997). These are complementary to decentralizedadministration, which may be better equipped for managing local common resources and supplying
local public goods—provided that it has greater access to local information and accountability.
Nevertheless, at the early stages of development when financial, technical, and human resources are2

Our argument is built on Shimomura’s hypothesis, which proposes the need to identify a limited numberof “strategic” good governance elements, rather than attempting to establish good governance in all scores
simultaneously (Shimomura 2005). In light of resource and capacity constraints of developing countries, it
is more realistic to give weight to a set of strategic good governance elements that may trigger
development.
4extremely scarce nationwide, the role of central administration in (i)–(iii) becomes all the more
important. Such a role and such functions should also provide an environment to nurture private sector
development.
Second and more fundamentally, the central governments of latecomer countries must assume a“developmental” role. This point adds a distinctive dimension to Weber’s concept of modern, rational
bureaucracy3. Development is a transformative process (Stiglitz 1998) that requires institutions that
promote radical accumulation, change, and transformation (Leftwich 2005). Development is also aninteractive process of “foreign” and “indigenous” elements (Iwasaki 1996, K. Ohno 2000). On the one
hand, latecomer countries face the need to acquire the “foreign” elements—such as modern technology,
knowledge, and organizational structure—in forms including aid, trade, and investment by the private
sector. On the other hand, each country has “indigenous” elements—such as values and social
institutions unique to that country—that mean the “economy is embedded in society” (Polanyi
1944:57) (see Figure 2).
In sum, development is a process that must be undertaken at the level of the nation-state as theimplementing unit. In its early stages, the central government must act as the initiator of change andtake full charge of managing and coordinating external and internal stimuli. While implementing
policies and creating the necessary institutions and attitudes conducive to development, central
economic agencies in particular must “recognize the society’s unique initial conditions, identify
bottlenecks and potential obstacles, deal with unexpected shocks, set long-term targets, and design
comprehensive and concrete annual plans to achieve them” (K. Ohno 1998: 29).

Figure 2: Development Process: Systemic Interaction
Introduction from without
MarketEconomy“Exogenous models”(economic efficiency)
Unique interaction(values, social
institutions, etc.)

Policies

Base Society
Domain of government
Government is part of base society.
Source: Adapted from K. Ohno (1998)

3

Weber outlined the key characteristics of a bureaucracy as: (i) functional specialization; (ii) clear lines ofhierarchical authority; (iii) expert training of managers; (iv) decision making based on rules and tactics
developed to guarantee consistent and effective pursuit of organizational goals; and (v) assignment of workand personnel based on competence and experience.
5East Asian Views of Ownership in the Development Process
We argue that there is a need to enhance the ownership concept by properly incorporating the East
Asian perspectives. There is a shared consensus on the importance of government ownership in thedevelopment process (Johnson and Wasty 1993, Killick 1998, Booth 2003), and numerous literatures
discuss how the governments and donors should better collaborate to promote ownership. The Paris
Declaration of Aid Effectiveness (2005) endorsed at the high-level OECD meeting is the latest
international initiative in this regard. The declaration puts ownership at the top of the hierarchy ofdevelopment partnership toward making aid effective and stipulates that “partner countries (should)
exercise effective leadership over their development policies and strategies and co-ordinate
development actions” and that donors should “respect partner country leadership and help strengthen
their capacity to exercise it (DAC 2005, paras. 14–15). While such an international initiative islaudable, we feel that today’s global debates do not sufficiently capture the dilemma faced bylatecomer countries.
The rhetoric of ownership and partnership tends to mask a tension inherent in the aid relationship.
Certainly, aid facilitates recipient countries’ access to finance, goods, and knowledge and technology,
which are essential inputs to their socio-economic development process. However, excessive
dependence on aid may constrain recipient countries from exercising policy autonomy. Furthermore,
donor thinking and priority areas of assistance often tend to be influenced by global development
trends, and do not necessarily pay due regard to specific needs of developing countries. Thus, it iscritically important to cope with this dilemma when countries endeavor to manage the development
process by utilizing aid.
The deeper understanding of the nature of the development process (as discussed above) and the “EastAsian Miracle” experiences reveal several essential elements of government ownership that are
insufficiently covered in today’s global debates (see Shimomura and I. Ohno 2005 for more detailed
discussions). These elements are:• managing donors and aid, as part of the entire development process;• willingness to graduate from aid, supported by an “exit plan”; and• managing policy ideas, with selectivity and through “translative adaptation”4.
First, ownership should be viewed as the capacity to manage the entire development process and hence
coordinate aid as part of its own coherent development effort (see Figure 3). The government should
initiate and formulate a national development plan and strategy, identify specific needs to be financedby aid, present its aid requests and negotiate with donors, match aid programs and projects with its
own internal resources, implement various developmental activities, and monitor and evaluate results.
Here, the aid relationship is just one component of development management, a means to achieve anational goal of promoting growth and establishing wealth-sharing mechanisms on a nation-wide scale.
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 thedevelopment process in recipient countries is dictated by the aid relationship.

4

The concept of “translative adaptation” is based on Maegawa (1994).
6

Figure 3: Development Management and Aid
RecipientCountries
DonorsDevelopment vision

Identification of aid needs

Development strategy & plan

Formulation of aid strategy

Implementation(public investment & service delivery)
Aid money

Internal budget

Donor (Aid) Management
Development effectiveness & sustainability
Aid relationship as part of the entire
development process

Achievement of strategic goals

Development Management
Source: Adapted from I. Ohno and Niiya (2004)

Second, ownership should be based on the strong will and commitment of national leaders to build aself-reliant economy. Development plans and strategies should assume eventual “graduation” from aid
and be supported by a concrete vision and realistic measures for growth promotion and domestic
resource mobilization (an “exit plan”). Although most national development strategies embrace
equitable and sustainable growth as their stated objectives, this should not be simply a slogan.
Third, ownership should include the capacity to reinterpret relevant elements of exogenous model(s)of development strategy (“translative adaptation”) and adapt them to the prevailing conditions in aparticular developing country. However, it is often the reality that “some donors seem to believe thatownership exists when recipients do what we want them to do but they do so voluntarily” (Helleiner
2002:255)5. We believe that true ownership should mean the capacity of a developing country tochoose from alternative policy prescriptions—even if they are not granted by the international aid
community. When a country decides to rely on external advice or foreign models, policymakers andtechnocrats must conduct a thorough assessment of alternatives and carefully adapt the policy content
and sequencing to the country-specific context at both the design and implementation stages.

5

For example, drawing on the experience of heavily aid-dependent sub-Saharan Africa, the conventionalviews claim that it is more realistic and sufficient for recipient countries to take policy prescriptions “offthe shelf” from donor agencies (Morrissey 2001, Booth 2003, SIDA 2003).
7

3. Contexts for Development Management in Thailand, Malaysia, and the Philippines
3-1. Overall Development Performance and Shared Growth
Among the three East Asian countries examined in this study, Thailand and Malaysia have achieved
steady economic growth with poverty reduction over the past four decades. Although both countries
faced crises and shocks, they have managed to attain relatively uninterrupted rapid growth, except forseveral years of severe recession in the 1980s and financial crises in the late 1990s. Moreover, theaggregate growth has been accompanied by economic stability and poverty reduction (see Table 1 andFigure 4). Basic social indicators—in terms of life expectancy, infant mortality rate, literacy rate andhuman resource development—all show satisfactory trends. Especially, in Malaysia, equity was animportant consideration. Inequality in income distribution has been reduced particularly between
ethnic groups.

Table 1: Basic Socio-Economic Indicators for Selected East Asian Countries
GNP per capita(US$)

Country
Korea, Republic of
Malaysia
Philippines
Thailand

1990

670
860
410
380

5400
2320
730
1420

Life
expectancy
at birth 1990
(years)
71
70
64
66

Population below poverty line
Total (%)
Rural (%)
1980–89
1980–89
averageaverage
16
11
27
38
58
64
30
34

Data are compiled based on World Bank, World Development Report 1976, 1992, 1993 and UNDP, Human
Development Report 1992.

Figure 4: Structure of Production: Distribution of GDP (%)
100%
80%
60%
40%
20%

Sourth Korea
Agriculture

Malaysia
Other Industries

1990

1965

1990

1965

1990

1965

1990

0%
1965

Sources:

1976

Averageannual growthrate of GNP
per capita
1965–90 (%)
7.1
4.0
1.3
4.4

ThailandPhilippines

Manufacturing

Services

Sources: World Bank, World Development Report (1992, 1996) and World Development Indicators(2006)
Note:
Data for Malaysia in 1990 are based on figures in 1994.

8During the 1970s and 1980s, the economies of Thailand and Malaysia underwent major structuraltransformation. In Thailand, agriculture, which used to contribute 32 percent of GDP in 1965, declined
to 12 percent in 1990. Meanwhile, the share of manufacturing value added rose from 14 percent of
GDP in 1965 to 26 percent in 1990. By the 1990s, Thailand's largely agrarian economy of the 1960s
had been transformed into a newly industrializing economy. The Malaysian economy was also
diversified. Before independence (in 1957), the economy was dominated by rubber agriculture and tin
mining, and manufacturing was not very significant. During 1965–1994, the share of manufacturing
value added increased from 9 percent of GDP in 1965 to 32 percent.
The record in the Philippines has been mixed. In terms of per capita GNP, the Philippines scored thehighest among the three countries around 1950 and scored higher than Thailand until the mid-1970s.6
Nevertheless, its economy has had limited structural transformation. During the period of 1965–90, theshare of agriculture in the economy declined from 26 percent to 22 percent of GDP, and that ofmanufacturing value added increased from 20 percent to 25 percent.

3-2．Macroeconomic and Aid Management by Central Economic Agencies
Approaches to Macroeconomic Management
The period of the 1970s–80s was of special importance for all three of these countries. All three
governments faced challenges to meet the increasingly complex demand for development. In response,
these governments increased the levels of spending and borrowing in order to mobilize larger amountof resources to finance development, particularly from the latter half of the 1970s.
Careful analysis shows that the central economic agencies of the three East Asian countries tookdifferent approaches to macroeconomic management in light of the size of public expenditures and thelevel of debt financing. Appendix-Figure 1 shows key fiscal indicators of the three countries, including
the levels of total revenues, current expenditures and capital expenditures, and overall fiscal balance,
expressed in terms of percentage of GDP (left axis). The bar graphs show the ratio of outstanding debt
to GDP (right axis), covering both foreign and domestic debt.
A key feature of Thailand’s macroeconomic management is strong fiscal conservatism and prudent
debt management. The legal limits for fiscal deficits and external borrowing were strictly adhered to.
The central government expenditures accounted for around 20% (or less) of GDP. Nevertheless, thepublic expenditures grew in the mid-1970s and 1980s, and the government borrowing started to riseduring the first half of the 1980s, including external debt. However, the outstanding debt remained at amoderate level—well below 40 percent of GDP at the highest. This is much lower than that of theother two countries. Furthermore, thanks to the accelerated growth that started from the latter half ofthe 1980s, the Thai government was able to turn fiscal deficits into a surplus in 1988 and reduce theoutstanding debt.

6

At independence in 1946, development indicators for the Philippines matched those of South Korea andthe country was regarded as a showcase for the Asian adoption of Western market economics anddemocratic practices (Hayllar 2003).
9

In contrast, Malaysia is known for its fiscal activism. The size of Malaysia’s central government
expenditures and that of outstanding debt, as percentages of GDP, were the largest of the three
countries. The government’s adoption of the New Economic Policy (NEP) in 1971—which establishedthe overriding objective of promoting national unity through “poverty eradication” of all Malaysians
and “restructuring of society” to correct economic balances in order to address the main cause of theethnic riot of 1969—necessitated larger public expenditures than before. Especially, with rapidly
growing development expenditures, the Malaysian government incurred sizable fiscal deficits during
the late 1970s through the early 1980s. The government actively mobilized various resources,
including domestic and external borrowing throughout the 1980s7. Similar to Thailand, rapid growthenabled Malaysia to compress the outstanding debt, especially foreign debt. The fiscal balance turned
into a surplus in 1993.
In the Philippines, the level of public expenditures has been comparable to that of Thailand and has
been much lower than that of Malaysia. However, the country has problems in allocative efficiency
and productivity of public investment. During the 1980s, the government increased domestic andexternal borrowing to finance development programs, but is yet to be able to fully enjoy the potential
benefits of these programs. The Philippines continues to face a heavy debt burden, and the resultant
debt overhang limits the fiscal space.
Approaches to Aid Management
The three East Asian countries examined here also differed in the degree of aid dependency. Compared
to today’s Sub-Saharan Africa, Thailand and Malaysia were less dependent on aid. Even in the late1980s when these countries actively mobilized resources for financing development, aid (including theless concessional World Bank and ADB loans) accounted for about 10% of the total government
expenditures in Thailand and about 4% in Malaysia. Still, in Thailand, aid was an important source offinancing development expenditures. The Philippines had the highest level of aid dependency at about
18 percent in the late 1980s (see Table 2). This level is comparable to those of Vietnam and Kenya(about 20%) but is much lower than that of Tanzania (near 80%) today.

Table 2: Aid Dependency(Sum of ODA and development finance from the World Bank and the ADB)ODA+WB+ADB as a
ODA as a
ODA+WB+ADB
percentage of total central
ODA per
percentage ofamount received (US$)
government expenditure
capita
GNP
1988
1988
1975
1988
1975
1988
Malaysia$181 mil$391 mil
6.1%
3.8%
$6.1
0.3%
Philippines$314 mil$1403 mil
12.0%
17.7%
$14.3
2.2%
Thailand$177 mil$862 mil
8.0%
9.9%
$10.3
1.0%
Sources:Amount of aid (ODA+WB+ADB, gross) is calculated based on OECD/DAC, International Development
Statistics (IDS) online, http://www.oecd.org/dataoecd/50/17/5037721.htm.
Aid amount as a percentage of expenditures is calculated based on ADB, Key Indicators of Developing Asian andPacific Countries 1993.
Data for ODA per capita and ODA as a percentage of GNP/GDP are based on World Bank, World Development
Report 1990.

7

Petroleum revenues and the Employees’ Provident Fund (EPF) are other important sources of financing
growing public expenditures.
10

All three countries expanded their volume of aid mobilization during the 1970s and 1980s. This was
also the period when the composition of donors and the mix of grants and loans changed drastically.
Appendix-Figure 2 shows the trend of mobilization of official development finance, classified byfunding type, together with the information on the top five donors. The expansion of aid volume, shifts
in donor composition and funding type imply that the size and complexity of aid increased by the1970s–80s and that the central economic agencies of the three countries came to face greater
challenges of aid management than before—including the need for prudent external debt management
and careful analysis of cost-benefit and feasibility of prospective investment projects.
The three countries responded differently to cope with the increasing challenges of aid management(see Chapter 4 for details). Thailand actively used aid throughout the 1980s, but successfully avoided
heavy (protracted) dependency. Moreover, the Thai government was sensitive to the concessionality ofloans, as well as comparative advantages of respective donors. While some shifts of donor
composition were unintended and were influenced by the international environment, the others were
the result of the government’s conscious efforts to strategically and selectively utilize aid. For an
example of an unintended shift, until the mid-1970s, the United States was the largest bilateral donor
in Thailand, providing massive grant aid (including technical assistance). The US defeat in the
Vietnam War (in 1976) brought a major change in Thailand’s geopolitical role in US security concern
and resulted in a sharp decline in US aid. Then the World Bank, the ADB, and Japan became the threelargest donors, and accordingly loan aid increased. In contrast, the shift of donor composition during
the 1980s largely reflected the Thai government’s strategic decision. In this period, the Thaigovernment consistently increased the mobilization of ODA loans (mostly from Japan), reducing its
reliance on the less concessional loans (except for the years of 1997–98 when Thailand faced a severe
financial crisis and had to depend on the infusion of quick-disbursing loans from the World Bank and
the ADB).
Malaysia was less dependent on aid than were the other two countries. Nevertheless, in the 1970s,
Malaysia experienced shifts of donor composition and of grant-loan proportion. For about a decade
after independence, the United Kingdom was the largest donor in Malaysia and provided grant aid(including technical assistance). The UK’s position as the largest donor was followed by the US. By
the mid-1970s, the World Bank and Japan increased their loan aid and became the largest donors.
Similar to Thailand, Malaysia used aid selectively. Aid mobilization was largely limited to the areas
where the introduction of new knowledge and technology was desired, and the government tacitly
avoided donor intervention into the domestically sensitive policy areas.
The Philippines mobilized aid actively throughout the 1970s–80s and continues to do so. With therelatively high level of debt service payments, the government has limited fiscal space fordiscretionary funding, including capital expenditures. This raises questions regarding the Philippine
government’s consciousness of securing economic and social returns of aid-funded projects andutilizing aid for achieving development priorities.

4.

Synthesis and Main Findings of the Study (from Chapters 2–5)

4-1. Diversity in Institutional Design and Coordination Mechanisms of Central Economic
Agencies

11

The analysis in section 3 suggests that the central economic agencies of Thailand, Malaysia, and thePhilippines have different performance records and approaches to macroeconomic and aid
management. The subsequent analyses in the main report show that there exist variations in the type ofdevelopment management and the nature of ownership among the three countries. In our view, thecentral economic agencies of Thailand and Malaysia have built the capacities to act as strategic corecenters for development management and have contributed to establishing strong ownership(especially in the 1970s–80s), as illustrated in Figure 3 (in section 2-2). The Philippines is currently
making efforts to strengthen its strategic core functions, by institutionalizing intra-agency coordination
mechanisms and improving aid management.
Our study finds that each country has a different way of organizing development administration andthat there are diverse models of coordination. The countries’ institutional design and coordination
features vary significantly in terms of, for example, the existence of a super-ministry, their functional
division of labor, the relationship between top leadership and technocrats, and the relationship between
the Executive and Legislative branches. In this sense, it should be noted that even though Thailand andMalaysia have each built a core country system for development management, the institutional designof their development administration differs. Figure 5 and Table 3 show the major characteristics ofdevelopment administration in the three countries and the summary of various types of development
management and functional features of central economic agencies (CEAs).

Figure 5: Major Characteristics of Development Administration
Support to realize
leader’s vision

Delegate authority

Centralized
systemLeaderCentralized
systemLegislature

LeaderLeaderExecutive
branchIntervention
Technocrats(Central Economic
Agencies)

Technocrats(Central Economic
Agencies)

Technocrats(Central Economic
Agencies)

Ministries,
departments, otherstate organs andlocal governments

Ministries,
departments, otherstate organs andlocal governments

Ministries,
departments, otherstate organs andlocal governments<Thailand>“Bureaucratic polity”
Centralized system managed
by elite technocrats who weredelegatedauthorityfrompolitical leaders<Malaysia>“Top-down” development
administration
Centralized system led bypolitical leaders and supported
by elite technocrats to realize
leaders’ vision

Source: Author

12<The Philippines>
Especially after 1986
“Dual track” development
administration
Dual system administered byexecutive
branchbutchallengedbylegislativeintervention

In Thailand, a highly centralized system was created and administered by the economic technocrats,
who were granted by the top political leaders the authority to plan and administer policies (often called“bureaucratic polity”). Thus, until the late 1990s, the technocrats of central economic agencies
assumed a key role in formulating and implementing development policies. In terms of theconfiguration of central economic agencies, no single super-ministry exists, and the responsibilities for
economic policymaking have been shared among the four core agencies: the National Economic andSocial Development Board (NESDB), the Bureau of Budget (BOB), the Fiscal Policy Office (FPO) of
the Ministry of Finance (MOF), and the Bank of Thailand (BOT). Fiscal and monetary decisions havebeen left almost entirely to these four agencies (Christensen and Siamwala 1993). As a result, theeconomic technocrats have been insulated from political interventions and have been able to exercise
substantive power. This has enabled the government to maintain macroeconomic stability and coherent
economic policies, even when the political environment was volatile during the 1970s8. The stable andpredictable macroeconomic environment has contributed to promoting the activities of the private
sector.
In Malaysia, it is the top political leaders that have served as the driving force of development
management and institution building efforts (“top-down” development administration). Since
independence in 1957, the successive Prime Ministers have exercised strong leadership, and thetechnocrats of central economic agencies have served as the support arm to realize the visions
provided by the Prime Ministers. The bodies responsible for policymaking have been concentrated in
the Prime Minister’s Department—such as the Economic Planning Unit (EPU), the Implementation
Coordination Unit (ICU), and the Public Service Department (PSD)—as well as the Ministry of
Finance (MOF). Especially, the EPU functions as the super-ministry, taking a lead role in theformulation of long- and medium-term visions (including the level and allocation of development
budget) and collaborating with the MOF in the annual budget process. Malaysia has inherited suchstrong central control from the colonial administration.
The Philippines faces a more complex situation. Its decision-making structures are highly dualistic andfragmented among different government agencies and the legislature. The Congress has strong control
over the Executive branch, typically in the budget process, which leads to the marginalization of therole of economic technocrats. Also, as the ongoing reforms in financial management suggest, room
exists for ensuring policy coherence within the Executive branch. The basis for the current planningmachinery was established in 1987 as part of administrative reorganization in the post-Marcos era.
Four oversight agencies are responsible for economic policymaking: the National Economic
Development Agency (NEDA), the Department of Budget Management (DBM), the Department of
Finance (DOF), and the central bank. While they are the core members of Cabinet-level inter-agency
coordination committees, their actual coordination needs further strengthening.

8

Such technocrat-led economic management has changed under the Thaksin administration, which took
office in 2001 and introduced a top-down approach based on new public management. Following the
September 2006 military coup that ousted Prime Minister Thaksin, it is yet to be seen whether the
post-Thaksin administration will continue using the new top-down public management approach.
13

Table 3: Type of Development Management and Functional Features of Central Economic Agencies (CEAs)

Type ofdevelopment
management

Features ofdevelopment
administration

Functional
responsibilitiesof CEAs

Thailand (esp. 70s–80s)• Strong
ownershipinmanaging
development, including aid• Strong fiscal discipline, prudent debt
management• Active but selective use of aid; exit planfrom aid• Centralized
system,withstronginter-agency coordination and shared
responsibilities among four CEAs (seebelow *)• Empowerment of CEA technocrats from top
political leader

Prime Minister’s Office• NESDB*:
development
planning,
development budget, public investment
selection, aid• BOB*: budget• DTEC: technical cooperation
Ministry of Finance• FPO* + PDMO (1999– ): fiscal policy anddebt management, loan aid
Central Bank• BOT*: monetary policy

Malaysia (esp. 70s–80s)• Strong ownership in managing development,
including aid• Fiscal
activism;
overallbalanced
macroeconomic management• Selective use of aid; exit plan from aid

Philippines (late 80s–now)• Ownership?; ongoing effort to strengthen
aid and development management• Problems of allocative efficiency; heavy
debt burden• Selective use of aid?

• Centralized system, with rule-based operations
installed in the coordination machinery (EPU
as super-ministry)• Multi-layered
inter-agency
coordination
mechanisms for planning and implementation• “Top-down” development administration, with
CEAs serving as technical support arm torealize PM’s vision
Prime Minister's Dept.
• EPU: development planning, development
budget, public investment selection, aid• ICU: public investment monitoring• PSD: personnel management
Ministry of Finance• MOF: budget, fiscal policy and debt
management
Central Bank
• BNM: monetary policy• “Dual track” system, with executive
branch challenged by congressional
intervention• President-led, NEDA Board andcabinet-level inter-agency coordination
bodies; ongoing effort to strengthen CEA
coordination
Executive Branch• NEDA:development
planning,
development budget, public investment
selection, aid• DBM: budget• DOF: fiscal policy and debt management• Central Bank: monetary policy
Legislative Branch
LEDAC:
Legislative
Executive
Development Advisory Council

Source: Author
Notes:• Thailand: NESDB (National Economic and Social Development Board); BOB (Bureau of the Budget); DTEC (Department of Technical and Economic Cooperation); FPO (Fiscal Policy
Office); PDMO (Public Debt Management Office); BOT (Bank of Thailand)• Malaysia: EPU (Economic Planning Unit); ICU (Implementation Coordination Unit); PSD (Public Service Dept.); MOF (Ministry of Finance); BNM (Bank Negara Malaysia)• Philippines: NEDA (National Economic and Development Authority); DBM (Dept. of Budget Management); DOF (Dept. of Finance); BSP (Bangko Sentral ng Pilipinas)144-2. Policy and Resource Alignment with Development Priorities—Coherence among
Development Planning, Macroeconomic Management, and Public Investment Programming
Despite the diversity in institutional design and coordination features, there are commonalities thathave enabled the central economic agencies of Thailand and Malaysia to function as the strategic corecenters of development management. There are variations in specific aspects of coordination
mechanisms, such as the degree of development plans binding medium-term resource allocation andproject selection. Overall, however, these central economic agencies function as the agents to plan,
coordinate, monitor, and ensure that projects that are being implemented are in the national
development plan and have been budgeted for.
More specifically, our study finds that the following features (or “functional” principles) have greatly
contributed to the effective operations of their central economic agencies.
• The content of development plans is strategic enough to serve as the core document for policyalignment.
• Coordination mechanisms exist among central economic agencies to align budget, public
investment programming (or public investment selection), and aid mobilization with national
development priorities. Such mechanisms are accompanied by the institutionalized hard-budget
constraints, as witnessed by the comprehensive enforcement of macroeconomic guidelines.
• Vertical (and to certain degree, horizontal) links exist between central economic agencies andline ministries/agencies to ensure the above alignment with national development priorities.
• In this process, aid-funded projects are integrated into the national development planning, budget
process, and investment programming. In principle, the same procedures and criteria are appliedin designing and implementing both nationally-funded and aid-funded projects.
Figure 6 and Table 4 compare the coordination features of Thailand, Malaysia, and the Philippines inlight of the coherence among development planning, budget and debt management, and public
investment programming.
In Thailand, five-year development plans are indicative. They specify development priorities, but do
not bind budget allocation. Public investment has been scrutinized and selected in the annual budget
formulation process, not in the development planning process (except for the period of 1972–81 when
the third and fourth development plans contained the public investment plans). This system allows forflexibility in the medium-term planning, while enabling the technocrats to conduct vigorous scrutiny
in the annual budget process. The BOB serves as a vertical link between the four core agencies and thespending agencies, enforcing hard-budget constraints. Notably, the BOB dispatches “Mobile Units” (ateam of budget analysts) to each department for detailed reviews of the planned and ongoing projects
and programs. Legal limits for fiscal deficits and external borrowing have been strictly enforced
through the coordination among the four central economic agencies.
In Malaysia, five-year development plans are directive, with budget implications. They contain public
investment plans, and investment selection has taken place as part of the development planning
process. The Malaysian system ensures linkages between development plans and public investment
plans. It also enforces the budget and sector ceilings during the plan period, although there is room formaking adjustments at mid-term reviews. A cadre of elite technocrats, assigned to the central
economic agencies as well as the planning divisions of various ministries and agencies (called the“planning cells”) assume critical functions, providing vertical and horizontal links during the15

development and investment planning, budget formulation and execution, and implementation
monitoring.9 The annual budget process is consultative, and the MOF organizes budget dialogues withthe concerned agencies, including the business sector.
In the Philippines, overall, six-year development plans and medium-term public investment plans have
limited roles in the alignment of policy and resources with development priorities. The linkages
between the two plans remain weak, and there exist no budget ceilings for development plans andpublic investment plans. Therefore, the public investment plan tends to be viewed as a “wish list” ofprojects. Since the late 1980s, the Philippines government has been making strenuous efforts to bettersynchronize the development planning, public investment planning, and budget formulation, forexample, by introducing the Medium-Term Expenditure Framework (MTEF) and other new
instruments. Nevertheless, such efforts are often challenged by congressional interventions in theannual budget process (typically, by the use of “pork barrel” funds). Such congressional interventions
undermine the credibility of the development plans and public investment plans.
When Thailand and Malaysia each established a basis for development administration, they alsoendeavored to ensure that aid be integrated into the existing system. For example, Thailand andMalaysia have applied the same procedures and criteria for locally-funded and ODA projects
throughout the investment planning and monitoring processes, except under special circumstances (forexample, where donors require the application of more rigorous environmental and social safeguards).
They also had a mechanism to ensure the allocation of local counterpart funds for ODA projects. In thePhilippines, throughout the project selection and monitoring processes, the procedures and criteria
applied for locally-funded projects are less rigorous than those applied for ODA and BOT projects.
In Thailand and Malaysia, their development plans (throughout the 1970s and 1980s) contain detailed
discussions on the policies of aid utilization, such as the proportion of aid in overall resource
mobilization, the priority areas of requesting donor assistance, the expected role of major donors, thestatus of project implementation, and the measures to be taken to improve aid-absorption capacity.
These issues are less clearly articulated in the past development plans of the Philippines—at least until
the current plan covering the period of 2004–201010. Furthermore, particularly since the 1990s, theMalaysian government has strengthened the articulation of its international cooperation policy. The
recent development plans extensively discuss various channels of cooperation—bilateral, regional, andmultilateral cooperation, as well as the Malaysian Technical Cooperation Program (MTCP)—andprovide the perspectives of an emerging donor and a responsible member of the global community.11

9Here, the modus operandi of the Thai agencies is shared responsibilities based on subtle check-andbalance, while that of Malaysia is (at least in intention) systemic application of rules with centralized power
given to the Prime Minister’s Department. Such differences may come from historical factors. The
institutions and decision-making processes of Thailand are the “product of particular historical experiences
and a unique cultural context” (Brewer 2003: 189); on the other hand, Malaysia’s public administration
today owes much to the inheritance from the colonial legacy.
10
In this sense, the latest Medium-Term Philippines Development Plan is notable because it discusses
selectivity of ODA. ODA is regarded as the preferred source for financing large infrastructure projects that
require huge funds, as it is relatively soft with its lower interest rates and longer maturity period(Government of Philippines 2004, Medium Term Philippines Development Plan).
11
Since the Seventh Malaysian Plan (1996-2000), one chapter has been added, which discusses Malaysia’sinternational cooperation policy. Previously, this topic was included in the chapter of public sector programand its financing.
16

Figure 6: Coherence among Development Plans, Macroeconomic Management, andPublic Investment Programming<Thailand>
National Economic and Social
Development Plan (NESDP) Î
5-year plan*

Annual budget and debt approvalProject approvalDevelopment Plan

(as part of annual budget/debt
approval process)* 1st NESDP was the only 6-year plan

<Malaysia>
Malaysia Plan Î 5-year planDevelopment PlanAnnual budget and debt approval- Public Investment Plan
- Project Approval<Philippines>
Medium-Term Philippine Development
Plan (MTPDP) Î 6-year plan*Development Plan
* coincides with the presidential termProjectMedium-Term Public Investment
Program (MTPIP) Î companion
document of the MTPDP

approvalPublic Investment Plan

Source: Author

17

Annual budget
and debt approvalTable 4: Coherence among Development Plans, Macroeconomic Management, and Public Investment Programming

Degreeofcoherence incoordination
mechanism

Development Plans (DP)

Budgetformulation

Thailand• Coherence;
policyalignmentwithdevelopment priorities, with fiscal discipline(but less macro-sector link)• Effective Prime Minister-led, national
committees created to address priority
agenda (esp. the 80s)
• Indicative plan, utilized as strategic core
documents• Development priorities clearly indicated• Budget allocation not specified (securing
room for flexibility)• Rigorous scrutiny of all projects in annual
budget process by BOB• PPBS introduced in 1982; MTEF introduced
after 2003

Malaysia• Strong coherence; policy and resourcealignment with development priorities(macro-sector link)

Philippines• Coherence?; limited policy and resourcealignment;
weakinter-agency
coordination• Directive plan, utilized as strategic core
documents• Development priorities and resource
allocation clearly indicated• Budget allocation specified during plan
period (but adjusted at mid-term review)• Annual budget formulated as a rolling plan
to implement DP• PPBS introduced in 1969; MBS introduced
in 1990• Still insufficient as strategic core
documents (ongoing effort to alignPresident’s 10-point agenda)• Budget allocation not specified• Ongoing effort to synchronize DP, PIP,
and annual budget from 2000 (incl. MTEF
introduction)• Congressional intervention into budget
process• PIP prepared in parallel with development
plans, but their linkages remain weak

• Public investment selected in the subsequent • Public investment selected as part of
Publicdevelopment planning processbudget and debt approval process (except for
Investment
the 70s—3rd and 4th DPs)
Plans (PIP)• Project approval integrated into budget/debt • Project approval conducted as part of • Project approval conducted after PIP
Project
process and before budget processdevelopment planning process
approval process
approval(lacking rigorous scrutiny)• Application of same procedures for ODA • Application of same procedures for ODA
and• Dual approval process for ODA andand locally-funded projects
and locally-funded projects
monitoring
locally-funded projects (incl. “pork barrel”(incl. ODA
funds)
projects)
Source: Author18

4-3. Strategic Use of Aid toward “Graduation” and Dynamic Evolution of Development
Administration
As stressed in section 2-2, an essential element of country ownership, from East Asian perspectives, isthe commitment and capacity to manage the entire development process and use aid as its integral part.
In this sense, both Thailand and Malaysia have used aid strategically to build and enhancedevelopment administration so that the governments could better realize policy and resource alignment
with development priorities. Their experiences show the process of dynamic evolution of institutional
development. The following three ways in which Thailand and Malaysia have done well are worth
mentioning.
First, the two governments recognized the importance of having an “exit plan” and treated aid as atemporary, supplementary resource (and efficiency-enhancing measure) to fill domestic financial andcapacity gaps. At the formative stages of development administration, the leaders and technocrats
established strong alliances and managed the process of absorbing, internalizing and institutionalizing
foreign expertise into the local contexts. Throughout this process, they treated aid as an integral part ofdevelopment management and successfully combined it with home-grown systems and knowledge.
Like many of today’s developing countries, Thailand and Malaysia did not have strong institutionalbases at the initial stage of development. During the 1950s–60s the economic technocrats in Thailand
and Malaysia actively sought advice from foreign experts (from sources such as the United States andthe United Kingdom) and international organizations (such as the World Bank) on such topics as thegeneral direction of development policies, the drafting of national development plans, and theorganizational structure of their development administration12. A notable point is the existence ofstrong political and technocratic commitment and the alliance of these actors toward building afunctioning development administration. The political leaders initiated this process and assigned
motivated technocrats to undertake such endeavors. The first generation of elite technocrats played acritical role. The elite technocrats not only acquired foreign knowledge, but also took measures tobuild core functions of the country system and instituted programs for human resources developmentfrom a long-term perspective. See Chapter 3 for the role of Dr. Puey Ungphakoren, former Governorof the BOT, in institutionalizing the disciplinary functions across the four core agencies and the role of
Tan Sri Thong Yaw Hong, who became the first Malaysian head of EPU, replacing the post occupied
by foreign experts.
Second, these governments mobilized aid and skillfully managed donors to realize a balanced aid
relationship. The governments were mindful of which sectors or activities were more appropriate toreceive donor assistance13. They also had good understanding of comparative advantages of respective
donors (in light of technical expertise and financial conditions) and made full use of them in aid
mobilization. In the case of Thailand, the government strived to retain bargaining power against
12

For example, the World Bank mission, which advised a development program for Thailand in the late
1950s, stated that “it will be most difficult, if not impossible, to find suitably trained and sufficiently
experienced Thai personnel who can be spared from present assignments to fill all these important senior
positions” (World Bank 1959: 217–218).
13
The Thai government also actively utilized aid for large-scale infrastructure projects—not only to fill
financial gaps, but also to take advantage of donor presence (as the third party) and their technicalguidelines to ensure project implementation would be transparent.
19

donors through various ways. These ways include: (i) deliberately seeking a variety of donor advice togather different perspectives and (ii) instituting an agency specializing in administering technicalcooperation (DTEC) so that the government could have a holistic picture, match country needs withdonor expertise, and apply uniform procedures for technical cooperation including the assumption ofcounterpart funds. The Malaysian government was cautious about donor interventions into domestic
policies, especially those related to the basic direction of the NEP. Thus, the government, through theExternal Assistance Section of the EPU, took the initiative in deciding the sectors or activities where
aid—against domestic resources—could be more properly and effectively utilized. In principle, aid
mobilization was limited to the sectors and programs where the government wished to acquire newtechnology and large financial resources.
Third, as new donors, Thailand and Malaysia now utilize the experiences and institutional mechanismsthat were built at the time when they were aid recipients. In 2005, DTEC was formally transformed
into the Thailand International Cooperation Agency (TICA) as an agency responsible for providing
technical cooperation 14 . In the same year, the Neighboring Countries Economic Development
Cooperation Agency was also established to provide financial assistance in the Greater Mekong
Sub-region, with the participation of professionals experienced with debt management at PDMO/FPO.
In the case of Malaysia, the External Assistance Section of EPU started the MTCP in 1981, extending
technical cooperation (mainly in the form of training and dispatching experts) to Asian,Middle-Eastern, and African countries.
The Philippines has had mixed experiences of aid management throughout the 1970s–80s.
Nevertheless, the ongoing efforts under the post-Marcos governments to strengthen the NEDA
functions of public investment appraisal (by reinvigorating the Investment Coordination Committee)
and post-evaluation—primarily for large-scale projects financed by ODA and BOT—suggest
possibilities that aid can provide an opportunity to introduce the more rigorous, transparent, andtechnically sound criteria and may serve as an entry point to bring broader institutional reforms. At thesame time, setting up a dual and exceptional system for ODA projects might lead to inefficiency andcause the government an additional administrative burden. Thus, it is important that the achievements
made in reforming ODA management be integrated into the ongoing efforts to building a functioning
country system.
The above aspects show that institution building is a dynamic process and that if properly mobilized
and utilized, aid can serve as a good stimulus for institutional changes. By the time the two countries
encountered the challenges of further enhancing their development administration to overcome shocks
and crises and to manage their structural transformation (for example, in the 80s for Thailand and in
the 70s–80s for Malaysia), the basic foundations for development administration had been already put
in place. It was the political leaders and their allied technocrats that pushed forward the upgrading ofdevelopment administration by selectively utilizing foreign expertise. Table 6 summarizes the dynamic
evolution of development administration.

14

DTEC had started to provide technical cooperation to the neighboring countries even before the TICA
was established.
20

Table 5: Dynamisms of Development Administration including the Use of Aid

Formation of development
administration

Enhancementofdevelopment administration

Thailand• Late 50s–early 60s: with donor advice(WB, US, etc.), basic foundations forfour-agency coordination mechanisms
established; disciplinary functions
institutionalized• 80s: national-level committees andsub-committees established tofacilitate coordination of priority
policy agenda• Public-private coordination systemstrengthened

Malaysia• Late 50s–early 60s: with donor advice(WB, US, UK, etc), basic foundations
for planning and coordination
mechanisms established, with strongrole of Prime Minister’s Dept.
• 70s: new functions (esp. ICU) added
to existing administrative machinery
to implement NEP• 80s: greater efficiency of public
administration pursued, andpublic-private coordination systemstrengthened

Source: Author

21

Philippines• 70s: centralized development
administrative body (NEDA) created• After 86: NEDA reorganized, andinter-agency committees began tofacilitate coordination• 90s: inter-agency committee functions
institutionalized, and ODA
management strengthened• Congressional intervention
undermined above efforts by executive
branch4-4. A Case Study of Thailand’s Eastern Seaboard Development
Thailand’s Eastern Seaboard Development Plan is an example of country-led development and aid
management in the 1980s (see Chapter 5 for details). It was a flagship regional development plan
aimed at export-oriented industrialization, receiving a high priority in the Fifth (1982–86) and the
Sixth (1987–91) development plans. The Plan had unprecedented scale and was composed of amultitude of projects in infrastructure development, industrial estates, urban development, water
resources, and environmental management.
With a strong commitment to realize this Plan, Prime Minister Prem Tinsulanonda established special
coordination and decision making mechanisms exclusively for the Plan. These include (i) acabinet-level national committee, chaired by the Prime Minister (Eastern Seaboard Development
Committee); (ii) sub-committees, chaired by the ministers of government agencies in charge; and (iii)a secretariat, or the Office of the Eastern Seaboard Development Committee within the NESDB. The
mechanisms combined top-down (policy issues) and bottom-up (technical issues) approaches andfacilitated both vertical and horizontal coordination. The presence of a cabinet-level committee
enabled quick decision making on priority policy issues (de facto “fast track” process) and strategic
use of donor assistance. The mechanisms also incorporated multi-layered check and balance functions.
The NESDB secretariat office acted as an influential liaison to plan and implement, and highly
motivated, competent technocrats were recruited (seconded from ministries and agencies) for this task.
Nevertheless, the Plan provoked a lot of controversies at its early phase of implementation. The Thai
economy at the time suffered from macroeconomic imbalances caused by oil shocks, global stagflation,
and a slump in primary commodity prices. The Thai leaders were faced with a dilemma. Whilebuilding modern infrastructure was urgently necessary to strengthen export capacity, the government
also needed to adopt stringent measures to cope with macroeconomic crises. The opinions of the two
major donors were also divided, with Japan arguing for the timely execution of the Plan and the WorldBank arguing against it. The Thai government assumed full responsibility for steering this process byconducting its own analysis and revising the Eastern Seaboard Development Plan. The Thai leadershipreached a set of workable solutions and successfully negotiated with the two dominant donors. The
fact that Thailand pursued its own way in spite of uneasy relations with the major donors deserves
special attention.

4-5. Key Factors Affecting the Effective Functions of Central Economic Agencies
It should be noted that the “functional” principles mentioned in sections 4-2 and 4-3 are necessary but
not sufficient conditions for ensuring the effective operations of central economic agencies. The
experiences of the three East Asian countries suggest that the political environment also matters. Eachcountry encountered shocks and crises in the course of development. The political environment greatly
affected the ability of their central economic agencies to respond to the urgency and even turn theshocks and crises into opportunities for reforms and the broader institutional changes. In particular, thefollowing factors are important:• Quality of leadership• Alliance between leadership and competent technocrats around common development visions(especially shared growth)• Technocratic insulation from political interventions
22

First, the quality of leadership matters. The experiences of Thailand and Malaysia confirm thatpolitical leaders had a vital role in providing development visions and setting the direction for changes
when necessary. The leadership mattered, especially at the times of crises and turning points ofdevelopment stages. Furthermore, the style of leadership affected the working modality of thecountries’ central economic agencies, as well as the decisions on forming and enhancing development
administration (as explained in section 4-3). As the Philippines’ experiences during the Marcos era
suggest, building a centralized administrative framework itself is not enough to make the central
economic agencies work. Thus, there is a need to look into the interplay between the politicalleadership, technocrats, and the functions of these agencies.
In this sense, Thailand was blessed with well-balanced, visionary, and committed leaders at criticalstages (such as Prime Ministers Sarit (1959–63) and Prem (1980–88)). In the late 1950s through theearly 1960s, Prime Minister Sarit was instrumental in establishing the basic foundations for
coordination mechanisms led by the four economic agencies. Sarit also defined the modality ofleadership-technocrat alliance in the subsequent administrations—i.e., a principle of delegation of theauthority to plan and administer economic policies. Based on this principle, the economic technocrats
were empowered to discharge strategic core functions, including in the volatile 1970s, and minimized
political interferences into the policymaking process. The 1980s was the era when Prime Minister
Prem demonstrated strong and balanced leadership in guiding the country. In the early 80s, Thailand
was going through a macroeconomic crisis and structural transformation. Prem took the initiative tocreate national-level committees to facilitate the planning and implementation coordination of priority
agenda (e.g., macroeconomic policy, Eastern Seaboard Development, rural development, private
sector participation) and entrusted NESDB to act as a focal point for this task.
Overall Malaysia was blessed with political leaders with a strong sense of commitment and dedication
to national development (the era of Prime Ministers Razak (1970s) and Mahathir (1981–2001)), andenjoyed political stability throughout the past decades. Furthermore, its political leaders played a vitalrole in managing crises. The 1969 ethnic riot in Malaysia clearly illustrates how the leadership wasable to turn crises into opportunities. Prime Minister Razak took a decisive action to cope with theethnic riot, reunited the country by embracing a national vision based on the NEP, and reformed theexisting development administration to facilitate its implementation. Later in the 1980s, Prime
Minister Mahathir provided Malaysia’s new development visions for the next stage of development.
He also initiated a number of administrative reforms to enhance efficiency and public-private
coordination.
Second, in addition to the importance of leadership, it is important strong alliances exist between
leadership and competent technocrats toward realizing common visions. While the leadership stylevaries, the economic technocrats of Thailand and Malaysia fully assumed the responsibility forrealizing the national development visions shared with political leadership. In this regard, development
plans served as core strategic documents and a basis for policy and resource alignment. Aid has also
been aligned with development priorities and utilized as an integral part of development management.
Related to technocratic competency, in all of the three East Asian countries, public sector base salaries
were systematically lower than their private sector counterparts (see Appendix-Table 1). Still, theincentive structure for the economic technocrats in Thailand and Malaysia appeared to be morefavorable than that of the Philippines. As of 1992, the relative pay in Malaysia and Thailand was about
the same as the average for other low- and middle-income countries, but was still higher than in the23

Philippines15. Thailand and Malaysia have competitive, merit-based recruitment to a bureaucracy,
which has attracted competent, motivated individuals from highly selective universities. Moreover, inThailand finance-related agencies have their own personnel and recruitment programs, and the salaries
provided by these agencies were said to be about 30 percent higher across the board than in the rest of
the public sector (Campos and Root 1996). In Malaysia, the officials who belong to “planning cells”
are not affiliated with a specific ministry or agency. They jointly receive the training of managerial
skills and ethics and rotate among the planning cell positions in order to play a central role in thepolicy process. Such systems have created an esprit de corps based on professionalism and havestrengthened the bureaucracy, facilitating technocratic insulation from political pressures. Thissituation continued at least until early 1990s in the two countries, when the private sector became amore attractive place for employment than the public sector.
The third point is closely related to the above two factors. The degree of political insulation affects theability of economic technocrats to formulate and implement policies in keeping with national goals
with “a minimum of lobbying for special favors from politicians and interest groups” (World Bank
1993: 167). The Philippines is a typical example, where the administrative reforms initiated by the
Executive branch have been frustrated by Congressional interventions. By comparison, the economic
technocrats of Thailand and Malaysia are politically insulated to a greater degree. Their policymaking
process has been largely led by the Executive branch, with the Parliament playing a passive role in thebudget process. In these countries, central economic agencies assumed full responsibility for
macroeconomic management, as well as development and investment planning.

5. Implications for Today’s Developing Countries and Donors
Our findings confirm the vital importance of strengthening the central economic agencies, which
direct, plan and coordinate economic policymaking as strategic core centers of development
management. The findings also show that the quality of leadership and technocrats was the key driverof making the governments work for development (especially in Thailand and Malaysia). The realexperiences of the three East Asian countries examined here suggest that:• Diverse models exist of coordination in central development administration;• Certain “functional” principles are essential to the operations of central economic agencies,
especially in order to ensure policy and resource alignment with development priorities;• The political environment greatly influences the abilities of key actors, such as political leadersand economic technocrats, to discharge the above functional principles; and• Especially, the presence of visionary and committed leadership at the turning points is vital.
When guided by quality leadership, it is possible to turn shocks and crises into opportunities forreforms and institutional changes.
Key messages emerging from our study are the following. The former three are directed to today’s
developing countries, and the latter are mainly for donors.
• The commitment to development by both political leaders and economic technocrats is essential.
Equally, it is essential to translate such commitment into practical actions through the alliance of
15

Singapore is a remarkable exception, with public sector salaries that are higher on average than private
sector salaries. South Korea and Taiwan also had lesser degrees of differentials compared to those ofThailand, Malaysia, and the Philippines. By contrast, the ratio of public to private sector salaries was 30–40
percent for both Thailand and Malaysia, and only 20–30 percent in the case of the Philippines.
24

leaders and technocrats, using concrete development strategies and institutional arrangements torealize shared growth.
• To this end, it is important that the governments of developing countries identify the mostsuitable coordination arrangements for the operations of central economic agencies, while giving
due attention to certain “functional” principles. It is useful to learn different models and decide
which elements can be adopted, or adjusted to better fit to their local contexts.
• Governments should be mindful of utilizing aid for “graduation.” It is important to have an “exitplan” at the beginning of their aid receipt, find a good match between exogenous models and theexisting systems, and use aid as part of their coherent development efforts. We believe that theseare essential elements of the ownership concept, building on East Asian experiences.
• Donors should recognize institutional variations that exist in respective developing countries andtailor their assistance to the country-specific circumstances. They should also understand thatdeveloping countries often have superior knowledge of their respective social realities. It is
important to listen more to the voices of developing countries and learn carefully from their
wisdom. Moreover, in the countries with weak strategic core functions, donors should be
especially mindful of promoting policy and resource alignment of their assistance withrecipients’ development priorities.
• Donors should pay greater attention to the political environment and how it interacts withleadership, technocrats and the functions of central economic agencies, when providing aid andtaking measures to improve aid effectiveness.
This study is a modest attempt to learn from the East Asian experiences in building central economic
agencies and managing the development process and aid. The vital importance of the political andtechnocratic commitment to development suggests that we need deeper understanding of the dynamics
of institutional changes. In particular, it is necessary to examine fundamental questions such as: (i)how and under which circumstances visionary and committed leaders emerge; (ii) how and when acadre of motivated and competent professionals can be attracted for national development; and (iii)
how and under which circumstances aid can play a catalytic role in inducing institutional changes,
without jeopardizing country ownership. Also, there is a need to examine the implications ofaccelerating decentralization and globalization for the institution building effort by today’s developing
countries, including that of strengthening central economic agencies.
[END]

25

Appendices・ Figure 1・ Figure 2
・ Table 1

Selected Fiscal Indicators (Percentage of GDP)
Mobilization of Official Development Finance
Estimates of per Capita GDP and Ratios of Public to Private
Sector Salaries in Selected Developing Countries

26

A-Figure 1: Selected Fiscal Indicators (Percentage of GDP)
40.0%

120.0%

Thailand (consolidated central government)

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

0.0%
1982

-20.0%
1981

20.0%

1980

-10.0%

1979

40.0%

1978

0.0%

1977

60.0%

1976

10.0%

1975

80.0%

1974

20.0%

1973

100.0%

1972

30.0%

Domestic Debt (right axis)

Foreign Debt (right axis)

Total Revenue and Grants

Current Expenditure

Capital ExpenditureOver-all Deficit/Surplus

40.0%

120.0%

Malaysia (consolidated central government)

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

0.0%
1982

-20.0%
1981

20.0%

1980

-10.0%

1979

40.0%

1978

0.0%

1977

60.0%

1976

10.0%

1975

80.0%

1974

20.0%

1973

100.0%

1972

30.0%

Dom estic Debt (right axis )Foreign Debt (right axis)

Total Revenue and Grants

Current Expenditure

Capital ExpenditureOver-all Deficit/Surplus

40.0%

120.0%

Philippines (consolidated central government)

Source:Dom es tic Debt (right axis )Foreign Debt (right axis )Total Revenue and Grants

Current Expenditure

Capital ExpenditureOver-all Deficit/Surplus

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

1986

1985

1984

1983

0.0%
1982

-20.0%
1981

20.0%

1980

-10.0%

1979

40.0%

1978

0.0%

1977

60.0%

1976

10.0%

1975

80.0%

1974

20.0%

1973

100.0%

1972

30.0%

IMF, Government Finance Statistics Yearbook (various years), International Financial Statistics (various years)
and ADB, Key Indicators of Developing Asian and Pacific Countries (various years).

27

A-Figure 2: Mobilization of Official Development Finance$ million

Thailand

3,500.00
WB & ADB

3,000.00

ODA Loans

2,500.00

ODA Grants

2,000.00
1,500.00
1,000.00

Loans

500.00Grants
2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

1962

1960

0.00

Year

WB & ADB

ThailandODA Loans100%

ODA Grants

80%

60%

Loans

40%

20%
Grants

1 US
2 WB
3 Germany
4 Japan
5 Austria

Note:
Source:

1 US
2 WB
3 Japan
4 Germany
5 Australia

1 WB
2 US
3 Japan
4 ADB
5 Germany

1 Japan
2 WB
3 ADB
4 IMF
5 Germany

1 WB
2 Japan
3 ADB
4 Germany
5 UNHCR

1 Japan
1 Japan
2 WB
2 WB
3 ADB
3 ADB
4 Germany 4 Germany
5 France 5 France

1 Japan
2 WB
3 ADB
4 Germany
5 DenmarkThe amount of aid (including WB and ADB) is calculated on a gross disbursement base.
OECD/DAC, Geographical Distribution of Financial Flows to Aid Recipients 2000/2004.

28

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

1962

1960

0%
Year

Top 5
donorsMalaysia$ million
3,500.00
WB & ADB

3,000.00

ODA Loans

2,500.00

ODA Grants
2,000.00
1,500.00
1,000.00
500.00Loans
Grants
2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

1962

1960

0.00

Year

Malaysia
WB & ADBODA Loans100%

ODA Grants
80%
Loans

60%
40%
20%

Grants

1 UK
2 US
3 WB
4 Canada
5 Australia

Note:
Source:

1 WB
2 UK
3 US
4 Japan
5 Australia

1 WB
2 Japan
3 UK
4 ADB
5 Australia

1 WB
2 Japan
3 ADB
4 UK
5 UNHCR

1 Japan
2 WB
3 ADB
4 Australia
5 ArabCountries

1 Japan
1 Japan
2 WB
2 WB
3 ADB
3 ADB
4 Australia 4 Australia
5 UK
5 UK

The amount of aid (including WB and ADB) is calculated on a gross disbursement base.
OECD/DAC, Geographical Distribution of Financial Flows to Aid Recipients 2000/2004.

29

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

1962

1960

0%

1 Japan
2 WB
3 ADB
4 Denmark5 Germany

Year

Top 5
donors$ million

Philippines

3,500.00
WB & ADB

3,000.00

ODA Loans

2,500.00

ODA Grants

2,000.00
1,500.00
1,000.00

Loans

500.00Grants$ million

Philippines

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

1962

1960

0.00

Year

WB & ADBODA Loans100%

ODA Grants
80%
Loans

60%

40%

20%
Grants

1 US
2 Japan
3 WB
4 Canada
5 Germany

Note:
Source:1 Japan
2 US
3 WB
4 Germany
5 UNDP

1 Japan
2 US
3 WB
4 ADB
5 UNDP

1 WB
2 Japan
3 US
4 ADB
5 IMF

1 WB
2 Japan
3 ADB
4 US
5 Germany

1 Japan
2 WB
3 US
4 ADB
5 Germany

1 Japan
2 WB
3 US
4 ADB
5 AsDF

1 Japan
2 WB
3 ADB
4 US
5 Germany

The amount of aid (including WB and ADB) is calculated on a gross disbursement base.
OECD/DAC, Geographical Distribution of Financial Flows to Aid Recipients 2000/2004.

30

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

1962

1960

0%
Year

Top 5
donorsA-Table 1: Estimates of per Capita GDP and Ratios of Public to Private Sector Salaries
in Selected Developing Countries
Senior level (%)

Mid-levelb(%)

Per capita GDPa

A

B

A

B

Entry-level (%)

High-performing Asian economices (HPAEs)
Singapore
14,929cSouth Korea
7,190
Taiwan, China
7,954
Malaysia
5,900
Thailand
4,610

114b
69.3
65.2
40
47.1

114
69.3
60.3
33.3
46

115[3]
57.1
63.5
34.3
37.2

115
57.7
65.8
50
34.9

107
58.7
60
n.a.
78.9

Other Asia
Philippines

2,320

27.7

24.3

25

32.5

62.5

Latin America
Chile
Trinidad and Tobago
Venezuela
UruguayArgentina

6,190
8,510
6,740
6,000
4,680

70.36
63.53b
29.54
n.a.
24.11b

63.2
63.53
42.38
n.a.
24.11

n.a.
76.88
53.4b
37.1b
28.57b

n.a.
77.92
53.4
37.1
28.57

n.a.
n.a.
n.a.
n.a.
n.a.

Country

Note:
Sources:

n.a.
a.
b.
c.

This table is from The Key to the Asian Miracle: Making Shared Growth Credible, by Jose Edgardo Campos and
Hilton L. Root, 1996, p. 144 (Table 6-1).
World Bank, World Development Report (Washington, 1992); Taiwan, Statistical Yearbook (1992)
Salaries for the HPAEs and the Philippines were provided by local consultants and are based on latest available
information. Salary data on Latin American countries were extracted from Reid (1992).
Not available.
In 1992 international dollars, according to United Nations International Program.
Average is used for both sublevels A and B.
Estimates of private sector salaries include allowances and bonuses so that the ratios are actually higher. Data arefrom a survey of companies with 500 or more employees.

31

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34