GRIPS Development Forum

Managing
naging the Developm
Development
Process and Aid─ East Asian experiences in building
central economic agencies ─

March 2007

© GRIPS Development Forum
Cover photo © Debbie Warrener and Kenichi Ohno
Contact:
GRIPS Development Forum
National Graduate Institute for Policy Studies
7-22-1 Roppongi, Minato-ku, Tokyo, Japan 106-8677
Phone: +81-3-6439-6337
Fax: +81-3-6439-6010
URL: http://www.grips.ac.jp/forum/ (Japanese)
http://www.grips.ac.jp/fourm-e/ (English)

Managing the Development Process and Aid—East Asian experience in building central economic agencies—

March 2007

Izumi Ohno and Masumi Shimamura
GRIPS Development Forumi-ohno@grips.ac.jp
m-shimamura@grips.ac.jp

Acronyms and Abbreviations
ACO
ADB
BAAC
BESF
BNM
BOB
BOT
BOT
BSP
CEA
CGD
CIPO
DAC
DBCC
DBM
DOF
DP
DPEC
DPWH
DSR
DTEC
EO
EPF
EPU
ESDC
ESDP
FAP
FELDA
FPO
GDP
GNP
GOCC
IAPG
ICC
ICT
ICU
IMF
InfraCom
INTAN
JBIC
JPPCC
LDP
LEDAC
LGC
LGU
MBS
MIDA
MOF
MTCP
MTEF
MTPDP
MTPIP

Agency Central Office
Asian Development Bank
Bank for Agriculture and Agricultural Cooperatives
Budget Expenditures and Sources of Financing
Bank Negara Malaysia
Bureau of Budget
Bank of Thailand
Built-Operate-Transfer
Bangko Sentral ng Pilipinas
Central Economic Agency
Comptroller-General’s Department
Center for Integrated Planning and Operations
Development Assistance Committee
Development Budget Coordination Committee
Department of Budget Management
Department of Finance
Development Plan
Development Projects Examination Committees
Department of Public Works and Housing
Debt Service Ratio
Department of Technical and Economic Cooperation
Executive Order
Employees’ Provident Fund
Economic Planning Unit
Eastern Seaboard Development Committee
Eastern Seaboard Development Program
Foreign Assistance Plan
Federal Land Development Authority
Fiscal Policy Office
Gross Domestic Product
Gross National ProductGovernment Owned and Controlled Corporation
Inter-Agency Planning Group
Investment Coordination Committee
Information and Communication Technology
Implementation Coordination Unit
International Monetary Fund
Infrastructure Committee
National Institute of Public Administration
Japan Bank for International Cooperation
Joint Public-Private Consultative Committee
Local Development Plans
Legislative Executive Development Advisory Council
Local Government Code
Local Government Unit
Modified Budget System
Malaysian Industrial Development Authorities
Ministry of Finance
Malaysian Technical Cooperation Program
Medium-Term Expenditure Framework
Medium-Term Philippine Development Plan
Medium-Term Public Investment Program

MTRIP
MYR
NDP
NDPC
NDPC
NDWC
NEB
NEC
NEDA
NEDB
NEDP
NEP
NEP
NESDB
NESDP
NIDA
NPC
NVP
ODA
OECD
OECF
OESD
OPIF
OPP
PDAF
PDMO
PES
PIA
PIP
PM
PPBS
PPBS
PSD
RDC
RDC
RDIP
RDP
RED
RPIP
SDC
SEER
SEPU
SIDA
SOE
SPM
SPPBS
SPS
TA
TICA
TTEC
UN
UNESCAP
USAID

Medium-Term Regional Investment Plan
Malaysian Ringgit
National Development Policy
National Debt Policy Committee
National Development Planning Committee
National Development Working Committee
National Economic Board
National Economic Council
National Economic Development Agency
National Economic Development Board
National Economic Development Plan
National Economic Policy
New Economic Policy
National Economic and Social Development Board
National Economic and Social Development Plan
National Institute of Development Administration
National Planning Council
National Vision Policy
Official Development Assistance
Organization for Economic Cooperation and Development
Overseas Economic Cooperation Fund
Office of the Eastern Seaboard Development Committee
Operational Performance Indicators Framework
Outline Perspective Plan
Priority Development Assistance Fund
Public Debt Management Office
Presidential Economic Staff
Program Implementation Agency
Public Investment Plans
Prime Minister
Program Performance Budgeting System
Planning Programming Budget System
Public Service Department
Regional Development Committee
Regional Development Council
Regional Development Investment Program
Regional Development Plan
Rural Economic Development
Regional Public Investment Plan
Social Development Committee
Sectoral Effectiveness and Efficiency Review
State Economic Planning Unit
Swedish International Development Cooperation Agency
State-Owned Enterprise
Strategy Planning Matrix
Synchronized Planning, Programming and Budgeting System
Strategic Performance System
Technical AssistanceThailand International Cooperation Agency
Thai Technical and Economic Committee
United Nations
United Nations Economic and Social Commission for Asia andthe PacificUnited States Agency for International Development

Managing the Development Process and Aid—East Asian experience in building central economic agencies—

Table of Contents
Acronyms and Abbreviations
Acknowledgements
Chapter 1
1.
2.
3.
4.
5.
6.
Chapter 21.
2.
3.
Chapter 3

Introduction and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Key Perspectives and the Outline of This Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Approach and Basic Premise of This Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Contexts for Development Management in Thailand,
Malaysia, and the Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Synthesis and Main Findings of the Study (from Chapters 2-7) . . . . . . . . . . . . . . . . . 13
Implications for Today’s Developing Countries and Donors . . . . . . . . . . . . . . . . . . . . 27
Institutional Framework for Development Administration andthe Role of Central Economic Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Thailand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Malaysia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
The Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

1.
2.
3.

The Role and Characteristics of Development Plans in Policy andResource Alignment and the Evolution of Development Planning . . . . . . . . . . . . . . . 41
Thailand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Malaysia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
The Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Chapter 4
1.
2.
3.

Mechanisms for Macroeconomic Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Thailand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Malaysia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
The Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Chapter 51.
2.
3.

Public Investment Programming and Project Approval . . . . . . . . . . . . . . . . . . . . . . . 91
Thailand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Malaysia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
The Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Chapter 6
1.
2.
3.
4.

Case Study: Eastern Seaboard Development Plans in Thailand . . . . . . . . . . . . . . . . 111
Overview of the Eastern Seaboard Development Plan (ESDP) . . . . . . . . . . . . . . . . . 111
Major Driving Forces Pushing the Plan Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Other Issues to be Considered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Chapter 7

Key Factors Affecting the Formulation and Enhancement ofDevelopment Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Key Factors Affecting the Formulation and Enhancement ofDevelopment Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

1.
2.

Appendices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

Figures
1-1
1-2
1-3
1-4
1-5
1-6
2-1
2-2
3-1
3-2
3-3
3-4
4-1
4-2
4-3
4-4
4-5
4-6
4-7
4-8
5-1
5-2
5-3
5-4
5-5

5-6
5-7
5-8

Coordination Mechanisms of Central Economic Agencies . . . . . . . . . . . . . . . . . . . . . . . . . 4
Development Process: Systemic Interaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Development Management and Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Structure of Production: Distribution of GDP (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Major Characteristics of Development Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Coherence among Development Plans, Macroeconomic Management,
and Public Investment Programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Policymaking Structure in Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Administrative Machinery in Malaysia (Federal and State Levels) . . . . . . . . . . . . . . . . . . 35
Chronological Outline of the Development Plans and Political Leaders ofThailand, Malaysia and the Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Overview of Development Planning, Macroeconomic Coordination, and Public
Investment Programming in Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Overview of Development Planning, Macroeconomic Coordination, and Investment
Programming in Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Overview of Development Planning, Macroeconomic Coordination, and Investment
Programming in the Philippines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Overview of Development Planning, Macroeconomic Coordination, and Public
Investment Programming in Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Macroeconomic Coordination Mechanism in Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Trend of Expenditures by Five-Year Planning Periods (1972-1991) . . . . . . . . . . . . . . . . . 72
Overview of Development Planning, Macroeconomic Coordination, and Investment
Programming in Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Macroeconomic Coordination Mechanisms in Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . 79
Trend of Development Expenditures by Five-Year Planning Periods (1971-1990) . . . . . . 80
Overview of Development Planning, Macroeconomic Coordination, and Investment
Programming in the Philippines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Macroeconomic Coordination Mechanisms in the Philippine . . . . . . . . . . . . . . . . . . . . . . 85
Overview of Development Planning, Macroeconomic Coordination, and Public
Investment Programming in Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Project Approval Process Prior to 1992: All Public Investment Projects in a Theoretical Sense(Based on the National Economic and Social Development Board Act of 1978) . . . . . . . 96
Project Approval Process (Recent Normal Procedures with Shortcut)—Public Investment
Projects Less Than One Billion Bath, Finance Fully from the Government Budget . . . . . 97
Project Approval Process (Recent Normal Procedures)—Public
Investment Projects (Including SOE Projects) Over One Billion Baht . . . . . . . . . . . . . . . 98
Project Approval Process After 1992: Public and Private Partnership Projects Over On
Billion Baht (Based on the Act on Private Participationin State Undertaking in 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Overview of Development Planning, Macroeconomic Coordination, and Investment
Programming in Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Project Approval Process for the Malaysia Plans (Five-Year Development Plans) . . . . . 104
Overview of Development Planning, Macroeconomic Coordination, and Investment
Programming in the Philippines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

5-9
6-1
6-2
6-3
6-4
6-5
A-1
A-2
A-3
A-4
A-5
Table
1-1
1-2
1-3
1-4
1-5
4-1
7-1
7-2
7-3
7-4
A-1

Boxes
3-1
4-1
4-2
4-3
4-4

Project Approval Process—Public Investment (Namely ODA and BOT)
Projects Subject to ICC Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Overview of the Coordination and Decision-Making Mechanisms . . . . . . . . . . . . . . . . . 121
Coordination Relating to Annual Budget Approval Processes. . . . . . . . . . . . . . . . . . . . . 124
Coordination Relating to Technical Assistance Approval Processes . . . . . . . . . . . . . . . . 126
Coordination Relating to Loan Approval Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Map of Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Selected Fiscal Indicators (Percentage of GDP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Mobilization of Official Development Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Budget Cycle in Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
Budget Cycle in Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Budget Cycle in the Philippines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

Basic Socio-Economic Indicators for Selected East Asian Countries . . . . . . . . . . . . . . . . 10
Aid Dependency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Type of Development Management and Functional Features ofCentral Economic Agencies (CEAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Coherence among Development Plans, Macroeconomic Management,
and Public Investment Programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Dynamisms of Development Administration including the Use of Aid . . . . . . . . . . . . . . . 24
A Chronology of Public Debt Policy, 1959-1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Dynamics in Development Administration and the Use of Aid as Seenin Thailand, Malaysian and the Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Thailand: Key Factors Affecting Development Administration . . . . . . . . . . . . . . . . . . . . 147
Malaysia: Key Factors Affecting Development Administration. . . . . . . . . . . . . . . . . . . . 148
The Philippines: Key Factors Affecting Development Administration . . . . . . . . . . . . . . 149
Estimates of per Capita GDP and Ratios of Public to Private Sector Salaries
in Selected Developing Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

Malaysian Bureaucracy and the Role of the “Planning Cell” Officials . . . . . . . . . . . . . . . 57
“Mobile Unite” and the Role of Budget Analysts in the BOB . . . . . . . . . . . . . . . . . . . . . 76
Coherence among Development Plans, Project Approval, and Annual
Budget Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Administrative Efforts vs. Legislative Interventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Complementarities among MTEF, OPIF and SEER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Acknowledgements

This report was prepared by Izumi Ohno and Masumi Shimamura (GRIPS Development Forum). Editorial support was provided by Asuka Suzuki and Midori Chaki (GRIPS Development Forum), andproofreading was completed by Kimberly Hughes and Rayna Rusenko. Chapter 1 (introduction andoverview) was written by Izumi Ohno with Masumi Shimamura, and responsibility for writing the subsequent chapters was shared between Izumi Ohno (Chapters 2 and 4) and Masumi Shimamura (Chapters 3, 5, 6 and 7).
The report was based on a review of relevant literature, as well as the results of interviews and information that were gathered through a series of country visits made by the writing team to Thailand andMalaysia (October 2005 and January 2006) and the Philippines (October 2005 and March 2006).
While in Thailand and Malaysia, the team had the opportunity to interview former senior government
officials who had taken charge of development policy formulation in the 1960s-1980s. In the Philippines, the team was also able to interview former senior government officials who were involved in the
reorganization of development administration that started in the late 1980s. These interviews were
extremely valuable to us, in terms of helping us to shape our understanding regarding specific country
perspectives—as well as the challenges of managing the development process with aid as an integral
factor.
The preparation of this report involved consultations with a number of researchers and practitioners,
both in Japan and abroad. These included brainstorming workshops in Hanoi (June 2006) and Nairobi(July 2006), as well as a feedback seminar held in Tokyo (November 2006). The brainstorming workshops have helped the team to better understand the perspectives of today’s developing countries in
Asia and Africa, while the feedback seminar in Tokyo provided the team with valuable opportunities toreceive comments and input into the draft report. The feedback seminar was enriched by the active
participation of distinguished panelists Mr. Nophadol Bhandhugravi (Thailand), Mr. Jegasothy Jegathesan (Malaysia) and Mr. Takeo Matsuzawa (JBIC), all of whom kindly shared their perspectives ondevelopment and aid management based upon their respective experiences as policymakers and practitioners.
We would also like to express special thanks to Mr. Paulo Rodelio M. Halili, Ms. Alely Alejar-Bernardo, and Ms. Cathy Bayaua-Hernandez in the Philippines, all of whom provided support in a personal
capacity and also compiled basic information and data regarding development administration in thePhilippines. We are also grateful to Ms. Nuanprae Patramai, Ms. Anuwan Vongpichet, Ms. Arnunchanog Sakondhavat and Mr. Thanongsak Kromplasak in Thailand, as well as Ms. Suraya Woon
Abdullah in Malaysia, for their kind support to the team while we conducted our research work. Finally, we would like to express deep appreciation to the Japan Bank for International Cooperation (JBIC)
and the Japan International Cooperation Agency (JICA)—both the head offices as well as representative offices in respective countries—for providing useful information and facilitating country visits forthe team.

We fully recognize that the building of development administration is a long-term undertaking, andthat further work is needed in order to comprehend a multitude of factors affecting the function andevolution thereof. This report, therefore, should be considered as a first step toward this larger endeavor. Finally, responsibility for the views expressed in this report—as well as any errors therein—rest
with the members of the writing team.

Chapter 1 Introduction and Overview

1.

Introduction

Past experiences in East Asian development suggest the vital importance of utilizing aid as an integral
part of development management in order to achieve shared national visions. These experiences
demonstrate that it is indeed possible for latecomer countries to manage the development process andaid, as well as to eventually graduate from the latter, provided the existence of several things: a strong
national commitment to development, ownership of the entire development process, and policies andinstitutions that promote “shared growth” (World Bank 1993). This is not the case, however, in many
parts of the developing world. 1
By examining the functions and coordination features of central development administration in thethree East Asian countries of Thailand, Malaysia and the Philippines, this study endeavors to shed lightupon the following questions: Why are some countries capable of meeting prerequisites for managing
the development process (with aid as its integral factor), while others are not? Where do commitment
and ownership come from, and under what circumstances? What are the mechanisms and driving
forces for making governments work for development? Recognizing the importance of understanding
diversity amongst various countries, this study pays particular attention to country-specific coordination features, as well as to key factors that have affected the actual functions and the institutional evolution of central development administration.
One of the key ingredients of the “East Asian Miracle” is frequently said to be the creation of central
economic agencies that are responsible for strategic planning, resource management, and coordination.
Another factor is said to be the existence of a cadre of economic technocrats who are insulated fromnarrow political pressures. Under strong political leadership, economic technocrats formulated andimplemented growth-oriented economic policies such as diversification, upgrading of economic structures, and effective management of natural resource rents while also adhering to macroeconomic stability and addressing social and equity concerns (“shared growth”) (World Bank 1993; Campos &Root 1996; Iwasaki 1996). At the same time, it has also been recognized that today’s successful countries did not necessarily possess strong institutional bases at the initial stage of development. The experiences of East Asian countries have confirmed that state-building is a dynamic process, and that conscious and continuous efforts are of critical importance.
Thailand and Malaysia are the second-tier high performers of the “East Asian Miracle” economies(following behind South Korea, Taiwan, Hong Kong, and Singapore). Both countries are generally
considered to have successfully managed the development process with strong ownership (Muscat
1994; Suehiro & Higashi 2000; Torii 2005), and are now also emerging as donors. During the1970s–1980s, the economies of these two countries achieved major structural transformation, and theirgovernments made strenuous efforts to build and enhance the functions of central development admin-

1

Botswana is a notable exception in Sub-Saharan Africa.

1

istration in order to meet the increasingly complex challenges of managing development and aid.
Therefore, we consider it highly important to learn from the past experiences of both countries—especially from the late 1950s through the 1980s.
In order to provide a comparative perspective, the study also analyzes the experiences of the Philippines (especially after 1986, which was the turning point of democracy restoration). While the Philippines failed to transform its central economic agencies into strategic core centers of development management during the Marcos era (1965-1986), the post-Marcos era has seen major efforts to reorganize
the central economic agencies and strengthen inter-agency coordination. Furthermore, in 1991 thecountry began implementing one of the most radical decentralization initiatives in all of East Asia.

2.

Key Perspectives and the Outline of This Study

Since a key feature of this study is to bring country perspectives to the center of analysis, we conduct
our study from the standpoint of the developing countries in question. Rather than presenting universally granted, ideal types of development administration and governance reforms, we attempt to learn
from real experiences in order to better understand how the three East Asian countries organized themselves for pursuing priority development goals. In addition, we consider how they coordinated anddealt with various stakeholders, including donors, while simultaneously overcoming various crises andshocks. By placing a strong emphasis on the perspectives of these countries, we hope that this study
will serve as a useful reference for other developing countries that are making efforts to build andenhance their development administration. We also hope that the study will add new insights to today’s
debates regarding the effectiveness of aid itself.
This introductory chapter provides an overview of the entire report. It first explains the approach andbasic premise of the study, and then discusses the macroeconomic and aid management undertaken by
central economic agencies in Thailand, Malaysia, and the Philippines. Next, it summarizes the main
findings of the study, touching upon the diversity of institutional design amongst central economic
agencies, coordination mechanisms for aligning policy and resources with development priorities, thedynamic evolution of development administration with the strategic use of aid toward “graduation,”and key factors affecting both the functions of central economic agencies and the evolution of development administration. A brief summary of the case study of Thailand’s Eastern Seaboard Development
Plan is also provided. Lastly, this chapter discusses the implications of these countries’ institutionbuilding experiences for developing countries and donors today.
The subsequent chapters of this report are organized as follows.
●

●
●

●

Institutional framework for development administration, and the role of central economic agencies in the three East Asian countries of Thailand, Malaysia, and the Philippines (Chapter 2)
Roles, characteristics, and evolution of development planning (Chapter 3)
Approach to macroeconomic management and mechanisms for macroeconomic coordination(Chapter 4)
Approach to public investment programming and project approval, as well as the mechanisms

2

●

●

3.

therein (Chapter 5)
Case study of Thailand’s Eastern Seaboard Development Plan (flagship infrastructure investments at the time of structural transformation of the country) as an example of country-owned
development and aid management (Chapter 6)
Key factors affecting the formulation and enhancement of development administration, including the strategic use of aid toward “graduation” (Chapter 7)

Approach and Basic Premise of This Study

3-1 Scope of Analysis
This study focuses its analysis on (i) the role and functions of central economic agencies and theircoordination mechanisms as agents managing the transformative development process, and (ii) actors
such as leaders and technocrats who affect the functions of central economic agencies and the evolution of development administration. The diagrams below illustrate these perspectives (Figure 1-1).
The key questions to be examined throughout this study are as follows:
●

●

●

●

●

What are the role and functions of central economic agencies in Thailand, Malaysia, and thePhilippines?
How have the coordination mechanisms actually worked? What are the roles of leadership andtechnocrats?
What is the role played by development plans in policy and resource alignment, especially interms of annual budget process, public investment programming/project selection, and aid management? To what extent have these instruments and resources been used in a coherent fashion?
How have these countries succeeded (or faced difficulties) in formulating and enhancing suchfunctions and mechanisms, while simultaneously overcoming various crises and shocks?
What are key factors that have affected the functions of central economic agencies and the evolution of development administration?

As Figure 1-1 shows, various levels of coordination exist with regard to different actors and stakeholder groups. Nevertheless, as the first step toward the larger endeavor, this study will primarily focus on
the coordination mechanisms within central development administration. Special attention will be paid
to the role and functions of central economic agencies, as well as to key factors that have affected theirfunctions and the evolution of development administration. As a large body of literature suggests, thebuilding of a modern central development administration—in particular, central economic agencies—
was perceived as the first-priority task by top leaders in the “East Asian Miracle” economies during
their early stages of development. As explained below, the central economic agencies in these
economies functioned as the strategic core centers of development. Thus, while we duly recognize theimportant role of the private sector and local administration in pursuing shared growth, the coordination features with these actors will not be the main focus of our analysis in this report.
Ideally, top leadership should provide a long-term development vision—and should also possess a3

strong political will to realize that vision. By mobilizing and utilizing both domestic and external
resources, the technocrats of central economic agencies then assume the responsibility for translating
the vision into concrete plans of action. This includes formulating development plans and strategies,
articulating priority policies, programming public investment, and managing resources within hardbudget constraints. The technocrats are also responsible for coordinating amongst various stakeholders(line ministries, other state agencies, local governments, donors, and the private sector) in order tofacilitate the implementation of priority projects and the delivery of essential public services.
The perspectives shown above are consistent with the findings regarding the “East Asian Miracle” andrelated studies (World Bank 1993; Campos & Root 1996), as well as a wide selection of literature
regarding developmental states in East Asia (Johnson 1982; Haggard 1990; Wade 1990; Evans 1995;
Leftwich 1995, and others). This is the case even though their views may differ on such issues as thedesirable level of state intervention in the market, the degree of state autonomy and embeddedness insociety, and the degree of tolerance existing toward the authoritarian regime. In this regard, we consider it highly important to analyze the experiences of Thailand and Malaysia, which are regarded as thesecond-tier high performers in East Asia, while also conducting a comparative perspective with thePhilippines.

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

Policy and resource planning,alignment functions

Aid

VisionPolitical will

Utilize

Development plans
Priority policies
Macroeconomic mgt.

Publicinvestment
selection

BudgetLeaderDonorsPrivate &non-govt.
stakeholders

CEA
Technocrats

Private &non-govt
activities
Resource
allocation

Other
state
organs

Implementation, service delivery, etc.

4

Ministries

Local
govt.

3-2 Basic Premise
Our study is built upon 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 of ownership, based on East Asian perspectives. With respect to (i), as mentioned earlier, these actors will not
be the main focus of our analysis although we do indeed recognize the important roles played by theprivate sector and local administration in economic development. With respect to (ii), we take the viewthat aid is one of many various resources (e.g., financial, technical and intellectual) that may be used tosupport the development process, and that more holistic perspectives are necessary in order to address
ways to enhance the development performance of respective countries (which should in turn lead toeffectiveness of aid). Thus, this study does not intend to narrowly discuss ways to enhance aid effectiveness per se.

3-2-1 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 to thatof strengthening central economic agencies during the early stages of development. This is because asagents that must manage budgets, public investment, and aid, as well provide the right incentives forprivate and non-governmental actors, 2 these agencies must assume the following strategic core functions:●●

Align policy planning and resource mobilization while attaining strategic objectives, andCoordinate different interests of various stakeholders (including donors)—both vertically andhorizontally as well as domestically and externally.

Certainly, the role of central economic agencies evolves over time. As the local government and private
sector activities expand, moreover, their involvement in the economy is likely to become more indirect—focusing, for example, upon regulatory and supervisory functions. This is what occurred in thecase of the first-tier “East Asian Miracle” economies, and—as this study will show—those of Thailand
and Malaysia have experienced a similar evolution as well.
While the recent decade has witnessed an expanded role on the part of local administration and private
sector activities, this should not be equated with the marginalization of central administration. In fact,
there exists a shared consensus in the international aid community with regard to the importance ofstrengthening strategic planning and management capacity in developing countries, and integratingsuch efforts in the objectives of national development (OECD DAC 2005).

2

Our argument is built on Shimomura’s hypothesis, which proposes the need to identify a limited number of “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 ofstrategic good governance elements that may trigger development.

5

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) interjurisdictional externalities, with spillover effects across localities (such as large-scale infrastructuredevelopment); and (iii) support to local governments through the resource transfer of financial andtechnical terms (Bardhan 1997). These are complementary to decentralized administration, which may
be better equipped for managing local common resources and supplying local public goods (provided
that it maintains greater access to local information and accountability). Nevertheless, at the earlystages of development—when financial, technical, and human resources are extremely scarce nationwide—the role of central administration in (i)–(iii) above becomes all the more important. Such a roleand such functions should also provide an environment to nurture private sector development.
Second and more fundamentally, the central governments of latecomer countries must also assume a“developmental” role—a point that adds a distinctive dimension to Weber’s concept of modern, rational bureaucracy. 3 Development is a transformative process (Stiglitz 1998) that requires institutions promoting radical accumulation, change, and transformation (Leftwich 1995). In addition, development is
an interactive process incorporating both “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 such as aid, trade, andinvestment 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 1-2).

Figure 1-2 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.
Sources: Adapted from K.Ohno (1998).

3

Weber outlined the key characteristics of a bureaucracy as: (i) functional specialization; (ii) clear lines of hierarchicalauthority; (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 work and personnel based on competence andexperience.

6

In sum, development is a process that must be undertaken at the level of the nation-state as the implementing unit. In its early stages, the central government must act as the initiators of change in order totake 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 andpotential obstacles, deal with unexpected shocks, set long-term targets, and design comprehensive andconcrete annual plans to achieve them” (K. Ohno 1998: 29).

3-2-2 East Asian Views of Ownership in the Development Process
When taking into consideration the role of aid in the development process, we argue that there is aneed to enhance the ownership concept by properly incorporating perspectives from East Asia. Thereis a shared consensus on the importance of government ownership in the development process (Johnson & Wasty 1993; Killick 1998; Booth 2003), and numerous literature discusses how governments
and donors should better collaborate in order to promote ownership. The Paris Declaration of Aid
Effectiveness (2005) that was 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 of development partnership toward making aid effective. It stipulates that “partner countries (should) exercise effective
leadership over their development policies and strategies and co-ordinate development actions,” andthat donors should “respect partner country leadership and help strengthen their capacity to exercise it”(OECD DAC 2005, paras. 14-15). While such an international initiative is laudable, we feel thattoday’s global debates do not sufficiently capture the dilemma faced by latecomer countries.
The rhetoric of ownership and partnership tends to mask a tension that lies inherent in the aid relationship. Certainly, aid facilitates recipient countries’ access to finance, goods, knowledge and technology—all of which are essential input for the process of socio-economic development. However, excessive dependence upon aid may have the effect of constraining 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 the specific needs of developing countries. It is critically important, therefore, 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 experiences found within the “East Asian Miracle”, reveal several essential elements of government ownership that are insufficiently covered in today’s global debates (see Shimomura & I. Ohno 2005 for moredetailed discussions). These elements are:
●
●
●

4

management of donors and aid as part of the entire development process;willingness to graduate from aid, supported by an “exit plan”; andmanagement of policy ideas, with selectivity and through “translative adaptation.” 4The concept of “translative adaptation” is based on Maegawa (1994).

7

First, ownership should be viewed as the capacity to manage the entire development process, andhence coordinate aid as part of its own coherent development effort (see Figure 1-3). Governments
should initiate and formulate national development plans and strategies, identify specific needs to befinanced by aid, present aid requests and negotiate with donors, match aid programs and projects with
their 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 toachieve the national goal of promoting growth and establishing wealth-sharing mechanisms on anationwide scale. In this regard, we are concerned that recent donor discussions of ownership tend to
focus on an aid relationship assuming that donors dominate development policy agenda, and that thedevelopment process in recipient countries is dictated by the aid relationship.
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 should 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 a mere 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 a particular developing country. However, it is often the reality that “some donors seem to believe that owner-

Figure 1-3 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 l. Ohno and Niiya (2004).

8

ship 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.

4.

Contexts for Development Management in Thailand, Malaysia,
and the Philippines

4-1 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 1-1).
Basic social indicators—in terms of life expectancy, infant mortality rate, literacy rate and humanresource development—all show satisfactory trends. Especially, in Malaysia, equity was an importantconsideration. Inequality in income distribution has been reduced particularly between ethnic groups.
During the 1970s and 1980s, the economies of Thailand and Malaysia underwent major structuraltransformation (see Figure 1-4). 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 economyof 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 1965-1990,
the share 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.

For example, drawing on the experience of heavily aid-dependent sub-Saharan Africa, the conventional views claim that
it is more realistic and sufficient for recipient countries to take policy prescriptions “off the shelf” from donor agencies(Morrissey 2001; Booth 2003; SIDA 2003).
6
At independence in 1946, development indicators for the Philippines matched those of South Korea and the country was
regarded as a showcase for the Asian adoption of Western market economics and democratic practices (Hayllar 2003).
5

9

Figure 1-4

Structure of Production: Distribution of GDP (%)

100%
80%
60%
40%
20%
0%

1965

1990

Sourth Korea
Agriculture

1965

1990

1965

1990

1965

1990

Malaysia

ThailandPhilippines

Other Industries

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.

Table 1- 1

Basic Socio-Economic Indicators for Selected East Asian Countries
GNP per capita
(US$)
1976
1990

Country
Korea, Republic of
Malaysia
Philippines
Thailand

670
860
410
380

5400
2320
730
1420

Average annual
growth rate of
GNP per capita
1965–1990 (%)

Life
expectancy
at birth 1990
(years)

7.1
4.0
1.3
4.4

71
70
64
66

Population below poverty line
Total (%)
Rural (%)
1980–1989
1980–1989
averageaverage
16
27
58
30

11
38
64
34

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

4-2 Macroeconomic and Aid Management by Central Economic Agencies
4-2-1 Approaches to Macroeconomic Management
The period of the 1970s-1980s 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 took different approaches to macroeconomic management in light of the size of public expenditures and thelevel of debt financing. (Figure A-1 shows key fiscal indicators of the three countries, including the10

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 percent (or less) of GDP. Nevertheless,the public expenditures grew in the mid-1970s and 1980s, and the government borrowing started torise during the first half of the 1980s, including external debt. However, the outstanding debt remained
at a moderate 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.
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 established theoverriding 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 the ethnic
riot of 1969—necessitated larger public expenditures than before. Especially, with rapidly growing
development expenditures, the Malaysian government incurred sizable fiscal deficits during the late1970s through the early 1980s. The government actively mobilized various resources, including
domestic and external borrowing throughout the 1980s. 7 Similar to Thailand, rapid growth enabled
Malaysia to compress the outstanding debt, especially foreign debt. The fiscal balance turned into asurplus 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 andproductivity of public investment. During the 1980s, the government increased domestic and externalborrowing to finance development programs, but is yet to be able to fully enjoy the potential benefitsof these programs. The Philippines continues to face a heavy debt burden, and the resultant debt overhang limits the fiscal space.

4-2-2 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 loans from the World Bank and the Asian Development Bank (ADB)) accounted for7

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

11about 10 percent of the total government expenditures in Thailand and about 4 percent in Malaysia.
Still, in Thailand, aid was an important source of financing development expenditures. The Philippines
had the highest level of aid dependency at about 18 percent in the late 1980s (see Table 1-2). This levelis comparable to those of Vietnam and Kenya (about 20 percent) but is much lower than that of Tanzania (near 80 percent) today.

Table 1-2 Aid Dependency(Sum of ODA and development finance from the World Bank and the ADB)

Malaysia
Philippines
ThailandSources:ODA+WB+ADB
amount received (US$)
1975
1988
$181 mil$391 mil$314 mil$1403 mil$177 mil$862 mil

ODA+WB+ADB as apercentage of total central
government expenditure
1975
1988
6.1%
3.8%
17.7%
12.0%
8.0%
9.9%

ODA per
capita
1988
$6.1
$14.3
$10.3

ODA as apercentage of
GNP
1988
0.3%
2.2%
1.0%

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 Asianand Pacific Countries 1993.
Data for ODA per capita and ODA as a percentage of GNP/GDP are based on World Bank, World Development Report 1990.

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.
Figure A-2 shows the trend of mobilization of official development finance, classified by funding 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 the 1970s-1980s
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 carefulanalysis of cost-benefit and feasibility of prospective investment projects.
The three countries responded differently to cope with the increasing challenges of aid management.
Thailand actively used aid throughout the 1980s, but successfully avoided heavy (protracted) dependency. Moreover, the Thai government was sensitive to the concessionality of loans, as well as comparative advantages of respective donors. While some shifts of donor composition were unintended andwere 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 (US) 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 majorchange 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 three largest 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 Thai government consistently increased the mobilization of Official Development Assistance (ODA) loans (mostly from Japan), reducing its reliance on theless concessional loans (except for the years of 1997-1998 when Thailand faced a severe financial cri-

12

sis 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 (UK) was the largest donor in Malaysia and provided grantaid (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-1980s and continues to do so. With therelatively high level of debt service payments, the government has limited fiscal space for discretionary funding, including capital expenditures. This raises questions regarding the Philippine government’s consciousness of securing economic and social returns of aid-funded projects and utilizing aid
for achieving development priorities.

5.

Synthesis and Main Findings of the Study (from Chapters 2-7)

5-1 Diversity in Institutional Design and Coordination Mechanisms of Central Economic
Agencies
The analysis in section 4 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 of development management and the nature of ownership among the three countries. In our view, the central
economic agencies of Thailand and Malaysia have built the capacities to act as strategic core centers
for development management and have contributed to establishing strong ownership (especially in the
1970s-1980s), as illustrated in Figure 1-3 (in section 3-2). 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 1-5 and Table 1-3 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.

13Figure 1-5 Major Characteristics of Development Administration
Support to realize
leader s vision

Delegate authority

Centralized
systemLeaderCentralized
systemLeaderTechnocrats(CentralEconomic
Agencies)

Technocrats(CentralEconomic
Agencies)

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

Legislature

LeaderExecutive
branchIntervention Technocrats(CentralEconomic
Agencies)

Ministries,
departments, otherstate organs andlocal governments<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” (Riggs 1966: 312) 8). Thus, until the late 1990s, the technocrats of central economic agencies assumed a key role in formulating and implementing development policies. In terms ofthe configuration of central economic agencies, no single super-ministry exists, and the responsibilities
for economic policymaking have been shared among the core macroeconomic agencies: the National
Economic and Social Development Board (NESDB), the Bureau of Budget (BOB), the Fiscal Policy
Office (FPO) and the Public Debt Management Office (PDMO, established in 1999) of the Ministry of
Finance (MOF), and the Bank of Thailand (BOT). Fiscal and monetary decisions have been left almost
entirely to these core macroeconomic agencies (Christensen et al. 1993). As a result, the economic
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 1970s. 9 The stable and pre-8
According to Fred W. Riggs (1966), Thailand’s bureaucracy functioned as a focal point of power and influence in thegoverning process.
9
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.

14

dictable 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 the technocrats ofcentral 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 and 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 the formulation 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 such strong 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.

15

16

<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<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• “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• 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

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 and 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)

Functional
responsibilitiesof CEAs

Features ofdevelopment
administration

Type ofdevelopment
management

Philippines (late 1980s-now)• Ownership?; ongoing effort to strengthen
aid and development management• Problems of allocative efficiency; heavy
debt burden• Selective use of aid?

Malaysia (esp. 1970s-1980s)• Strong ownership in managing development,
including aid• Fiscal activism; overall balanced
macroeconomic management• Selective use of aid; exit plan from aid

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

Thailand (esp. 1970s-1980s)• Strong ownership in managing
development, including aid• Strong fiscal discipline, prudent debt
management• Active but selective use of aid; exit planfrom aid• Centralized system, with strong
inter-agency coordination and shared
responsibilities among core macro CEAs(see below*)• Empowerment of CEA technocrats from top
political leader

Table 1-3

5-2 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 and project
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 andhave 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 areapplied in designing and implementing both nationally-funded and aid-funded projects.

Figure 1-6 and Table 1-4 compare the coordination features of Thailand, Malaysia, and the Philippines
in light 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 core macroeconomic
agencies and the spending agencies, enforcing hard-budget constraints. Notably, the BOB dispatches“Mobile Units” (a team of budget analysts) to each department for detailed reviews of the planned andongoing projects and programs. Legal limits for fiscal deficits and external borrowing have been strictly enforced through the coordination among the core macroeconomic 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

17

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 “planningcells”) assume critical functions, providing vertical and horizontal links during the development andinvestment planning, budget formulation and execution, and implementation monitoring. 10 The annual
budget process is consultative, and the MOF organizes budget dialogues with the 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 and public investment plans. Therefore, the public investment plan tends to be viewed as a “wish list” of projects. Since the late 1980s, the Philippines government has been making strenuous efforts to better synchronize the development planning, public investment planning, and budget formulation, for example,
by introducing the Medium-Term Expenditure Framework (MTEF) and other new instruments. Nevertheless, such efforts are often challenged by congressional interventions in the annual 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 (for example, 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, the status ofproject 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 2004-2010. 11 Furthermore, particularly since the 1990s, the Malaysian
government has strengthened the articulation of its international cooperation policy. The recent devel-

Here, the modus operandi of the Thai agencies is shared responsibilities based on subtle check-and balance, while thatof 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.
11
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).
10

18

opment plans extensively discuss various channels of cooperation—bilateral, regional, and multilateral
cooperation, as well as the Malaysian Technical Cooperation Program (MTCP)—and provide the perspectives of an emerging donor and a responsible member of the global community. 12

Figure 1-6

Coherence among Development Plans, Macroeconomic Management, andPublic Investment Programming<Thailand>
National Economic and Social
Development Plan (NESDP) ➜5-year plan*■ Annual budget and debt approval■ Project approval(as part of annual budget/debt
approval process)■ Development Planst

* 1 NESDP was the only 6-year plan

<Malaysia>
Malaysia Plan ➜ 5-year plan

■ Development Plan
- Public Investment Plan
- Project Approval■ Annual budget and debt approval<Philippines>
Medium-Term Philippine Development
Plan (MTPDP) ➜ 6-year plan*■ Development Plan
* coincides with the presidential term

■ Projectapproval

Medium-Term Public Investment
Program (MTPIP) ➜ companion
document of the MTPDP■ Annual budget
and debt approval■ Public Investment Program

12
Since the Seventh Malaysian Plan (1996-2000), one chapter has been added, which discusses Malaysia’s international
cooperation policy. Previously, this topic was included in the chapter of public sector program and its financing.

19

20

• Public investment selected in thesubsequent budget and debt approval
process (except for the 1970s—3rd and4th DPs)• Project approval integrated into
budget/debt approval process• Application of same procedures for ODA
and locally-funded projects

PublicInvestment
Plans (PIP)• Project approval conducted as part ofdevelopment planning process• Application of same procedures for ODA
and locally-funded projects• Public investment selected as part ofdevelopment planning process• Project approval conducted after PIP
process and before budget process(lacking rigorous scrutiny)• Dual approval process for ODA andlocally-funded projects (incl. “pork barrel”
funds)• 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

• Still insufficient as strategic core
documents (ongoing effort to alignPresident’s 10-point agenda)• Budget allocation not specified• 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

Notes: MBS: Modified Budget System; MTEF: Medium-Term Expenditure Framework; PPBS: Planning Programming Budget System.

Project
approval andmonitoring(incl. ODA
projects)• Rigorous scrutiny of all projects in annual
budget process by BOB• PPBS introduced in 1982; MTEF
introduced after 2003

Budgetformulation

Development
Plans (DP)

Degree ofcoherence incoordination
mechanism

Philippines• Coherence?; limited policy and resourcealignment; weak inter-agency
coordination

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

Coherence among Development Plans, Macroeconomic Management, and Public Investment Programming

Thailand• Coherence; policy alignment with
development priorities, with fiscal
discipline (but less macro-sector link)• Effective Prime Minister-led, national
committees created to address priority
agenda (esp. the 1980s)• Indicative plan, utilized as strategic core
documents• Development priorities clearly indicated• Budget allocation not specified (securing
room for flexibility)

Table 1-4

5-3 Dynamic Evolution of Development Administration and Strategic Use of Aid toward“Graduation”
As stressed in section 3-2, 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 enhance development 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-1960s the economic technocrats in Thailand and Malaysia actively sought advice from foreign experts (from sources such as the United States
and the United Kingdom) and international organizations (such as the World Bank) on such topics as
the general direction of development policies, the drafting of national development plans, and the organizational structure of their development administration. 13 A notable point is the existence of strong
political and technocratic commitment and the alliance of these actors toward building a functioning
development administration. The political leaders initiated this process and assigned motivated technocrats to undertake such endeavors. The first generation of elite technocrats played a critical role. The
elite technocrats not only acquired foreign knowledge, but also took measures to build core functionsof the country system and instituted programs for human resources development from a long-term perspective (see Chapters 2, 3 and 7 for the role of Dr. Puey Ungphakorn, former Governor of the BOT, ininstitutionalizing the disciplinary functions across the core macroeconomic 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 assistance. 14 They also had good understanding of comparative advantages of respective

13
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 bespared from present assignments to fill all these important senior positions” (World Bank 1959: 217-218).
14
The Thai government also actively utilized aid for large-scale infrastructure projects—not only to fill financial gaps, butalso to take advantage of donor presence (as the third party) and their technical guidelines to ensure project implementation would be transparent.

21

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 donors
through various ways. These ways include: (i) deliberately seeking a variety of donor advice to gather
different perspectives and (ii) instituting an agency specializing in administering technical cooperation(DTEC) so that the government could have a holistic picture, match country needs with donor expertise, and apply uniform procedures for technical cooperation including the assumption of counterpart
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 the External
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 new technology 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 2004, DTEC was formally transformed
into the Thailand International Cooperation Agency (TICA) as an agency responsible for providing
technical cooperation. 15 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 caseof Malaysia, the External Assistance Section of EPU started the MTCP in 1981, extending technicalcooperation (mainly in the form of training and dispatching experts) to Asian, Middle-Eastern, andAfrican countries.
The Philippines has had mixed experiences of aid management throughout the 1970s–80s. The creation of centralized administration by President Fernando Marcos in 1972, with NEDA at its core, did
not contribute to strengthening inter-agency coordination among central economic agencies. Aid management by NEDA was fragmented and largely donor-driven, and there was virtually no strategic andprocedural coordination of ODA projects (see Chapter 2). 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 public-private partnership (such as Built-Operate-Transfer, BOT)—arenotable and suggest possibilities that aid can provide an opportunity to introduce the more rigorous,transparent, and technically sound criteria and may serve as an entry point to bring broader institutional reforms. At the same time, setting up a dual and exceptional system for ODA projects might lead toinefficiency and cause the government an additional administrative burden. It is important that theachievements made in reforming ODA management be integrated into the ongoing efforts to building afunctioning 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

15

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

22encountered the challenges of further enhancing their development administration to overcome shocks
and crises and to manage their structural transformation (for example, in the 1980s for Thailand and in
the 1970s–1980s 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 theupgrading of development administration by selectively utilizing foreign expertise. Table 1-5 summarizes the dynamic evolution of development administration.

5-4 A Case Study of Thailand’s Eastern Seaboard Development Plan
Thailand’s Eastern Seaboard Development Plan is an example of country-led development and aid
management in the 1980s (see Chapter 6 for details). It was a flagship regional development plan
aimed at export-oriented industrialization, receiving a high priority in the Fifth (1982-1986) and the
Sixth (1987-1991) development plans. The Plan had unprecedented scale and was composed of a multitude 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) a cabinetlevel 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 and facilitated bothvertical 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.

23

24

• Late 1950s-early 1960s: with donor
advice (World Bank, US, etc.), basic
foundations for four-agency
coordination mechanisms
established; disciplinary functions
institutionalized.

• 1980s: national-level committees andsub-committees established tofacilitate coordination of priority
policy agenda (e.g., ruraldevelopment, regional development,
private sector participation).
• Public-private coordination systemstrengthened.

Enhancement ofdevelopment
administration

Thailand• 1970s: new functions (esp. ICU)
added to existing administrative
machinery to implement NEP.
• 1980s: greater efficiency of public
administration pursued, and publicprivate coordination systemstrengthened.

• Late 1950s-early 1960s: with donor
advice (World Bank, US, UK, etc),
basic foundations for planning andcoordination mechanisms
established, with strong role of Prime
Minister’s Dept.

Malaysia

Philippines• 1990s: inter-agency committee
functions institutionalized, and ODA
management strengthened.
• Congressional intervention
undermined above efforts byexecutive branch.

• 1970s: centralized development
administrative body (NEDA) created,to support President Marcos’s
dictatorship.
• After 1986: NEDA reorganized, andinter-agency committees began tofacilitate coordination.

Dynamisms of Development Administration including the Use of Aid

Formation of development
administration

Table 1-5

5-5 Key Factors Affecting the Functions of Central Economic Agencies and the Evolutionof Development Administration
It should be noted that the “functional” principles mentioned in sections 5-2 and 5-3 are necessary, but
not sufficient conditions for ensuring the operations of central economic agencies as strategic core centers of development management. The experiences of the three East Asian countries, moreover, suggestthat the political environment also matters. Each country encountered shocks and crises in the courseof development, and the political environment greatly affected the ability of their central economic
agencies to respond—sometimes even turning these shocks and crises into opportunities for reforms
and broader institutional changes. In particular, the following factors become important in this regard:●●●

Quality of leadership;
Alliance between leadership and competent technocrats around common development visions(especially shared growth); andTechnocratic insulation from political interventions, based on the existence of a broad politicalcoalition focused on realizing development for the benefit of the whole country.

First, with regard to the quality of leadership, the experiences of Thailand and Malaysia confirm thatpolitical leaders played a vital role in providing development visions and setting the direction forchanges when this was necessary. This type of leadership mattered, especially during times of crises
and at various turning points of development. Furthermore, the style of leadership affected the working
modality of the countries’ central economic agencies, as well as the decisions on forming and enhancing development administration (as explained in section 5-3). As the Philippines’ experiences during
the Marcos era suggest, building a centralized administrative framework itself is not enough to makethe central economic agencies work. Thus, there is a real need to look into the interplay existing
between the political leadership and technocrats, as well as the functions of the central economic agencies.
In this sense, Thailand was blessed with well-balanced, visionary, and committed leaders at criticalstages. This was particularly the case, for example, with Prime Ministers Sarit (1959-1963) and Prem
(1980-1988). In the late 1950s through the early 1960s, Prime Minister Sarit was instrumental in establishing the basic foundations for coordination mechanisms led by the central economic agencies. Sarit
also defined the modality of the leadership-technocrat alliance for subsequent administrations, which
was the principle of delegating the authority to plan and administer economic policies. Based on thisprinciple, economic technocrats were empowered to discharge strategic core functions, allowing political interference into the policymaking process to be minimized during periods such as the volatile
1970s. Following this period, during the 1980s, Prime Minister Prem demonstrated balanced leadership in guiding the country. Thailand went through a macroeconomic crisis and structural transformation in the early 1980s, when Prem took the initiative to create national-level committees to facilitate
the planning and implementation coordination of priority agenda that included macroeconomic policy,
Eastern Seaboard Development, rural development, private sector participation. In addition, Prem
entrusted NESDB to act as a focal point for this task.

25

Throughout the past decades, during the era of Prime Ministers Razak (1970s) and Mahathir (19812001), Malaysia enjoyed overall political stability as it was blessed with political leaders who demonstrated a strong sense of commitment and dedication to national development. Political leaders in
Malaysia have also played a vital role in managing crises, as has been clearly illustrated by their ability to turn them into opportunities. Following the 1969 ethnic riot, for example, Prime Minister Razak
took decisive action to cope with the crisis, reuniting the country by embracing a national vision basedon the NEP, and reforming the existing development administration in order to facilitate its implementation. In the 1980s, Prime Minister Mahathir provided Malaysia’s new development vision for the
next stage of development, and also initiated a number of administrative reforms to enhance efficiency
and public-private coordination.
Secondly, in addition to the importance of leadership, it is also crucial that strong alliances exist
between leadership and competent technocrats toward the goal of realizing common visions. Whileleadership style has varied, the economic technocrats of Thailand and Malaysia fully assumed responsibility for realizing the national development visions that were shared with the political leadership. In
this regard, development plans served as core strategic documents and a basis for policy and resourcealignment. Aid in these countries was also aligned with development priorities, and utilized as an integral part of development management.
With regard to technocratic competency, public sector base salaries were systematically lower thantheir private sector counterparts in all of the three East Asian countries (see Table A-1). Still, the incentive structure for the economic technocrats in Thailand and Malaysia appeared to be more favorable
than that of the Philippines. As of 1992, 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 the Philippines. 16
Thailand and Malaysia have competitive, merit-based recruitment to a bureaucracy, which has attracted competent, motivated individuals from highly selective universities. Moreover, in Thailand, financerelated agencies have their own personnel and recruitment programs, and the salaries provided bythese agencies were said to be about 30 percent higher across the board than in the rest of the public
sector (Campos & Root 1996). In Malaysia, officials who belong to “planning cells” are not affiliatedwith a specific ministry or agency. They receive joint training of managerial skills and ethics, androtate amongst the planning cell positions in order to play a central role in the policy process. Suchsystems in the two countries have created an esprit de corps based on professionalism, have strengthened bureaucracy, and have facilitated technocratic insulation from political pressures. This situation
continued in both countries at least until early 1990s, when the private sector became a more 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

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 of Thailand, 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.

16

26

1993: 167). Although Legislative intervention into the Executive branch itself should not be viewed
negatively (since it provides an important check-and-control function as the representative of the electorate), the political interventions driven by vested interests—in the absence of shared development
visions—could be detrimental to technocratic efforts to achieve priority development policies. In otherwords, it is important that there exist a broad political coalition focused on realizing development
under a common vision for the benefit of the whole country. The Philippines is a typical example,
where the administrative reforms initiated by the Executive branch have been frustrated by Congressional interventions without shared national visions. By comparison, the economic technocrats ofThailand and Malaysia are politically insulated to a greater degree. Their policymaking process has
been largely led by the Executive branch, with Parliament playing a passive role in the budget process.
In these countries, central economic agencies assumed full responsibility for macroeconomic management, as well as development and investment planning. Above all, the leaders and economic technocrats in both Thailand and Malaysia strived for shaping development visions aimed at promoting
shared growth, and then collaborated in order to translate them into workable plans and facilitate theirimplementation.

6.

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 driver of making the governments work for development (especially in Thailand and Malaysia). The real experiences 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; andEspecially, 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 ofleaders 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 most suitable 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

27

●

●

●

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 with recipients’ development priorities.
Donors should pay greater attention to the political environment and how it interacts with leadership, technocrats and the functions of central economic agencies, when providing aid and taking 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. In the future, it will be useful to broaden thescope of the analysis to include the more diverse actors and stakeholder groups. Furthermore, the vital
importance of the political and technocratic commitment to development suggests that we need deeper
understanding of the dynamics of institutional and administrative 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 a cadre 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 aneed to examine the implications of accelerating decentralization and globalization for the institution
building effort by today’s developing countries, including that of strengthening central economic agencies.

28

Chapter 2 Institutional Framework for Development Administrationand the Role of Central Economic Agencies

This chapter will analyze the institutional framework for development administration, as well as therole and functions of central economic agencies in Thailand, Malaysia, and the Philippines. It will also
review the historical background for the formulation and evolution of development administration inthese countries.
As a general rule, strengthening central economic agencies is widely considered one of the priority
agendas among administrative and governance reforms. This is so particularly in the case of latecomer
countries, since these agencies must assume a “developmental” role and act as agents in order to manage the transformative development process. As was stressed in Chapter 1, central economic agencies
acting as strategic core centers of development management are responsible for formulating and monitoring development plans, managing budgets, prioritizing and programming public investment (including large-scale infrastructure development), mobilizing both domestic resources and foreign assistance, and providing a stable macroeconomic environment that is conducive to private sector development. To this end, central economic agencies must align policy planning and resource mobilization inorder to attain strategic objectives, as well as coordinate the different interests of various stakeholders.
This must take place, moreover, vertically and horizontally in addition to domestically and externally.
Such work is critical, especially at the early stage of development. Certainly, the role of central economic agencies evolves over time, and their involvement in the economy is likely to become moreindirect—focusing upon regulatory and supervisory functions, for example—as private sector activities expand. Nevertheless, the central governments of latecomer countries must build and strengthen
the core functions of development administration, often utilizing the more advanced expertise andknowledge, and then discharge the strategic core functions mentioned above. In this sense, we consider it important to examine the role and functional responsibilities of these agencies in the three East
Asian countries at their early stages of development (at the stage of major reform in the case of thePhilippines), including the means by which their institutional foundations have been built for today’s
development administration.
From the late 1950s and 1960s, the governments of Thailand and Malaysia embarked on the task ofbuilding modern development administration, including the formulation and strengthening of central
economic agencies. Both countries had sought intellectual advice from foreign experts and donor
agencies, especially at the formative stage of development administration. In the case of the Philippines, a major restructuring of existing development administration (which had been built at the timeof the former President, Fernando Marcos) took place after 1986 as part of the democracy restoration
process. Since then, a series of administrative reforms have taken place to strengthen the respective
central economic agencies, as well as inter-agency coordination within the administrative machinery.
In this chapter, we will provide country-specific accounts of the institutional framework for and theevolution of development administration, as well as the role and functions of central economic agencies. We will focus on the late 1950s-1980s in the case of Thailand and Malaysia, and from the late1980s to the present in the case of the Philippines.

29

1.

Thailand1-1 Institutional Framework for Development Administration and the Role of Central
Economic Agencies
Until the 1990s, the principal driving force behind Thailand’s economic and social development planning, as well as its institution building, emerged from within the bureaucracy, rather than politicalleaders. Hence, Thailand’s policy formulation and implementation processes are characterized by theoutstanding effect that the “bureaucratic polity” has on them. The concentration of elite technocrats incentral economic agencies, where they handle policy formulation and macroeconomic management,
resulted in a highly centralized bureaucracy. Furthermore, a sweeping sense of political and economic
urgency, which reached its peak in the 1980s, in regard to issues of national security and development,
financial circumstance, and industrial strategies served to reinforce the perceived need for the bureaucratic polity. Despite political instabilities in the 1970s, Thailand remained determined to move ahead
with economic development, and this validated the public’s support for the role of technocrats in initiating and executing policy and programs as they deemed fit.
In terms of the configuration of central economic agencies, no single super-ministry exists, and for
decades, economic policymaking in Thailand has utilized the subtle ability of the core macroeconomic
agencies to check and balance each other. These agencies are: the National Economic and Social
Development Board (NESDB), the Bureau of the Budget (BOB), the Fiscal Policy Office (FPO) and
the Public Debt Management Office (PDMO, established in 1999) of the Ministry of Finance, and the
Bank of Thailand (BOT). They have together quite successfully maintained both prudence in macroeconomic management, and relatively strict discipline in fiscal and monetary matters. The distributionof specific functional tasks, and their corresponding authorities, assigned in regard to planning, programming, and budgeting, as well as the implementation and monitoring thereof, traverses a broad
range of different organizations not limited to the core macroeconomic agencies.
The NESDB serves as the central coordination agency therein, responsible (in the ascendant, until theend of the 1980s) for formulating national development plans and strategies, and also, in collaboration
with other government agencies, granting approval to investment projects undergoing appraisal. Incidentally, the NESDB was referred to as the “technocrat center” throughout the 1980s, most notably forthe strong power it held. The BOB prepares, executes and monitors all terms and matters pertaining to
the budget. It is responsible for establishing a ceiling on the budget based on analyses provided by the
FPO, as well as scrutinizing items of strategic priority for budget allocation. The FPO sets the overall
framework for expenditures and establishes ceilings on annual external borrowing. This role is still different from that of the PDMO, which enforces ceilings on external debt and monitors foreign loan
projects. The BOT is responsible for monetary and exchange policy.
Each of these agencies duly exercises authority over operations within their assigned field and no singular organization has been created to oversee the structural whole. While each agency has beenauthorized to take charge of development planning within the bounds of its own mandate, an umbrella
network for sharing information on priority policy issues and important macroeconomic data has been
put in place to facilitate their operations. Therein, links allowing for workable coordination of the30

NESDB, BOB, FPO, and BOT have been built in, expressly for the expedition of important decisions
in times of need.
In addition to these core macroeconomic agencies, the Department of Technical and Economic Cooperation (DTEC) has been responsible for managing foreign technical assistance. The DTEC serves as asingle window for administering technical assistance, as well as coordinating and prioritizing technicalassistance requests from the executing agencies (e.g., line ministries and agencies). It also requests
counterpart funds for the BOB on their behalf, provides necessary funding to the executing agencies,
and monitors overall implementation. Financial assistance for matters including foreign loans is managed by the PDMO, which is one of the core macroeconomic agencies.
Both the DTEC and the PDMO have worked closely with the NESDB, the BOB, and the FPO toensure that aid be treated as an integral part of development policymaking. Figure 2-1 shows Thailand’s policymaking structure, including macroeconomic and aid management functions.

1-2 Historical Background and the Formulation of Development Administration
The institutional foundations of Thailand’s modern, development administration date back to theestablishment of the National Economic Development Board (NEDB) under the Prime Minister’s
Office in 1959. The NEDB, renamed as the National Economic and Social Development Board(NESDB) in 1972, was the result of a recommendation by the World Bank survey mission in 1957 thata permanent planning agency be set up to undertake economic studies and prepare national development plans. Also in 1959, the BOB was established in the Prime Minister’s Office as a separate entity
from the Comptroller-General’s Department (CGD) of the Ministry of Finance. The heads of theNESDB and the BOB enjoy the same rank as Deputy Ministers (Suehiro 2005). The FPO was createdwithin the Ministry of Finance in 1961, and the BOT—which has the longest tradition among thecountry’s central economic agencies-was established in 1942. The inter-agency coordination mechanism among these core macroeconomic agencies has since been sustained and continues to play a central role in Thailand’s macroeconomic policy-making. 17 More recently in 1999, the PDMO was createdthrough a transfer of selected divisions and units from the FPO and the CGD to ensure coherent public
debt management under one single agency. 18

17Upon taking office in 2001, Prime Minister Thaksin has introduced a new public management approach in the public
sector. In October 2002, he radically reorganized the government’s administrative structure. The real impacts still remain
hard to measure, however, particularly with the September 2006 military coup that ousted Thaksin.
18
The PDMO was established on October 1, 1999 as a unit in the Office of the Permanent Secretary for Finance. On October 9, 2002, the PDMO became a new department within the Ministry of Finance. See also PDMO web site:
http://www.pdmo.mof.go.th/About_PDMO/Eng_index_KnowUs.htm.

31

Figure 2-1 Policymaking Structure in Thailand

CabinetNational
Debt Policy
Committee

National
Committee
on State
Enterprises

Office of
Prime
Minister

Ministry of
Finance

Ministry of
Finance

Department ofTechnical Economic
Cooperation

Fiscal Policy
OfficeLocaladministration
department

National Economic
and Social
Development Board

Public Debt
Management
OfficeLocal
government

Bank ofThailandState
enterpriseBureau of the
BudgetStateenterpriseStateenterpriseState enterprise
Source:Note:

Adapted from Warr, P.G., & Nidhiprabha, B. (1996). Thailand’s Macroeconomic Miracle: Stable Adjustment
and Sustained Growth. Washington D.C.: World Bank. p. 70, Figure 4.1.
Agencies marked in gray indicate those responsible for macroeconomic and aid management.

Notably, during the late 1950s-1960s, Dr. Puey Ungphakorn, a British-trained economist and thelongest-serving governor of the BOT (1959-1971), made a critical contribution to institutionalizing
such coordination mechanisms based upon financial conservatism (see also Chapter 7). Prior to assuming the position of the BOT governor, Dr. Puey served as director of both the BOB and the FPO andwas closely involved in implementing the government’s fiscal discipline plan. He sent close technocrat
aides and allies to take up key positions within each agency, using them to facilitate inter-agency coordination (Suehiro 2000). His professionalism had a profound influence on young technocrats in thesecore macroeconomic agencies. To this day, the importance of coordination mechanisms operating in
the core macroeconomic agencies remains unchanged, though some evolution in the broader structure32

has taken place. Current mechanisms for coordination include the formation of national committees
and sub-committees (formal mechanisms), as well as technical dialoguing and coordination (informal
mechanisms). On the other hand, coordination between NESDB and line (non-central) agencies hasoften been noted for its weakness.
Thailand began to receive economic aid in 1949, when it was admitted to membership in the WorldBank and the International Monetary Fund (IMF). The World Bank made its first loan to Thailand in
1950, and the years 1949-1950 also saw the launching of economic and military aid programs to Thailand from the United States (US), as well as the initiation of Fulbright program for financing higher
education for Thais in the US. Aid-related activities were scattered through the bureaucracy in theseearly years, as there was no government entity to perform aid-receiving functions. This led to theestablishment of the Thai Technical and Economic Committee (TTEC) in 1950 to plan and administer
the US aid program. The need to strengthen aid administration beyond US aid program became evident as the size and complexity of foreign assistance expanded during the 1960s, and the TTEC
became a department in the Prime Minister’s Office in 1963 under the new name of the DTEC. 19

2.

Malaysia

2-1 Institutional Framework for Development Administration and the Role of Central
Economic Agencies
Since gaining its independence in 1957, the strong political will and integrity of each successive leaderof Malaysia (Malaya until 1963) has driven a national devotion to itself to development planning andinstitution building. All of Malaysia’s prime ministers have possessed sound vision, a strong sense ofcommitment and dedication to ensuring success in development initiatives for the sake of the public’s
best interests. The Malaysian bureaucracy was supportive of initiatives set forth by political leadersand obligingly engaged itself at multiple levels to make these visions a reality. A strong shared senseof urgency over wanting to establish a united Malaysian nation—a country of peoples ethnically integrated and living in harmony and partnership—reinforced the public’s ability to accept the role oftechnocrats in bringing this overriding policy objective to fruition.
A notable feature of Malaysia’s administrative machinery is its strong emphasis on planning anddevelopment implementation. These functions are concentrated in the agencies in the Prime Minister’s
Department, the Ministry of Finance (MOF), and the Central Bank (Bank Negara). The Economic
Planning Unit (EPU) in the Prime Minister’s Department, which is charged with the preparation for
the government’s medium- and long-term plans and mid-term plan reviews, has been the key institution for development planning. It is the deciding authority on critical issues surrounding economic
activities, including those affecting investment selection and development budgeting. The EPU also
serves as a focal point for international cooperation, as it coordinates financial and technical assistanceBased on Muscat (1994). In 2002, DTEC was incorporated into the Ministry of Foreign Affairs and became the Thailand International Cooperation Agency (TICA) in 2004 as an aid-giving agency.

19

33

from both bilateral and multilateral agencies, and also manages the government’s technical assistanceprogram toward other developing countries. The Implementation and Coordination Unit (ICU), another agency in the Prime Minister’s Department, ensures the coordination and implementation of government policies, programs and projects at the national, intergovernmental, and federal and state levels.
The MOF manages public finance and is responsible for formulation and implementation of the budget in close coordination with the EPU. The Central Bank focuses on monetary and financial matters.
Malaysia’s planning system is a two-way interactive process between the EPU, line ministries, agencies and state governments. The EPU plays the key role in matching micro-level projects with macrolevel plans by combining “top-down” and “bottom-up” approaches. Planning from the top, i.e., setting
macro-level parameters, is determined in the context of the Inter-Agency Planning Groups (IAPGs).
The EPU serves as the secretariat for each of the IAPGs, whose work precedes the formulation of any
development plan. Planning from the bottom, on the other hand, essentially involves the line ministries, agencies and state governments, which translate the sectoral master plans into specific programs and projects.
Figure 2-2 shows the structure of Malaysia’s present planning and implementation machinery at thefederal and state levels. For each of the planning and implementation functions, there exist high-level,inter-agency coordination mechanisms. The National Planning Council (NPC) is the highest level ofdecision-making with regard to socio-economic matters. Chaired by the Prime Minister and comprising key economic ministers, the NPC serves as the economic committee of the Cabinet. The NPC isserved by the National Development Planning Committee (NDPC), which is the highest planning committee at the official level and is responsible for the formulation and detailed consideration of development plans, programs and projects. It is chaired by the Chief Secretary to the Government and consistsof the heads of all development ministries including the Governor of the Central Bank and the Minister of Finance. The EPU acts as the secretariat, and a similar planning setup exists at the state and district levels. 20
The National Action Council (NAC) is the highest level of decision-making in terms of the overall
implementation and coordination of development strategies. Under the chairmanship of the Prime
Minister, the NAC meets regularly with selected government agencies for intensive review of theirprogress and problems. The ICU serves as the secretariat and regularly submits reports pertaining to
problems encountered and progress made in development implementation (Nik Hashim Hj & Wan
Ibrahim 1994). A similar institutional setup also exists at the state and district levels. Until the 1980s,
the NDPC had also been responsible for matters of implementation and coordination. During the latterpart of the Mahathir administration, the National Development Working Committee (NDWC) was created as the highest level committee for government officials in this area (Torii 2005).
In this way, the EPU ensures coordination with other central ministries, federal agencies (i.e., national

20
This paragraph is based on the description given in “Development Planning in Malaysia,” Economic Planning Unit,
Prime Minister’s Department (provided by the EPU officials to the GRIPS team in October 2005).

34

Figure 2-2

Administrative Machinery in Malaysia (federal and state levels)

Development Planning Machinery
Parliament
Cabinet Ministers
National Economic
Action Council,
National Economic
Consultative Council

National
ActionCouncilNational Planning Council
Draft

PolicyNational Development
Planning Committee

Draft

Implementation &Coordination Unit

Secretariat
Economic Planning Unit
General Framework

Proposal
ProposalInter-Agency Planning Group (IAPG)
Consultations

Proposal
Circulars

Circulars

Federal Ministries & Agencies

State Governments

Planning, Coordination and Evaluation
MachineryPrivateState Government Planning, Implementation and Security
Machinery
Sultan / Raja / Governor

Parliament
Executive Committee
CabinetNational
Planning
CouncilNational
Development
Planning
Committee

Economic
Planning Unit

Planning

National Action
CouncilNational
SecurityCouncilState Action
Committee

State Planning
Committee

State
Development

District Planning
Committee

State Security
Committee

District Action
Committee

National Action
Committee

District
Development
Committee

Implementation
andCoordination Unit

District
Security
Committee

Mukim (division) Development and Security
Committee

Implementation

Kampong (village) Development and Security
Committee

Source: Economic Planning Unit, Prime Minister’s Department. 2004. “Development Planning in Malaysia.” Putrajaya,
Malaysia.

35

line agencies), state government offices and the private sector by functioning as the secretariat for various inter-agency councils, committees, sub-committees and groups. As a super-ministry, the EPU
assumes strategic core functions and acts as the operational core center, simultaneously both “topdown” and “bottom-up” in approach, of planning process and economic sector activities. Regardless ofchanges to political administrations over time, the basic foundation for planning and coordination has
been steadfastly both utilized and maintained to this day.

2-2 Historical Background and the Formulation of Development Administration
The foundation of Malaysia’s development administration was built in two stages. The first stage,
which was immediately after independence during the late 1950s-1960s, was concerned with setting
up the original planning machinery. The second stage during the 1970s was concerned with reinforcing
the coordination and implementation function in order to effectively execute the goals of the New Economic Policy (NEP). Former Prime Minister Tun Razak, who was also Deputy Prime Minister and theMinister of Rural Development from 1957 to 1970, played a vital role during both stages. The basic
features of administrative machinery established in the 1970s remained unchanged, and were further
enhanced under the Mahathir administration (1981-2003) in terms of achieving greater efficiency.
During the first stage, the country was heavily dependent on economic and military aid from the UK at
the time of independence in 1957, and the new government also had limited experiences in development planning. The government had sought technical assistance from the World Bank, and it established a small Economic Secretariat headed by an expatriate adviser following the recommendations of
the 1955 World Bank report. In 1961, this office was upgraded into an EPU that was staffed with its
own economic officers and attached to the Prime Minister’s Department. In the same year, the government also established the National Development Planning Committee (NPDC), with the EPU as its
secretariat. According to Esman (1972), Malaysia largely completed the replacement of expatriateswith local officials in the public sector by 1965, although their professional skills still remained insufficient. In this regard, the first generation of elite technocrats played a critical role. For example, Tan
Sri Yaw Hong, who became the first Malaysian head of EPU, replacing the post occupied by foreign
experts, not only took measures to build core functions of the country system, but also instituted programs for human resources development from a long-term perspective (see also Chapter 7).
During the second stage, top leadership decided to create the ICU in 1971. Prime Minister Razak, who
had adopted the NEP, considered it essential to set up a mechanism for ensuring effective implementation of expanding public expenditures. Building on his previous experience with rural development as
the Minister of Rural Development, Prime Minister Razak instituted nationwide systems for planningand monitoring the implementation of priority development activities by establishing lines of communication and coordination between different levels of public agencies. Such systems, known as “REDBook” and “Operations Room,” were built on British army practices (see Chapter 3 for their detailed
accounts).

36

3.

The Philippines

3-1 Institutional Framework for Development Administration and the Role of Central
Economic Agencies
The main feature of development planning and administration in the Philippines is its “dual track”
nature. Particularly since the late 1980s, technocrats have been consistently worked to bring about
institutional reform that would strengthen development planning and administration and enable theefficient and effective delivery of public services, as represented in the administrative channel. On theother hand, legislators have been challenging this administrative channel, especially when it comes tothe budgeting process, and their interference has led to allocative distortions (“legislative intervention”). The fact that this sort of political intervention has been institutionalized in the budget system
markedly distinguishes the Philippines from Thailand and Malaysia. Also, since the Philippines, upon
the enactment of its Local Government Code (LGC) in 1991, was one of the first countries in theregion to decentralize, the regional and local dimensions of development planning and administration
have posed unique challenges.
The basis for current planning machinery within the executive branch was established in 1987, when amajor reorganization of the National Economic Development Board (NEDA) took place with thepromulgation of the new Constitution and Executive Order (EO) 230. Key agencies responsible forpolicymaking in the Philippines are the NEDA, the Department of Budget Management (DBM), andthe Department of Finance (DOF). The NEDA, which consists of the NEDA Board and the NEDA
Secretariat, formulates annual, medium and long-term economic and social development plans (bothnational and regional). It also reviews and programs investment projects, while monitoring and evaluating their implementation. The NEDA Board is the government’s highest socio-economic planning
body, chaired by the President and made up of a subset of Cabinet members and the Governor of theCentral Bank. The NEDA Secretariat is the staff agency for formulating national and regional development plans and public investment plans, i.e., the Medium-Term Philippines Development Plan
(MTPDP), the Medium-Term Regional Investment Plan (MTRIP), the Regional Development Plan
(RDP), and the Regional Public Investment Plan (RPIP). NEDA also serves as a focal point for international cooperation, coordinating financial and technical assistance from both bilateral and multilateral agencies. The DBM is the staff agency of the President on national budgeting and is responsible forbudgeting and finding funding sources for approved projects listed in the MTPIP. The DOF is responsible for generating budgetary funding, and supervises the Bureau of Internal Revenue, the Bureau of
Customs and the Bureau of Treasury. Also, the Bangko Sentral ng Pilipinas (BSP) is responsible formonetary and financial policies.
There are six cabinet-level interagency committees, all headed by the President, assist the NEDA
Board in accordance with its functions. These include: (i) the Development Budget Coordination Committee (DBCC); (ii) the Infrastructure Committee (InfraCom); (iii) the Investment Coordination Committee (ICC); (iv) the Social Development Committee (SDC); (v) the Committee on Tariff and Related
Matters (TRM); and (vi) the Regional Development Committee (RDC). The membership of eachCommittee consists of selected Cabinet Secretaries and other executive officers heading departments
responsible for implementing the development plans.

37

Among the six cabinet-level inter-agency coordination committees, the DBCC and the ICC are theprincipal bodies overseeing budget and public investment planning on behalf of the President and the
Cabinet. The DBCC is the point committee for reconciling macroeconomic and development objectives, while the ICC is the gatekeeper in deciding what projects will be financed (Medalla 2004). The
NEDA Board approves projects only upon the recommendation of the ICC. The DBCC is chaired by
the Secretary of the DBM, and the ICC is chaired by the Secretary of Finance. NEDA, DBM, DOF,
and BSP are principal members of both committees. In addition, the Infrastructure Committee (Infracom), which is chaired by the Secretary of Public Works and Highways, 21 prepares the infrastructure
program to be funded from the annual government budget. The NEDA Director General serves as
either the chairman or vice-chairman of the six committees give above, except for the DBCC.
The NEDA Director General is also authorized to assemble technical committees consisting of line
departments and agencies, as well as partners from the private sector, civil society and/or academe forthe specific purpose of planning and implementing sectoral plans. As for regional planning, the RDC
was created to translate national development goals, strategies and targets into specific regional objectives, and, in turn, to flesh out and adopt respective regional plans and policies for approval at thenational level. Hence, the planning process at work in the Philippines can be considered as being a
combination of top-down and bottom-up approaches, facilitated by the utilization of interagency committees and coordination channels.
Apart from the cabinet-level committees, there exists a joint cabinet-legislative consultative and advisory body to the President that is called the Legislative-Executive Development Advisory Council(LEDAC). The LEDAC was established in 1992 under the Ramos Administration, for the purpose of
facilitating coordination between executive development planning and congressional budgeting. By
incorporating legislative input into development planning and investment programming exercises earlyon, the LEDAC intends to achieve the goals set out in the plan by facilitating subsequent deliberationon the part of legislators to fund the priority programs and projects, as well as minimize congressionalchanges during the budgeting process. While it is outside the NEDA organizational structure, theNEDA Secretariat serves as a secretariat to the LEDAC.

3-2 Historical Background and the Formulation of Development Administration
Development planning in the Philippines started as early as 1935. The National Economic Council(NEC) was created then out of recognition for the need to institutionalize a central planning body, particularly one capable of generating rapid, yet balanced, socioeconomic development. The Program
Implementation Agency (PIA) and its successor body, the Presidential Economic Staff (PES), werecreated in 1962 and 1966, respectively, as part of a number of administrative innovations introduced
under the Five-Year Integrated Socioeconomic Program for 1963-1967. The PES later evolved into

The annual infrastructure program forms part of the proposed National Expenditure Program and the Budget Expenditures and Sources of Financing (BESF) that are submitted annually to Congress for approval. Funding is authorized by theannual General Appropriations Act, as well as by the Public Works Act (which authorizes multi-year infrastructure projects).

21

38

another planning agency, ultimately diffusing the functions of the NEC.
In 1972, when President Ferdinand Marcos declared marshal law, the functional responsibilities vested
in the NEC, the PES and other ad hoc economic institutions were consolidated into one planning body,the NEDA. Thus, it was during Marcos administration (1965-1986) when a centralized administrative
body for planning, the NEDA, was created. However, this centralized system was utilized only as ameans to maintain his dictatorship, inevitably resulting in power being limited to, and horded by, technocrats and cronies who faithfully obeyed Marcos’ word. Following the declaration of marshal law, thegovernment created eight development plans.
The oft-recognized turning point of development administration in the Philippines took place in 1986,
when Corazon Aquino put an end to Marcos’s dictatorship and initiated a democratization process.
President Aquino’s administration (1986-1992) undertook a government-wide structural reorganization, wherein the NEDA was also revamped as explained in the above. As embodied in the 1987 EO
230 by the President and the 1987 Philippine Constitution, the NEDA was authorized with the distinctive advantage of being an independent planning agency. EO 230 narrowed down and streamlined theoverall structure and functions pertaining to the NEDA in two major areas: (i) development planningand policy formulation; and (ii) investment programming and ODA coordination. For example, NEDA
interagency committees were streamlined and reduced in number from twelve to five. 22 Prior to 1986,
during the Marcos administration, the ICC and the DBCC, for example, existed as merely a formality.
However, they did not quite carry out coordinating functions across different agencies and departments. As a result, information on important policy issues, including macroeconomic data for planning, investment selection, budgeting and external borrowing, was all kept in a centralized location at
the NEDA, and no other agencies were in any position to grasp the larger, more comprehensive picture.
After 1986, inter-agency coordination began to take place through these committees in an ad hoc fashion, and later, during the Fidel Ramos administration (1992-1998), their functions were strengthened
and institutionalized. At the NEDA secretariat-level, functions and organizational structures changed.
For example, project development, previously handled by NEDA Sector Staffs, was transferred to
implementing agencies, and thus Sector Staffs became more able to focus on sector coordination, policy formulation and project evaluation. As for ODA administration, prior to 1986, there were three
Staffs in charge within the NEDA, namely: the Project Economic Staff in charge of dealing with multilateral donors (e.g., the World Bank and the Asian Development Bank), the External Assistance Staff
in charge of USAID and other bilateral donors, and Infrastructure Staff for Japanese loans. 23 Despite
the fact that each Staff had an undersecretary of its own, there was little coordination in the process ofinterpreting ODA-related guidelines and handling their operation, and even critical decisions andapprovals appeared incoherent among them. In 1986, the three Staffs were consolidated into one insti-

The five committees were: the DBCC, the InfraCom, the ICC, the SDC and the TRM. The Regional Development Committee (RDC) was created later in 2004.
23
To be exact, bilateral assistance from Japan should have been under the control of the External Assistance Staff; however, the Infrastructure Staff in effect took charge since assistance from Japan then was mostly for infrastructure development. (Interviews with former NEDA officials held in March, 2006.)
22

39

tution, thereby newly establishing the Public Investment Staff. Thus, a centralized ODA management
structure within the NEDA Secretariat was finally achieved, making the administration of ODA matters, including project preparation, investment selection, monitoring and evaluation, more efficient andeffective. The basic structures and functions of the NEDA as established at this time have been maintained up to the present. Hence, the basic foundation for development administration in the Philippines
today traces back to 1986.

40

Chapter 3 The Role and Characteristics of Development Plans in Policy andResource Alignment and the Evolution of Development PlanningThis chapter will analyze the role and characteristics of development planning in the East Asian countries of Thailand, Malaysia, and the Philippines. We will pay special attention to the role of development planning in policy and resource alignment functions, with an eye toward coherence and sequencein the areas of development planning, budgeting, investment programming and project approval. The
first part of this chapter is also closely related to the analyses of the two chapters that follow: Chapter
4 on macroeconomic coordination, and Chapter 5 on public investment programming and projectapproval.
Here, we will also provide a brief overview of the evolution of development planning for Thailand andMalaysia. We will include the major characteristics of successive courses of development plans, paying attention to defining characteristics such as strategic priorities and shifts in focus. This information
will not be included for the Philippines, however, where development planning has lesser policy consistency, and where the preparation of new development plans with each change of political administration—even in the midst of the previous plan—seems to indicate little significance in analyzing its
evolution.
We will touch upon social, economic and political backgrounds that are unique to each country, as wellas the dynamics of development administration, including the use of aid. The development plans ofThailand and Malaysia will be reviewed comprehensively, starting from the early periods of the firstplans (1950s-1960s) through the current ones (2000s). For the Philippines, the review will mainly
focus on the year 1986, which is commonly recognized as the country’s turning point. It was only afterthat year, in fact, when the advancement of a modern development administration system in the Philippines first took effect (see Chapter 2 for a description of the concrete changes that occurred before andafter 1986).

1.

Thailand1-1 The Role of Development Planning in Policy and Resource Alignment Functions
Thailand has two main types of national plans with respect to the alignment of policy and resources
with development priorities: the five-year development plan (formally referred to as the National Economic and Social Development Plan, or NESDP) and the annual budget. With the exception of theThird (1972-1976) and Fourth (1977-1981) NESDPs, the Thai government has not introduced public
investment plans (PIPs) (for more information on the framework in Thailand, see Figure 3-1: Chronological Outline of the Development Plans and Political Leaders of Thailand, Malaysia, and the Philippines). As described in Chapter 2, all central economic agencies, with the National Economic andSocial Development Board (NESDB) being a focal agency, bear core responsibility for preparation of
the NESDP. The Bureau of the Budget (BOB) prepares the annual budget in coordination with the
NESDB and other agencies.

41

NEB

NEDB

Pote Thanom
Sarit
ThanomNESDB

KukritSeni Seni Tanin
Sanya
Kr iangsak
Prem

Suchinda
Anand Anand Banharn
Chavalit Chuan
Chatchai
Chuan
Thaksin

Chronological Outline of the Development Plans and Political Leaders of Thailand, Malaysia, and the Philippines➞➞

Independence(Malaya)
EPU Malaysia

Tunku Abdul Rahman

➞

➞

➞

42
PES

PIA

Diosdado Macapagal

➞

➞

NEC

Carlos
GarciaMP 1

NESDP 5NESDP 7NESDP 8

Dato’ Seri Dr. Mahathir Mohamad

NESDP 6NEDA
Marshall Law

MP 5

Dato' Seri Abdullah Ahmad Badawi

NESDP 9CorazonAquino

OPP 2

MP 7

MP 8

Fidel Ramos J. Estrada Gloria Macapagal Arroyo

Vision 2020

MP 6

MP 9
OPP 3
National Development Policy National Vision Policy

Industrial Master Plan

Malaysia Incorporated

MP 4
OPP 1
New Economic Policy
Look East Policy

MP 3

Ferdinand Marcos

MP 2

➞

➞

35 …… 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 01 02 03 04 05 06 07 08 09 10
Medium-Term Philippine Development Plans

Presidents

NESDP 457 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

ICU

riot

➞

Philippines

NESDP 3

Tun Abdul Razak Hussein Onn

NEDP 2➞

Malaya Plans
1
2
Malaysia Plans
Outline Perspective Plans
National Policies
Other National Development Policues

Prime Ministers

Malaysia

National Economic Development
NEDP 1
Plans
National Economic and Social Development Plans

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Plaek

Prime Ministers

ThailandFigure 3-1➞

< Coherence Among Development Planning, Budgeting, Investment Programming and Project Approval >Thailand’s expenditure allocation among various sectors has broadly reflected its development priorities (World Bank 2000). Such general policy is not the result of the application of modern planning,
nor of budgeting or solid macro-sectoral links (between, for example, the NESDB and line ministries).
Rather, it is the result of close coordination around the five-year development plan and annual budget
formulation among the central economic agencies—especially the BOB and the NESDB—as well as
their shared responsibility for scrutinizing public investment projects (including State Owned Enterprise (SOE) and ODA-funded investment plans) and allocating annual expenditures. Since efforts tolink planning and budget have taken place mainly among the central economic agencies, it is often
noted that the Thai government’s sectoral policies are less coordinated than macroeconomic management, and that there exists a division of macro and micro policies (Christensen et al. 1993).
In fact, Thailand’s initial approach to development planning, until the Fifth NESDP of 1982-1986, hadfunctioned primarily in a “top-down” manner, meaning that the NESDB, in coordination with othercentral economic agencies, had possessed almost exclusive administrative and decision-making power
in regard to priorities and plans consequently passed down the line of command, thereby effectively
bottlenecking input from line agencies and ministries. This held true even in relation to smaller-scale
sectoral programs within the NESDP. Actually, until the mid-1980s, the NESDB had no real involvement with line agencies or ministries. 24 The process of preparing the Sixth NESDP of 1987-1991,
however, virtually changed all this due to the progression of decentralization. By the time the Seventh(1992-1996) and the Eighth (1997-2001) NESDPs were in effect, the line agencies and ministries wereembarking on the preparation of their own sector plans and master plans, which would eventually contribute to the basis for subsequent NESDPs. Accordingly, the NESDB’s direct involvement in the
preparation of NESDP sectoral strategies shrunk as a consequence of enhanced engagement on thepart of line agencies and ministries. 25
Figure 3-2 illustrates Thailand’s policy and resource alignment functions in terms of development
planning, macroeconomic coordination, investment programming and project approval. Thailand’s
NESDP has been “indicative” in nature, which is distinguishable from the practice in Malaysia, where
the five-year Malaysia Plan sets the overall and broad sectoral ceiling for development expendituresduring the corresponding periods. More specifically, NESDP specifies development priorities but does
not bind budget allocation. In addition, the Thai government did not introduce public investment plan
(PIP), except for the Third and the Fourth NESDPs, as mentioned. The NESDP, therefore, is structured
with room for the flexibility necessary to accommodate any future social, political and/or economic
shifts. In fact, as Figure 3-2 shows, the Thai government has taken “two-tiered approach” in deciding
the selection and resource allocation for individual public investment projects—prospective development projects outlined in the NESDP must be later scrutinized and pruned throughout the annual budget process to secure necessary funding. Hence, the government can respond to future changes, as there

Christensen et al., The Lessons of East Asia, Thailand: The Institutional and Political Underpinnings of Growth, The
World Bank (1993), Chapter IV, p.24
25
Interviews with line ministry officials held January 2006.
24

43

are time-lags between the development planning and budget allocation processes. Actual funding
requirements are highly dependent on the physical progress and the prior preparation of development
projects, and they are sensitive to public demand and support. For example, if local residents raise
objections against the construction of certain investment projects for some reasons, the physicalprogress would be affected, and the disbursement projection in turn would have to be changed accordingly.

Figure 3-2

Overview of Development Planning, Macroeconomic Coordination, andPublic Investment Programming in Thailand<National Economic and Social Development
Plan (NESDP)>◆ Annual budget and debt approval◆ Development planning◆ Project approval conducted as a part of theannual budget/debt approval process<Focal point><Focal point>NESDB (National Economic andSocial Development Board)

BOB (budget) andFPO+PDMO(1999-) (loans)<Coordination>◆ Coordination<Coordination>
mainlyamong◆ Budget hearings and dialogues:

central■ BOB “mobile units”■ State enterprises

economic agencies):■ NESDB■ BOB (Bureau of the Budget)■ FPO (Fiscal Policy Office) + PDMO (Public
Debt Management Office, 1999-)■ Central Bank

◆ Consultation with other central
economic agencies:■ NESDB■ FPO, PDMO
■ Central Bank

*macro-sector coordination relatively weak

<Coordination mechanisms>➜ Centralized system, with strong coordination among central economic agencies(CEAs)—subtle check and balance functions built-in, leading to shared responsibilities
among CEAs

44

The case of the Eastern Seaboard Development Plan is a typical example, where the Thai government
has taken full advantage of this “flexibility” feature. While it received the top priority in the Fifth(1982-1986) and the Sixth (1987-1991) NESDPs, the government postponed, scale-downed and evencanceled some projects in accordance with the macroeconomic conditions. Pragmatic decisions weremade based on the thorough assessment of economic feasibilities of specific projects during the difficult times of recession (see Chapter 6 for detail).
While their indicative qualities surely allow for flexibility, the NESDPs are generally recognized assolid, overarching core documents that stipulate national strategies, and priorities for development.
Never was this recognition more heralded than during the years of the Fifth NESDP (1982-1986),
often seen as “the golden era of planning”. 26 However, a visible decline in the significance of national
planning per se, and the relative role therein of the NESDB, began in the late 1980s. Especially after
the inauguration of the 1997 Constitution, politicians have come to increasingly challenge the efforts
of technocrats outright by intervening in policy formulation and planning processes. The private sector
has also stepped forward to become more involved in policy. In other words, changes to the social
structure, meant to augment a more democratic society, have simultaneously triggered an increase in
the leverage held by stakeholders outside of the bureaucracy, while siphoning off the influence of theNESDB and, ultimately, the quality of its initiatives therein.

1-2 Major Characteristics of Each of Thailand’s Development Plans, and Corresponding
Social, Economic and Political Climates 27
1-2-1 Overview
The first national development plan in Thailand was launched in 1961. It was, by name, the “First
National Economic Development Plan (NEDP: 1961-1966)” and, to date, remains the only national
plan to have covered a six-year period (all successive national plans have covered five-year terms).
According to the “Five Decades of NESDB” (NESDB 2000), the main objective of the First and theSecond NEDPs was to stimulate expansion of the economy by introducing the concept of “development with growth.” In relation to this, the First NEDP adopted a project-based planning approach,which aimed at implementing basic infrastructure projects for economic development. The corresponding planning process was top-down in nature. The Second NEDP (1967-1971) kept the same principle of development with growth, as set forth in the First NEDP, but, in addition, it also introduced theidea of sectoral development planning. This new approach was adopted in order to identify targets,
objectives and strategies within national plans and decision-making processes, as well as facilitate thedevelopment of necessary databases.

Dr. Sanoh Unakul, “Thailand’s Development Strategies: Past, Present and Future”, speech delivered in Thailand at the
National Defense College, Bangkok, February 13, 1986, p.65.
27
Information for this section was mainly drawn from (1) “Thailand’s Development Strategies: Past, Present and Future”,
speech delivered by Dr. Sanoh Unakul in Thailand at the National Defense College, Bangkok, February 13, 1986 and (2)“Five Decades of NESDB”, published by the NESDB in February 2000, on the occasion of its 50th anniversary. The latterdocument thoroughly reviews the history of Thailand’s development plans, the outcome of 50-years of development andits outlook for future development. (3) The original national development plans were also drawn upon for reference.
26

45

The Third Plan (1972-1976) marked a new era, as signified in the change to its name, that is, theNational Economic and Social Development Plan (NESDP) (emphasis added by author), consciously
designed to reflect the importance Thailand was ready to assign to aspects of social development, on
equal footing alongside those of economic development. Accordingly, both the NESDP’s coverage andits objectives were expanded. At the same time, in 1972, the planning office, formerly the Office of the
National Economic Development Board (NEDB), 28 was renamed the Office of the National Economic
and Social Development Board (NESDB) (emphasis added by author). “Five Decades of NESDB” also
points out that the Fourth NESDP (1977-1981) introduced an intersectoral approach to development,
which was a nod to the fact that existing project-based and sectoral development planning approaches
had been limited in their capacity to address fundamental problems that carried an impact across multiple sectors.
The Fifth NESDP (1982-1986) contained planning processes that could also be described as strategicplanning. An approach that was both intersectoral and programming-oriented, was introduced therein
for use with two pillar programs: (i) rural development for alleviating poverty, and (ii) regional development, including development of the Eastern Seaboard sub-region. The programming-oriented
approach was a new means to undertaking planning and budgeting wherein annual budget plans fordevelopment were compiled by integrating across the board all agencies concerned, so that the overallbudget for whole programs could be easily grasped. Before this approach had been introduced, budget
information for development was only attainable in a fragmented manner, as it was divided between
the development budget plans of relevant government agencies. At the time of the Fifth NESDP’s
preparation, institutions and individuals outside bureaucracy—from both the civil society and the public at large, among other stakeholders—began to establish a participatory presence in development
planning and, as a result, bottom-up planning, was soon bolstered. The Sixth NESDP (1987-1991)
again employed a programming-oriented approach and, in a broader sense, also carried on the Fifth
NESDP’s emphasis on quality over quantity, a concept that Thailand had only recently come to moreresoundingly affirm. Also, during the preparatory stage of the Sixth NESDP, the active involvement ofline agencies and ministries in the planning process began to take root.
The Seventh (1992-1996) and Eighth (1997-2001) NESDPs featured the principles of sustainable
development and people-centered development. In addition, a broad-based participatory approach toplanning was called for, for the first time ever in the Plan’s history. This dramatic shift in approachcompelled the government, and in particular the NESDB as its central planning agency, to reconsider
its role in the management of developmental and socioeconomic matters. The Ninth NESDP (20022006) adopted the philosophy of sufficient economy, which emphasized sustainable development,sound macroeconomic policies and the equitable sharing of the benefits of economic prosperity. The
Plan currently in effect is the Tenth NESDP for 2007-2011, which was prepared with the NESDB acting as the nexus point for necessary coordination.

Prior to the NEDB, the Planning Office in Thailand was initially named the National Economic Board (NEB). The NEB
was established in 1950, in order to advise on general economic matters and recommend appropriate measures to theRoyal Thai Government.

28

46

1-2-2 The First National Economic Development Plan (1961-1966)
The First NEDP was prepared during the administration of Thailand’s eleventh Prime Minister, Field
Marshall Sarit Dhanarajata (1959-1963), who had come to power after overthrowing the previous Field
Marshall Plaek Pibulsongkram by way of a military coup. Prime Minister Sarit exercised strong leadership, wherein he aimed to attain robust economic development by, (i) adopting the concept of development through growth, and (ii) introducing, for the first time, a top-down structural approach to planning. Hence, the focus of the First NEDP was centered on the development of infrastructure, and theneed for the presence of powerful, centrally-active economic agencies ready to handle these issues
properly. According to Dr. Sanoh Unakul, 29 the former Secretary General of the NESDB, the First
NEDP was regarded as the most influential among all early plans in setting the direction of national
development, though, he added, it may technically have been comparatively weak due to the lack ofmodern planning techniques and necessary data available at the time of its conception. Dr. Unakulemphasized that, in terms of spirit and its eventual course of implementation, the First NEDP was considered to be the best. The NEDP was a collaborative production undertaken by top intellectual minds,
many of whom had studied abroad, and were handpicked from a variety of fields of expertise tangential to government and academic circles. Dr. Puey Ungphakorn, governor of the Central Bank—the
Bank of Thailand (BOT)—at the time, was one leading scholar prominent in the planning process. In
fact, what is quite notable about the management process was Prime Minister Sarit’s use of his own
keen power of persuasion to mobilize and bring together so many people of different backgrounds tocooperate in one planning process. The Prime Minister also had the great foresight to, in effect, establish what has now become a foundation to Thailand’s economic development planning system—a system that has continued to contribute to national development to the present day. With this in mind, one
can see how, according to Dr. Unakul, democratically-minded technocrats were willing to work withthe dictatorial government under Sarit, if only for the benefit of national development. In this sense,
the time surrounding the First NEDP’s preparation was considered a golden era for planners, where
technocrats and their ideas were encouraged and valued as a national resource.
The wide personal network cumulatively held by these top minds facilitated broader support, not only
from within domestic arena but also from abroad. The World Bank and the United States (US) played
an important role in the national development process of this time. World Bank experts were dispatched to Thailand in 1957-58 to study the form of the country’s economy and prepared a report, by
request of the Thai government, titled “A Public Development Program for Thailand (1959).” At thetime, the Thai government anticipated receiving continued assistance from the World Bank in order toprocure capital investments necessary for the country’s economic development. Dr. Puey Ungphakorn
played a major role in requesting World Bank assistance. Both World Bank findings and proposals
from the report were utilized as input for the First NEDP. In fact, the World Bank played a long-standing central role in supporting the government in planning process work, especially over the time spanning from the First NEDP to the Third NESDP. The NEDB, predecessor to the NESDB was created in
1959 based on the World Bank’s recommendation that a permanent economic planning agency be

Dr. Sanoh Unakul served as Secretary General for two terms (1973-1975 and 1980-1989). This is based on a remark hemade at a presentation at the National Defense College in 1986.

29

47

established. The report also suggested that central economic agencies besides the planning agency
must be built, which motivated the Thai government to formulate the national plan.
The US first allocated assistance to Thailand in September 1955 and continued until 1963. During thistime, Thailand received 5.96 billion baht worth of free grants for academic and national defense objectives. 30 This assistance was linked to the US policy and efforts thereby to contain communism at thetime of the Cold War, as well as expand cooperative economic and technical aid to Thailand.
Thus, with support from both domestic and international institutions, national development strategy
took clear direction and was first set in motion. In sum, the First NEDP was highly significant in termsof its background in development, the planning process it outlined, and its content.
Other significant characteristics of the First NEDP, as pointed out by Dr. Sanoh Unakul, were 31 :
(i)

(ii)
(iii)
(iv)

(v)

(vi)

The First NEDP was considered to be one of the most important national strategies on a global scale, as it was the first to recognize economic development as a key aspect of national policy. Before the First NEDP, the word “development” was hardly ever heard or really understood. Thus, the First NEDP succeeded in setting important development targets.
Development became subject to its own planning process. The national plan acted as a chief
tool for achieving the targets set out in national development strategies.
The plan was used to mobilize both human and financial resources, from foreign and domestic sources, in order to accelerate national development.
The plan coordinated a variety of development projects, bringing them together underneathone umbrella. As, such, the First NEDP was groundbreaking as a national plan for its emphasis on the importance of projects per se.
Theoretically, all government projects should have been under the NEDP, and covered all
aspects of development. However, in reality, the NEDP carried only projects that utilized thenational budget and foreign financial sources through government borrowing. Furthermore,
the government foremostly emphasized economic development projects, including roads,
electricity and water supplies, because they were viewed as most appropriate and, thus, most
likely to easily gain backing in the form of World Bank loans.
The government had also set out clear policies to encourage investments in industry from theprivate and foreign sectors.

As for implementation, Dr. Unakul acknowledged that most projects were regarded as successful,albeit with initial delays due to a shortage of capable technical and administrative personnel. Because
only a few development sectors were emphasized in the NEDP, the types of projects undertaken werelimited as well. During the time that the First NEDP was in effect, Thailand’s economy grew so rapid-“Five Decades of NESDB”, published by the NESDB; February 2000
Dr. Sanoh Unakul has acknowledged that the plans and the planning process were not necessarily perfect. He also
admitted that a national development plan was only one factor in contributing to the economic well-being of a nation, andother factors such as prevailing global economic currents and domestic political and economic changes, must be considered.
30
31

48

ly that, in some cases, it even exceeded NEDP development targets. This was partly due to external
global factors, such as the expanding world economy, increasing market demand for Thailand’s goods
and services due to the Vietnam War and financial assistance being imparted by the US.

1-2-3 The Second National Economic Development Plan (1967-1971)
The Second NEDP enhanced development efforts, along the same trajectory as initiated under the First
NEDP, aiming to provide basic infrastructures necessary for economic development. While the Second
NEDP still put its emphasis on projects per se, it also took into consideration sectoral andregional/rural interests so as to foster accelerated economic and social development through better
planning. Hence, the Second NEDP was regarded to be a continuation of the First NEDP, with a scopeof development broadened to encompass individual economic sectors, and regional and rural areas as
well.
The Second NEDP also dealt with a number of economic issues, particularly those addressing (i) controls on foreign borrowing, (ii) financial and treasury policy, and (iii) private sector development. In
order to expedite private sector development, the government set up its own private sector economic
development sub-committee so as to initiate a new structural mechanism for government-private sector
cooperation. This sub-committee later became the Joint Public-Private Consultative Committee(JPPCC), created by the NESDB in 1981.
While the agricultural sector was substantially important to the Thai economy during the Second
NEDP, at the same time the economic structure had changed from being less agriculturally-based tomore industrially-based. The international market price of agricultural products, and in particular rice
and rubber, had fallen, thereby obstructing Thailand’s economic growth enough to prevent it fromachieving its target. Accordingly, at this juncture planners began to take structural changes in the Thai
economy into thorough account.
Towards the end of the Second NEDP period, national development indicators began to slow down.
Thailand’s economic growth was measuring below target and its first trade deficit since the 1961 initiation of national development plans occurred in 1969. In addition, the US military assistance had been
cut significantly, which also inevitably affected the Thai economy. On the domestic front, problems
relating to income distribution and disparities in wealth seemed aggravated, especially those between
the urban, Bangkok population and its counterparts from the outer provinces. Issues of national security and corruption were openly debated, which palpably added to social and political tensions in the
country.
Foreign assistance to Thailand at the time of the Second NEDP was mainly provided by the US, which
actually accounted for over 70 percent of total assistance, followed by the UN and Colombo Plan
member countries. 32 Besides the World Bank, West Germany, the US, Japan and the Asian Develop-

32“Five Decades of NESDB”, published by the NESDB; February 2000.

49

ment Bank (ADB), among others, also became major lenders to the Thai government. It was during
this period, with Dr. Puey Ungphakorn at the helm as acting governor of the BOT, when oversightmeasures for national foreign borrowing were introduced. These were later further improved to createa strong foundation for establishing the country’s prudent foreign borrowing control system.

1-2-4 The Third National Economic and Social Development Plan (1972-1976)
The Third NESDP was the first plan to give priority to social development. In order to better address
inequalities and other problems at the root of social tensions that had emerged towards the end of thesecond plan, the Third NESDP was crafted to reflect both contemporary social and political situations
as well as lessons learned from the prior NEDP. Hence, the NESDP emphasized not only economic
growth, but also social justice and equitable income distribution, both topics that had not been taken up
adequately in previous national plans. Development guidelines stipulating important government policy of the 1970s (i.e. the time of the Third and Fourth NESDPs) were as follows.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)

To promote national security,
To solve economic scarcity and raise national income levels,
To lifting per capita income and the people’s quality of life,
To solving problems relating to unemployment,
To expand public services nationwide,
To allocate social services to rural areas, andTo control the population growth rate.

The Third NESDP had its name changed to the National Economic and Social Development Plan(emphasis added by author). At the same time, the planning office, formerly called the Office of the
National Economic Development Board (NEDB), 33 was renamed to become the Office of the National
Economic and Social Development Board (NESDB) (emphasis added by author) to show that due consideration was being paid to the social aspects of development as well.
As an account of the diversified objectives of development, the plan began to define new strategies
meant to cover the bigger picture. These strategies included increased efficiency in production, thepromotion of export activity and population control. In fact, starting with the Third NESDP, the Thaigovernment attempted to transform its industrial strategy from one of import substitution to a more
export-oriented approach to industrialization. Overall, the new plan encouraged the creation of opportunity and improvements to economic and social services, especially in regard to agricultural development as evidenced by loans from the Bank for Agriculture and Agricultural Cooperatives (BAAC), forexample.
In sum, the Third NESDP paid greater attention to solving intensifying problems in the broader social

33
Prior to becoming the NEDB, the Planning Office in Thailand was initially named the National Economic Board (NEB),
as described in footnote 28.

50

sectors, as appropriate for the time.

1-2-5 The Fourth National Economic and Social Development Plan (1977-1981)
The Fourth NESDP was prepared at a time of political chaos and instability. Government rule was
oscillating between democracy and military leadership; yet, in the midst of this uncertainty over political and economic ramifications, the planners forthrightly made their assessments and identified problems that needed to be tackled in order to produce the Fourth NESDP.
The Fourth NESDP introduced an intersectoral approach to development after the sway of sectoraldevelopment planning went into decline when, in the face of social rifts and other wide-ranging problems, planners increasingly found themselves unable to neatly separate development issues into single,
specific sectors. For example, issues pinpointing natural resource management, especially for land andwater resources, inherently make a prominent impact across several sectors, such as agricultural andindustrial development in both rural and regional contexts, making it difficult to visibly contain themto one sectoral area.
With regard to monetary and fiscal policy, the Thai government was making an effort to solve its problems with mounting foreign debt and the current account deficit, incurred partly as a result of the second oil crisis. It enacted strict measures meant to improve fiscal conditions, most notably by raisinginterest rates to accumulate savings, controlling consumption expenses in private sectors, devaluing theThai currency and generally cutting government expenditures. The ceiling on national borrowing was
reasonably adjusted to a higher level as well (in 1977).

1-2-6 The Fifth National Economic and Social Development Plan (1982-1986)
The Fifth NESDP was prepared within an environment of domestic political stability, under the rule ofGeneral Prem Tinsulanonda’s administration, which stood in sharp contrast to external conditions,
including the global oil crisis, trade deficits and escalating debt problems, in the international economic environment. The NESDB played a vital organizational role in development planning and wasviewed by Prime Minister Prem as an agency with a high level of credibility for its insight into shortterm problem-solving and longer-term economic fundamentals. All policy recommendations made by
the NESDB were received positively and smoothly translated into action facilitating implementation of
the NESDP. 34 In this sense, the time surrounding the Fifth NESDP resembled a revival of the First
NEDP’s golden period of planning wherein the NESDB, winning the confidence of the head of thegovernment, was positioned at the core.
The two main pillars of the NESDP, as supported by the NESDB, were: (i) rural development for alle-

34
A key message from the statements of Dr. Sanoh Unakul, the former Secretary General of the NESDB (1973-1975 and1980-1989) and active during the terms of the Fifth and Sixth Plans.

51

viating poverty, and (ii) regional development, which included the Eastern Seaboard Development
Plan. In fact, the Eastern Seaboard Development Plan was regarded as one of the country’s highest priority development programs in the Fifth NESDP. The NESDB also introduced its new approach toplanning—strategic planning with an intersectoral, programming-oriented approach. In regard to ruraldevelopment, the management system was recast by the creation of new organizations, such as official
committees and councils, at a range of levels. Accordingly, the National Rural Development Committee was established to deliberate and coordinate policy at the national level. Prime Minister Prem
served as Chair, and the secretary general of the NESDB was appointed to act as Secretariat for thecommittee. Facilitated by the introduction of coordination mechanisms at different levels, the formulation of planning and policy was reborn as it shifted away from its previous top-down, centralized command structure towards a more bottom-up approach. As for the Eastern Seaboard Development Plan,
the NESDB also played a crucial role in its execution by overseeing central coordination as secretariatof the Eastern Seaboard Development Committee, a cabinet-level committee headed by Prime Minister
Prem (see Chapter 6 for a case study analysis of the Eastern Seaboard Development Plan). Moreover,the newly formed Joint Public-Private Consultative Committee (JPPCC) served as one available channel for the private sector to get involved in policy debate and planning processes, although the bureaucratic polity was still going strong into the 1980s.
Major national-level committees assembled during the Prem administration include the following:
(i)
(ii)
(iii)
(iv)
(v)
(vi)

National Rural Development Committee,
Eastern Seaboard Development Committee,
Joint Public-Private Consultative Committee (JPPCC),
National Energy Policy Committee,
Economic Advisory Council, andOffice of the Royal Development Project Board.

All were established by Executive Order of the Prime Minister and run with the close cooperation of
the NESDB, which played a significant role in coordinating and implementing government policies
and plans for each committee. Prime Minister Prem himself was known to attend every meeting, where
he would supervise proceedings as Chair.
Major concerns that arose during the Fifth NESDP were mostly related to issues of finance or national
security. A downturn in the world economy, propelled by the global oil crisis, trade deficits, and escalating national debt, among other things, early on in the term of the Fifth NESDP slowed down development. In fact, the debt Thailand had been accumulating during the years of the Fourth NESDP now
seemingly exploded. Nevertheless, the government had become dependant on borrowing in order tocontinue to meet military and development costs following the decrease in funding inflow with the
US’s withdrawal from the region after the Vietnam War. Thus, a divergence between the military andthe government intensified as conflict surrounding the allocation of funds and resources to each of
their national priorities, i.e. security objectives and development, proved disharmonious. Consequently,
the Cabinet decided to lift the ceiling on national borrowing from 9 percent of total public expenditure
35“Five Decades of NESDB”, published by the NESDB; February 2000.

52

to 11 percent 35 (in 1984).
As explained by Dr. Sanoh Unakul, the most important principle found within the Fifth NESDP was
national self-sufficiency. This addition demonstrates the government’s deep awareness of the importance of maintaining Thailand’s own economic stability, as well as the grave consequences inherent indebt burdens.

1-2-7 The Sixth National Economic and Social Development Plan (1987-1991)
In the Sixth NESDP, the main principles remained for the most part unchanged from those outlined in
the Fifth NESDP, but the overall emphasis of the plan shifted to one of quality rather than quantity.
Also, within this, the Eastern Seaboard Development Plan continued to be regarded by Thailand as adevelopment program of the highest priority.
During the Fifth NESDP period, tremendous energy was spent on handling and compensating for fiscal and monetary instability. The government had the bold foresight to actually slow down, or stop,
projects that could not be realistically maintained, while making sweeping adjustments to taxes andcurrency so as to effectively restructure the Baht economy. As far as expansive need-based revisions
were concerned, the Eastern Seaboard Development Plan itself was also no exception. Policy leaders
and technocrats were forced to postpone, downsize and virtually shelve numerous projects within the
program. In this way, the government made painful, but necessary, adjustments for the sake of its own
survival.
Hence, the Sixth NESDP was marked by its great need for adjustments, and therein “acceptable standards of quality, competitive with those of foreign countries” became a key concept in planning. Market demand and private sector participation were each more prominently taken into consideration.
With regard to the planning process, the participation of a wide range of stakeholders—including local
citizens, the civil society, businesses and foreign countries—was called for in addition to the alreadypresent participation by government institutions. Various committees and sub-committees that had
been established during the Prem administration (1980-1988) served as an infrastructural basis for further inter-party consultation and coordination.
On the political front, Thailand’s first fully democratic administration (1988-1991) was realized withthe election of General Chatchai Choonhavan as Prime Minister and all members of the Cabinet, duly
elected by the public. Over time, political and economic fluidity inherent in democratic structures had
contributed to the evolving, more prominent role of the private sector in development and policy,
matched by a converse decline in the role played by the NESDB.

35“Five Decades of NESDB”, published by the NESDB; February 2000.

53

The late 1980s was, as a whole, an economic boom time for Thailand. The economy was lifted into a
tremendous take-off, and the foremost driving force behind this was robust export performance. In
fact, efforts that Thailand had poured into transforming itself into an industrialized nation since thedays of the Third NESDP were finally starting to pay off after the latter half of 1985. In addition, significant expansions of foreign investment in Thailand further heightened the country’s rapid growth.
This was primarily attributable to the fact that shortly after the 1985 Plaza Accord the Japanese yen
had appreciated dramatically, and many Japanese investors were directed to turn towards Thailand.
Thus, these external factors, compounded with the Thai government’s consistent policy-based work tofacilitate export-oriented industrialization and foreign investment, synergistically complemented eachother to create an economic upswing for the country.

1-2-8 The Seventh (1992-1996), Eighth (1997-2001) and Ninth (2002-2006) National
Economic and Social Development Plans
The main features of the Seventh (1992-1996) and Eighth (1997-2001) NESDPs were (i) sustainable
development, and (ii) people-centered development. The planning processes therein were structured sothat feedback from a wide-range of consultations with stakeholders across the board would be incorporated. The directionality of the Eighth NESDP, which considered people to be at the center of development, or, in other words, development of people by the people and for the people, fitted well with thespirit of the 1997 Constitution.
A restructuring of the government’s role (and particularly that of the NESDB) was called for so as tokeep pace with changes in the sociopolitical fabric of the country. In fact, major reorganization ofmany government structures took place in October 2002. By the time the Ninth NESDP (2002-2006)
had come into force under the Thaksin Shinawatra administration (2001-2006), 36 the importance ofdevelopment planning, as well as the role of the NESDB, had already weakened considerably.

2.

Malaysia

2-1 The Role of Development Planning in Policy and Resource Alignment Functions
Malaysia has a number of planning tools, each with varying planning horizons set in accordance with
their differing objectives and utilization. The main national plans are: the Outline Perspective Plan
(OPP: ten to twenty years), the Malaysia Plan (a five-year development plan), and the mid-term reviewof the Malaysia Plan and the annual budget. Hence, Malaysia has a four tiered planning mechanism.
These are hierarchically organized, with the Malaysia Plan, mid-term review and the annual budget
serving as tools to achieve the visions and objectives envisaged in the OPP. The OPPs themselves
amount to national policies, even considered master policies since they underpin all subsequent long-36
Former Prime Minister Thaksin Shinawatra was ousted in a military coup in September 2006. General Surayud Chulanont, a retired army officer and Privy Councillor, was appointed the 24th Thai Prime Minister in October 2006.

54

term, medium-term and short-term policies, programs and projects. There are three of these OPPnational policies, and they are, in chronological order, the National Economic Policy (NEP), theNational Development Policy (NDP) and the National Vision Policy (NVP). Moreover, there exist
additional specific policies and programs outlined by political leaders, such as the Look East Policy
and Malaysia Incorporated, both propounded by the former Prime Minister Mahathir Mohamad.
Vision 2020, introduced in 1991 covers a thirty-year period, and is a statement of the country’s goal toattain developed-nation status by 2020 (see Figure 3-1 for a brief chronological outline of Malaysia’s
development plans).
The Malaysian government has taken consistent steps to establish and enhance a structural frameworkfor development planning as a means to realize the country’s overriding objectives: promoting national
unity through poverty eradication, and restructuring of society. Malaysia is a multiethnic country withsocio-economic disparities visible along racial and regional lines, and devastating ethnic riot occurredin 1969. In 1971, the government introduced its New Economic Policy (NEP), a new national policy
even regarded as the country’s “master policy,” to address issues seen to be at the root of this ethnic
riot. Since then, the strategy of ‘growth with equity’ has served as both the basic principle and theframework’s chief support.

< Coherence Among Development Planning, Budgeting, Investment Programming and Project Approval >Malaysia’s public expenditures have been largely aligned to the government’s socio-economic development policies in terms of magnitude and composition, while also taking into account the external
economic environment (UN 1993). Such alignment is made possible through a four-tiered planningmechanism mentioned above.
Figure 3-3 illustrates Malaysia’s policy and resource alignment with regard to development planning,
macroeconomic coordination, investment programming and project approval. The Malaysia Plan,
which is the key working document for the implementation of the government’s development program,sets out macroeconomic growth targets as well as the size and allocation of the public sector development program. This is why the Malaysia Plans are regarded as “directive” as compared to the National
Economic and Social Development Plans (NESDPs) of Thailand. Regarding the financing of the
Malaysia Plan, Malaysia is distinguished by virtue of the following: (i) the central role of the Economic Planning Unit (EPU) in determining the allocation of development expenditures; (ii) the enforcement of the aggregate and sectoral ceilings 37 of development expenditures throughout the plan period(although they are subject to revision during the mid-term review); and (iii) approval of a list of priority development projects at the time of the plan formulation. In other words, the Malaysia Plan can be
regarded as the government’s “statement of resource allocation” over the medium-term, 38 and play therole of de facto investment plans. The EPU plays a key role in development planning by matching

Malaysia Plan sets not only the aggregate ceiling for development expenditures during the plan period, but also the ceilings of individual sectors (economic, social, administration, and security).
38
Based on the GRIPS team’s interview with Dr. Norma Mansor, Dean of the Faculty of Economics and Administration at
the University of Malaya, during the GRIPS mission in January 2006.
37

55

micro-level projects with macro level plans for each sector.
More specifically, public investment projects identified in the Malaysia Plans are examined in light ofnational development goals, financial resource availability and distributional considerations. They arealso scrutinized and prioritized in terms of project approval criteria in the development planning
process, such as financial viability and implementation capacity. In sum, the Malaysia Plans specify
public investment priorities backed by budget implication. Public investment projects that are reflectedin the Malaysia Plans are generally implemented unless significant changes in the socio-economic situation take place that affect the plans’ basic assumptions. In such cases, the plans are adjusted during
mid-term reviews in order to reflect the changes.

Figure 3-3

Overview of Development Planning, Macroeconomic Coordination,and Investment Programming in Malaysia<Malaysia Plan>◆ Development planning◆ Annual- Public investment planningbudgetanddebt

approval- Project approval<Focal point>

MOF (Ministry of Finance)<Focal point>

EPU (Economic Planning Unit)<Coordination>◆ Budget hearings and dialogues:<Coordination>◆ Coordination for planning:■ National Planning Council (Cabinet level)■ National Development Planning Council (Officials
level)■ Inter-Agency Planning Groups (Working level)◆ Coordination for project approval:■ Development Projects Examination Committees(ministries, agencies, state gov’ts)■ “Planning cells” in the relevant
ministries and agencies■ State governments■ Private sector■ NGOs◆ Consultation:■ EPU■ ICU (Implementation Coordination Unit)■ PSD (Public Service Department)<Coordination mechanisms>➜ Rule-based operations duly installed in the coordination machinery

56

Therefore, the mid-term review is not just a review of the implementation status of the Malaysia Plans
in light of the stated targets and schedules, but also of macroeconomic and sectoral policies and budgets. The approved ceilings are then revised in the course of the plan execution in case of changes in thefederal government’s financial position and the macroeconomic situation.
In this context, the annual budget may be seen as a rolling plan for the implementation of the Malaysia
Plans. The annual planning exercise is undertaken by the Ministry of Finance (MOF) in conjunction
with their annual budget preparation, and the EPU plays a key role in determining details of the annual development budget. The annual development budget is the translation of the government’s development objectives as contained in the Malaysia Plan. Every project in the development plan is approvedon the basis of its specified scope, estimated cost and allocations. In principle, this approval isreviewed every year during the annual budget exercise, when applications for annual development
allocations are submitted to the MOF and the EPU (UN 1993).
A striking feature of the functions of Malaysia’s administrative machinery is a key role played by acadre of elite technocrats who are assigned to the central economic agencies (in particular, the EPU,
the Implementation Coordination Unit (ICU), the Public Service Department (PSD), the MOF, and theCentral Bank), as well as the planning divisions of various ministries and agencies. These positions arecalled “planning cells,” and are occupied by the “generalist” officials who are charged with planning,
implementation monitoring, budget management, and so on (see Box 3-1). Personnel rotation also
takes place among these officials in order to facilitate network building, as well as the strengthening ofvertical links between the central economic agencies and the spending agencies.

Box 3-1 Malaysian Bureaucracy and the Role of the “Planning Cell” Officials
The Malaysian bureaucracy is structured around three main categories: (i) administrative, executive
and clerical classes (known as “general-user” or “common user” services); (ii) professional or specialist services (known as “closed services”) that are staffed by professionals including doctors, engineers, dentists, architects, accountants, chemists, and legal officers; and (iii) departmental services
such as customs and excise, immigration, surveys, audits, and the like. Officials who belong to thefirst category, or “common user services,” occupy a central position in the policy process in terms offormulation, evaluation, analysis, periodic reviews, and adjustments. They rotate among the “planning cell” positions, and are not affiliated with any specific ministry or agency. Also, by receiving
joint training in both managerial skills and ethics, these officials share an esprit de corps that is basedon the values of professionalism and elitism.
Source: Abdullah Sanusi Ahmad, Norma Mansor, Abdul Kuddus Ahmad (2003). Similar information was provided
to the GRIPS team from the officials of various government agencies and researchers during the GRIPS mission in January 2006.

57

2-2 Major Characteristics of Each of Malaysia’s Development Plans, and Corresponding
Social, Economic and Political Climates 39
2-2-1 Overview
The First Malaya Plan (1957-1960) was the first integrated national development plan in Malaysia(Malaya) after it gained its independence in 1957, and since that time a number of national plans, policies and programs have been launched. Policies and programs meant to guide development had been
instituted prior to 1957, but they were prepared for the people of colonial Malaya and, as such, theirmain objective was to keep up “law and order” in accordance with British instruction. In this section,
Malaysia’s development plans and policies will be discussed by dividing them into four periods, namely: (i) the period before the NEP (1957-1970), (ii) the NEP and the First OPP (1971-1990), (iii) the
Second OPP (1991-2000), and (iv) the Third OPP (2001-2010). For period (i), emphasis was placed on
economic growth and development, as premised on market forces, rather than on issues of income disparity and poverty. With respect to the period (ii), directly after the 1969 race riot, new national strategies—the NEP and the First OPP—were formulated. In fact, issues of poverty and ethnically-determined imbalances were explicitly recognized and came to rest at the core of Malaysia’s socio-economic agenda. Created in direct response to the riot, the NEP was an affirmative action plan that addressed
imbalances between ethnic groups as well as poverty issues. In 1971, “economic growth with equitable
distribution” became the fundamental direction of Malaysian policy, and this planning route has beenretained up to now. While the national plans and policies in period (iii) were basically a continuationof NEP objectives, their focus did undergo a shift towards a number of new dimensions, including concentrating on the extreme poor, improving national efficiency and competitiveness in the global market, and relying more on private sector involvement. In period (iv), major goals that had been set forthin the NEP were re-emphasized. The plans made during this period also acknowledged additional challenges generated by the forces of globalization and rapid technological improvement.

2-2-2 The Period Before the New Economic Policy (1957-1970) :The First Malaya Plan (1957-1960), the Second Malaya Plan (1961-1965), and theFirst Malaysia Plan (1966-1970)
Independence in 1957 was obtained while the country was still under a state of emergency (19481960), declared due to a burgeoning communist insurrection. Tunku Abdul Rahman Putra, the first
Prime Minister of the country (1957-1970) often referred to as the “Father of Independence” and the“Father of Malaysia,” emphasized socioeconomic development as a top priority in the national agenda.
Hence, development planning was primarily aimed at promoting growth—with the presumption that

The information of this partfor this section was mainly drawn from (1) “Malaysian Politics & Government”, Jayum A.
Jawan, 2003, (2) “The Malaysian Bureaucracy, Four Decades of Development”, Abdullah Anusi Ahmad, Norma Mansor,
and Abdul Kuddus Ahmad, 2003, (3) “Development Planning in Asia”—Chapter 8: Development Planning in Malaysia,
Samsudin Hitam 1993, (4) “Malaysian Development Experience, Changes and Challenges”, published by the National
Institute of Public Administration; in Kuala Lumpur, in 1994, and (5) “Rural Development Administration for Poverty
Eradication in Malaysia: Focusing on Coordination Mechanisms”, published by the Overseas Economic Cooperation
Fund (OECF); in Japan, in 1997.
39

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political stability necessary for this economic development would hasten the end to communist guerrilla activities.
The main objectives of the plans were to increase the socioeconomic well-being of Malaysians, especially those living in rural areas. Rural development programs were designed with an eye for preventing the intrusion of communist forces into the countryside, thereby securing a stable national administration. Thus, major undertakings during this time included a variety of rural development programs
aiming to modernize the lives of rural Malaysians. Under land settlement schemes controlled primarily
by the Federal Land Development Authority (FELDA), abundant jungle areas were opened up to create farm lands. The FELDA scheme involved construction of attendant infrastructure facilities as well.
The two development plans, drafted with the assistance of the United Kingdom (UK) and the World
Bank, were adopted immediately after independence, namely, the First (1957-1960) and the Second(1961-1965) Malaya Plans. For the first time ever, Malaysia had to initiate a forward-looking policy
for development, and simultaneously appeal for international support. The development administration
it adopted was basically identical to that of the British system. The planning process outlined in theFirst Malaya Plan is often noted for its lack of inter-departmental coordination and the minimal
amount of participation allowed to the grass-roots sector. It was just a consolidation of programs, eachsubmitted by varying departments, that were subsequently modified and trimmed down to fit the estimated financial resources available. On the other hand, the Second Malaya Plan explicitly aimed tomore effectively and rationally allocate public sector resources by taking into account a greater diversity of development process factors, and by working to improve both departmental coordination andgrass-roots participation. 40
The World Bank played an important role in Malaysia’s initial steps at institution building, just as it
had in Thailand. World Bank experts were sent to Malaysia and prepared a World Bank report in 1955
that included an array of recommendations for building the country’s development administration system. Among them was the creation of a permanent planning agency. In response to World Bank advice,a small Economic Secretariat was created—an institution that was later upgraded and annexed to the
EPU in 1961. The Economic Secretariat took responsibility for formulating the first two development
plans (i.e., the First and the Second Malaya Plans) incorporating the recommendations provided fromdonors, as mentioned.
Tun Abdul Razak bin Dato Hussein, later to became the second Prime Minister (1970-1976), was at
the time appointed to be the Minister of National and Rural Development. Tun Razak introduced the
RED Book and Operations Rooms, both practices known for critically shaping the Malaysian development programs over the course of the late 1950s and the 1960s. The RED Book 41 was an instrument
for facilitating careful and systematic preparation and implementation of development plans, all thewhile ensuring the participation of rural populations, so as to better meet their needs. It also expedited

40“Malaysian Development Experience, Changes and Challenges”, published by the National Institute of Public Administration; Kuala Lumpur, 1994.
41“RED” is an acronym for “Rural Economic Development.” The RED Book program was introduced by the Malaysian
government following the lead of a British army system that channeled information in a top-down manner.

59

coordination among numerous departments involved in any given project at each applicable level.
Improvements made in terms of coordination and grass-root participation stipulated in the planning
process of the Second Malaya Plan may be seen as the eventual result of the RED Book’s adoption.
The Operation Rooms were developed to monitor the overall implementation of programs and projects, and, in fact, they served as the basis for the Implementation Coordination Unit (ICU), establishedin 1971. Every administrative level, from the village to the district to the state and up to the national
level housed an operations room for planning, implementing and monitoring development activities aspart of a network spanning the country.
Thus, the basic foundation for planning and coordinating development in Malaysia was establishedduring the late 1950s and the early 1960s, wherein a combination of both top-down and bottom-up
approaches were introduced and gradually enhanced. After ultimately surviving the course of changes
in political administration, this original framework for the facilitation of coordination is still being utilized today, albeit with the benefit of some improvements. The EPU has consistently played a criticalrole in providing the necessary linkages for two-way interactive processes.
Issues of poverty and income imbalance were not directly addressed in the national policies during thistime despite the fact that they illuminated deep-rooted socioeconomic problems of disparity, particularly as experienced among various ethnic groups. However, discussion of such matters in political or
economic forums was considered necessarily taboo, since the raw nerve that reality left exposed risked
making open debate itself a matter of utmost volatility. With this as background, the Second Malaysia
Plan (1971-1975), which was the first five-year plan introduced in conjunction with the NEP (19711990), and the OPP 1 (1971-1990) focused more on broad social problems confronting the nation.

2-2-3 The New Economic Policy and the First Outline Perspective Plan (1971-1990):
The Second Malaysia Plan (1971-1975), the Third Malaysia Plan (1976-1980), theFourth Malaysia Plan (1981-1985), and the Fifth Malaysia Plan (1986-1990)
The NEP was introduced in 1971 after the race riot of 1969. The NEP’s strategy was supported by thetwo pillars of: (i) eradicating poverty among all Malaysians, irrespective of ethnic origin, and (ii)
restructuring Malaysian society so as to correct economic imbalances and erase the identification ofrace with economic function. The NEP duly recognized critical problems existent within Malaysia’s
multi-ethnic society, and aimed to achieve a national unity as its overriding objective. Hence, the NEP
emphasized an approach requiring “economic growth with equity,” within which no one ethnic groupwould suffer deprivation in an absolute sense, provided that the whole of the economy would continue
to expand. This policy approach is still operating today, taking into account the respective roles of boththe public and private sectors.
The First OPP provided a macroeconomic framework for the realization of NEP objectives, and covered a twenty-year period corresponding directly to the NEP’s time frame. The government acknowledged that from among the different ethnic groups, Malays and other indigenous groups experienced
the highest incidence of poverty, and, as such, set out to increase opportunities available to Malays inorder to correct imbalances in employment and corporate equity ownership, among other things. The

60

ultimate objective of the administration was to restructure society so as to reflect the ethnic composition of the Malaysian population across different sectors.
A total of four Malaysia Plans, namely the Second to the Fifth Malaysia Plans, were launched during
the 20-year span of the First OPP, and they all aimed to reinforce the singular national objective of“national integration and unity.” In other words, the NEP acted as the country’s master policy andother national plans were developed as supplemental plans for translating this policy into specificframeworks and action plans enabling its solid implementation. Public investment and the NEP budget
were increased during this time for the realization of this objective.
In 1970, Tun Razak ascended to become the second Prime Minister (1970-1976) after Tunku Abdul
Rahman resigned. Tun Razak is affectionately and admirably called the “Father of Development,” particularly in regard to his achievements in rural development via the RED Book, mentioned above, during his time as Minister of Rural Development. Tun Razak had former experience as a bureaucrat andwas capable of managing the administration while sustaining good, trusting relationships with technocrats.
Tun Razak also played a crucial role in NEP policy formulation and implementation. He highlighted
the two-pillared strategy delineated in the NEP as an overarching objective for the country, in responding to the devastating ethnic riot of the 1969. Based on the Operations Rooms, the ICU was created in1971 within the Prime Minister’s Department as an institution for overseeing performance. The ICU
possessed the authority to coordinate and monitor the implementation of programs, as well as to provide feedback to related agencies. In short, by harnessing the power of organizational effectiveness andefficiency, Tun Razak laid a strong and lasting foundation—politically, administratively and philosophically—for concerted and finely integrated efforts towards national development.
Elite Malay technocrats who had been educated abroad at the PhD doctorate supported both Tun
Razak’s leadership and the realization of the NEP. They dedicated themselves to improving the socialand economic status of the Malays through the formulation and implementation of policy addressing
ethnic issues. Hence, the NEP ultimately functioned to back the legitimacy of the technocrats.
During the second half of the term of the First OPP and the NEP, Dr. Mahathir Mohamad assumed his
position as the fourth Prime Minister of Malaysia (1981-2003) and adopted a number of specificnational development policies in addition to the standard OPPs and Malaysia Plans. Among his specific policies was the famous Look East Policy, launched in 1982, which promoted the adoption of workvalues and ethics, such as hard work, organizational loyalty, and the concept of group interest, which
he believed had contributed to economic success in Japan and Korea. In 1983, Prime Minister
Mahathir introduced Malaysia Incorporated to facilitate a positive and close working relationshipbetween the public and private sectors. He believed that the public sector should be responsible forproviding an environment conducive to greater private sector participation, as it would not only benefit
the private sector as a matter of course, but also provide returns to the public sector, such as throughfunding made possible by the collection of corporate taxes. Prime Minister Mahathir believed that economic growth must come first in order to achieve the equitable distribution of resources for, and ultimate sustainability of, Malaysia’s development.

61

In fact, the government consistently promoted economic growth by effectuating market deregulation asa means to stimulate private sector activities, especially in the export-oriented industries. Considering
the fact that business activities had historically been handled mainly by the ethnic Chinese in
Malaysia, the government effectively tried to both promote and respect the vital role they played in theeconomy on the one hand, while introducing affirmative action measures for Malays and ethnic
minorities on the other. As long as the whole economic pie shared by the country continued to grow,the objectives of the NEP would be achieved and all Malaysians would be satisfied.
Prime Minister Mahathir also introduced Vision 2020, briefly touched upon below. He is regarded as avisionary leader, a man capable of envisaging the future while coolly taking into account political,
economic and social dimensions of the present.

2-2-4 The National Development Policy and the Second Outline Perspective Plan (1991-2000): The Sixth Malaysia Plan (1991-1995) and the Seventh Malaysia Plan (1996-2000)
The National Development Plan (NDP) was formulated in 1991 to succeed the NEP. The NDP, covering a period of ten years, was basically an extension of the NEP as it upheld the same two-pillared
strategy. Among the main objectives of the NDP were:
(i)
(ii)
(iii)
(iv)
(v)
(vi)

National unity,
Economic growth with equity,
Reduction of social and economic inequalities and imbalances among different ethnic groups,
Eradication of development gaps between regions, especially the rural-urban divide,
Fostering a deep sense of national pride through the creation of a progressive society,
Developing human resources, including the creation of a disciplined and productive workforce through the promotion of an exemplary work culture,(vii) Making science and technology elementally important within socioeconomic planning anddevelopment, and(viii) Paying proper attention to the protection of the environment and ecology when pursuing economic development.
In addition to the above objectives, the following new dimensions to development efforts were reflected:
(i)
(ii)
(iii)

42

Eradication of poverty, focusing on the extreme poor, through a new program called “Development Programs for the Poorest,”
Creation of a Bumiputera 42 Commercial and Industrial Community to increase and sustain
bumiputera participation in the economy,
Emphasizing the role of the private sector in the restructuring process, and“Bumiputera” is a Malay language reference to the peoples indigenous to Malaysia.

62

(iv)

Focusing more on human resource development, including the enhancement of ethical andvalue systems, in order to achieve the objectives of growth and distribution.

Although the basic foundation of the NDP remained unchanged from that of the NEP, the NDP had
shifted its strategy, as described above. Economic growth and private sector participation were
believed to be the main driving forces capable of bringing Malaysia closer to achieving the eradicationof as-yet remaining poverty as well as a broader, more beneficial restructuring to society. The government acknowledged the potential of the private sector in playing a more effectual economic role and,as such, made efforts to earnestly restructure the economy by prioritizing the creation of environments
conducive to greater private sector initiative. At the same time, the government marked down its direct
participation in the economy.
Thus, it could be said that while the basic foundation of the planning machinery itself had been maintained well since the late 1950s, the role of the government and necessary quality of technocrats
involved therein was changing. The private sector’s heightened role, owing to progress in privatizationand the outsourcing of public works, among other things, has changed the role of the government aswell as relations between the public and private sectors within policy formulation and implementation.
An example of the implications of such change could be illustrated by the fact that, whereas in the pastbudgeting dialogues ultimately took place in government offices and were seen as one critical process
within national planning, now such negotiations are made at the more malleable public-private sector
negotiation tables. This rapidly developing, and functionally effective, recent means to negotiating
budgeting and other arrangement terms is less formal and often less transparent, yet it has been a critical channel for public-private coordination. Similarly, competent elites who were once drawn to serving in government agencies as technocrats are now extricating themselves from the public service field
and are running to the private sector and its much higher salaries.
Parallel with the launching of the NDP in 1991, Prime Minister Mahathir introduced Vision 2020,
another important policy asserting that Malaysia would become a fully developed nation by the year
2020. Vision 2020 stated Malaysia’s goal and simultaneously outlined nine central strategic challenges
that needed to be overcome in order to attain that goal. It was not narrow, or singularly economic, in
perspective, but rather a feasible work encompassing considerations economic, political, social, spiritual, psychological and cultural in nature. After Vision 2020 had been launched, the OPPs and the
Malaysia Plans came to be regarded primarily as the tools necessary to achieve it.
The Second OPP (1991-2000), which covered the ten-year period corresponding to the NDP, was anembodiment of its overarching policy. The two Malaysia Plans of this period, namely the Sixth and theSeventh, translated the development objectives contained in each of the Second OPP and the NDP into
concrete action. In the Sixth Malaysia Plan, anti-poverty program strategies relating to redistribution
focused on the poorest segments of the population, that is, the extreme poor. The Seventh Malaysia
Plan added a new emphasis on “productivity-driven strategy” and information technology in particular
was expected to play a crucial role in improving Malaysia’s overall efficiency, productivity and competitiveness in the course of its development. The government embarked on the construction of a Multimedia Super Corridor as one feature program. Also, the national policy emphasized issues of how toestablish a more moral and ethical society for progress.

632-2-5 The National Vision Policy and the Third Outline Perspective Plan (2001-2010):
The Eighth Malaysia Plan (2001-2005)
The National Vision Policy (NVP) was launched in 2001 following the expiration of the NDP in theprevious year. The new NVP saw that the basic principles of the NEP and the NDP were maintained sothat realization of poverty eradication and national unity remained foremost on the national agenda.
The Third OPP (2001-2010) covered the ten-year period corresponding to the term of the NVP and
embodied the objectives stipulated in the NVP. The Eighth Malaysia Plan (2001-2005), which guided
the first phase of the Third OPP’s implementation, acknowledged the ever-evolving challenges facedby the country, such as globalization and rapid improvements in technology.
The Eighth Malaysia Plan outlined the following policies in order to sustain Malaysia’s primary master policy, unchanged since the launch of the NEP in 1971, i.e., “economic growth with equity” so as
to promote the eradication of poverty as well as a beneficial restructuring of the society.
(i)
(ii)
(iii)
(iv)

Strengthening and streamlining distributional strategies to ensure balanced participation
among and within diverse ethnic-, region- and income-based groups.
Strengthening the human resource base to ensure the availability of manpower with higher
levels of knowledge, as well as technical and thinking skills.
Adopting an integrated and holistic approach in addressing environmental and resource issues
so as to attain sustainable development.
Redoubling research and development activities.

The Eighth Plan also reflected new, emerging challenges that the country was confronting when it set
its aim to:
(i)
(ii)

Develop a knowledge-based economy, andExpand the usage of information and communications technology (ICT) within and acrosssectors to accelerate growth.

The overarching objectives of Malaysia (i.e. the NEP targets) could be achieved if and only if thewhole economic pie shared by the country continued to grow. Hence, political leaders heed the calls todevelop and enhance new sources of growth, all the while giving due consideration to challenges
emerging both abroad and at home.

3.

The Philippines< The Role of Development Planning in Policy and Resource Alignment Functions >There are mainly three types of development plans in the Philippines, arranged in accordance to theirextent of coverage: the Medium-Term Philippine Development Plans (MTPDPs)—for the national
level, the Regional Development Plans (RDPs)—for the regional level, and the Local Development
Plans (LDPs)—for the local level, which also includes province, city, municipality and barangay. In

64addition, the Medium-Term Public Investment Programs (MTPIPs) and Regional Development Investment Programs (RDIPs) are also prepared by taking the targets, goals and strategies stipulated in the
MTPDPs and the RDPs, respectively, and translating them into specific, time-bound activities usually
expressed in the form of programs and projects. In short, the MTPIP is a companion document for the
MTPDP, and the RDIP is a companion document for the RDP (see Figure 3-1 for a brief chronologicaloutline of the Philippine’s development plans).
The notable features of development planning in the Philippines are: (i) the fact that MTPDPs, the sixyear national development plans, are prepared newly with each change of political administration, and(ii) all major policy decisions are made by use of interagency coordination bodies, with the President
at the head of cabinet-level interagency committees (see Chapter 2).
The MTPDP is a key document in the national planning process that is first drafted at the start of thepresidential term and updated and revised in the third year of the same. The central agency for economic and social development planning is the National Economic and Development Authority(NEDA). The NEDA Secretariat (including relevant Sector Staffs) provides technical and secretariat
support services to the NEDA Board and its technical committees, the Regional Development Committee, the Social Development Committee and other related bodies in regard to preparation of the
MTPDPs. More specifically, the NEDA Sector Staffs coordinate both the preparation of technicalpapers and proposals, as well as meetings on development planning agenda, with other pertinent
departments and agencies as they ready each chapter of the MTPDPs. In the case of the current
MTPDP 2005-2010, the vision, the outcomes and the plan themes laid out were all based on President
Arroyo’s 10-point agenda and the National Development Agenda. In this sense, the priority within
national development was set in a top-down manner. At the same time, a bottom-up approach to planning is also utilized in the sense that each relevant sector department and agency prepares its own sector and sub-sector plans, and the NEDA Sector Staffs coordinate matters closely with them in thecourse of incorporating this input into the MTPDP.

< Coherence Among Development Planning, Budgeting, Investment Programming and Project Approval >Despite the existence of inter-agency coordination mechanisms, linkages between the MTPDP and thebudget (including the MTPIP) have not always been strong. Due to frequent political interventions, theannual budget process often results in a disconnection with official development plans (World Bank
2005). Furthermore, there remains much scope for improving development planning within the executive branch as well.
Thus, to enhance linkages between the MTPDP and the MTPIP has always been a major challenge for
the Philippines. While development plans in Malaysia and Thailand could each be respectively regarded as directive or indicative in nature, in the Philippines development plans are bound by only a modicum of medium-term budget constraints, which produces challenges in the later stages of translatingthem into reality-based, workable programs. Furthermore, political interventions in the annual budgeting process that are not in line with national development policies greatly undermine the process ofdevelopment planning. It has also been pointed out that greater linkages between sectoral and national

65

planning, as well as between national and regional planning, are necessary for the enhancement the
MTPDP utility and its tie-in with the budget. The government has been making continuous efforts toaddress such weaknesses.
In fact, the MTPDPs and the MTPIPs were being prepared during the Marcos administration even
before the turning point of 1986, but at the time the MTPIPs were really no more than a wish list of
programs and projects submitted by the relevant departments and agencies. The MTPDP and MTPIP
both lacked budgetary resource constraints, while prioritization of programs and projects based on
thorough evaluations of efficiency and technical feasibility was virtually non-existent in the MTPIP at
the time. At the regional level, the link between the RDP and the RDIP could be considered analogous
to what was happening at the national level.
Figure 3-4 illustrates the alignment of policy and resource functions in the Philippines with regard todevelopment planning, macroeconomic coordination, investment programming and project approval.
In theory, the Development Budget Coordination Committee (DBCC)—which determines allocations
from the government’s development budget—serves as the institutional link between planning andbudgeting in order to ensure conformity of the annual budget with the national development plan. In
addition, the MTPIP, as a companion to the MTPDP, is intended to translate the MTPDP’s targets into
concrete, time-bound activities in the form of programs and projects. In other words, the MTPIP is
expected to be a rolling, multi-year public expenditure program that is updated on an annual basis.
In reality, however, practice often differs from theory. First of all, the MTPDP does not provide costestimates for proposed strategies, targets, or programs. 43 Neither is the MTPIP a definitive budget, inthe sense that projects must still be evaluated and approved by the Investment Coordination Committee(ICC) for funding even after being included in the MTPIP. In other words, the inclusion of projects andprograms in the MTPIP does not have any binding effect on the successive investment selection andbudgeting process. Since the MTPIP serves as a gatekeeper for the actual investment budget, moreover, sector departments are driven to have projects included in the MTPIP. As a result, the MTPIP
ends up with a wish list of projects without any prioritization—even including low-priority projects
that are incoherent in terms of efficient allocation.

Alburo et al. 1993 noted as follows: (i) The annual budget cycle is independent of the plan formulation calendar. As aresult, plan targets and key programs/projects are not always taken into account in the preparation of the annual budget. (ii)
The medium-term plan is not sufficiently detailed to provide guidance in terms of budget planning. Likewise, the MTPIP
and the RDIPs are sometimes finalized too late to be considered in the budget. As a result, it is the annual budget—not theplan—that carries the burdens of program prioritization, project selection and scheduling.

43

66

Figure 3-4

Overview of Development Planning, Macroeconomic Coordination,and Investment Programming in the Philippines◆ Project approval<Medium-Term Philippine
Development Plan (MTPDP)><Focal point>

NEDA◆ Development planning<Coordination>◆ Coordination for project approval:

Weak linkage■ NEDA Board Investment Coordination<Medium-Term Public
Investment Program (MTPIP)>

Committees (ICC)- ICC-Cabinet Committee- ICC-Technical Board- ICC-Secretariat◆ Public investment programming<Focal point>

NEDA (National Economic andDevelopment Authority)◆ Annual budget and debt
approval<Coordination>◆ Coordination for MTPDP:<Focal point>■ Planning Committees■ Technical Working Groups■ Legislative Executive Development
Advisory Council (LEDAC)

DBM (Department of Budget andManagement)<Coordination>◆ Coordination for MTPIP:◆ Coordination for budget process:■ NEDA Board Committees■ Planning Committees■ Regional Development Council
Committees■ Development Budget Coordination
Committee (DBCC)

Moreover, legislative intervention ultimately comes into play, and the dual track nature of development
planning, as explained in Chapter 2, becomes obvious during the budgeting process, wherein allocative
distortions are generated. Legislators try to include additional projects and programs, geared to benefit
their own constituency, without rightfully going through the scrutiny process of the administrative
channel. This has created a backhanded de facto route for local interests to be reflected in the national
budget through special projects prepared by politically-motivated congresspersons. Hence, it is notuncommon for such discretionary, additional projects and programs to displace both priority projects
as well as programs identified and prioritized through the administrative channel alike (see Chapter 4
for detail).

67

Furthermore, it is noteworthy that virtually only foreign-assisted projects and Build-Operate-Transfer(BOT) projects are intensively scrutinized as to their costs and benefits in the process of preparing thebudget. These projects, typically originate in operating departments and agencies and are evaluated by
the ICC. The locally-funded projects do not get as much project viability scrutiny as necessary (seeChapter 5). In addition, recurrent budgets of departments and agencies are carried forward from year
to year with virtually no analysis, except for adjustments related to population changes (World Bank
1995).

68

Chapter 4 Mechanisms for Macroeconomic Coordination

This chapter will analyze the mechanisms for macroeconomic coordination by the central economic
agencies in Thailand, Malaysia, and the Philippines. We will provide country-specific descriptions ofcoordination features, approaches to fiscal and debt management, annual budget formulation processes, as well as how such macroeconomic coordination is related to development planning.
During the period of the 1970s-1980s, the governments of the three East Asian countries faced thechallenges of meeting increasingly complex demands for development. This included the need to
expand development expenditures, ensure macroeconomic stability, and sometimes cope with shifts indonor composition. Beginning especially in the latter half of the 1970s, these governments increased
their levels of spending and borrowing in order to mobilize larger amounts of resources to financedevelopment. Thus, in each country, the central economic agencies were expected to assume a developmental role while also providing a sound macroeconomic environment.
As will be shown below, the central economic agencies of the respective countries have taken different
approaches to macroeconomic management in terms of issues such as the size of public expenditures,and the level of domestic and external borrowing. In addition, the appearance of variations by country
in terms of the relationship between annual budget formulation and development planning suggeststhat diverse models do exist with regard to macroeconomic coordination. The following analyses will
cover the period from the 1970s-1980s in Thailand and Malaysia in order to understand the macroeconomic coordination mechanisms existing at the time of major structural transformations to theireconomies, and after the late 1980s in the Philippines in order to understand the nature of ongoingreforms and challenges faced by its central economic agencies.

1.

Thailand1-1 Major Characteristics of Macroeconomic Coordination
In Thailand, the processes of annual budget formulation and debt approval play a vital role in facilitating the overall alignment of policy and resources with national development priorities. Since Thailand’s development planning is “indicative” in nature, it is during this annual exercise when public
investment projects have been scrutinized in light of fiscal and debt sustainability (see Chapter 3 fordetails). Figure 4-1 highlights how such annual budget formulation and debt approval processes are
related to development planning and the approval of public investment projects.
Figure 4-2 illustrates the mechanism of macroeconomic coordination in Thailand. As explained in
Chapter 2, the country’s core macroeconomic agencies—the National Economic and Social Development Board (NESDB), the Bureau of the Budget (BOB), the Fiscal Planning Office (FPO) and the
Public Debt Management Office (PDMO, after 1999) of the Ministry of Finance, as well as the Bankof Thailand (BOT)—share responsibility for establishing the macroeconomic framework and disciplining fiscal policy. While these agencies have respective fiscal roles to play, decisions are made collec-

69

tively with regard to key macroeconomic policies. The heads of these core macroeconomic agencies
are central actors, and as such they sit in the Council of Economic Ministers (a subcommittee of the
Cabinet). Before ministerial discussions are held, technocrats of these agencies formulate policy
options through consultation and coordination (Warr & Nidhiprabha 1996). At the same time, it has
been pointed out that because of the vital importance of the annual budget and debt approval processes
in Thailand’s “indicative” development planning, the BOB in particular assumes a key role among
these core macroeconomic agencies (see section 1-4 for details, including the role of the BOB’s“Mobile Units”).

Figure 4-1

Overview of Development Planning, Macroeconomic Coordination,
and Public Investment Programming in Thailand<National Economic and Social Development
Plan (NESDP)>◆ Annual budget and debt approval◆ Development planning◆ Project approval conducted as a part of
the annual budget/debt approval process<Focal point><Focal point>NESDB (National Economic
and Social Development Board)

BOB (budget) andFPO+PDMO(1999-) (loans)<Coordination><Coordination>◆ Coordination mainly among central◆ Budget hearings and dialogues:■ BOB “mobile units”■ State enterprises

economic agencies :■ NESDB■ BOB (Bureau of the Budget)■ FPO (Fiscal Policy Office) + PDMO (Public
Debt Management Office, 1999-)■ Central Bank

◆ Consultation with other central
economic agencies:■ NESDB■ FPO, PDMO
■ Central Bank

*macro-sector coordination relatively weak

<Coordination mechanisms>
Centralized system, with strong coordination among central economic
agencies (CEAs)—subtle check and balance functions are built in, leading toshared responsibilities among CEAs

Based on the findings of the GRIPS mission to Thailand in January 2005, as well as comments by a senior official of theThai government who served in the FPO and PDMO (provided during a feedback seminar of this study that was held by
GRIPS on November 8, 2006).

44

70

Figure 4-2

Macroeconomic Coordination Mechanism in Thailand

Prudent macroeconomic management as a whole

Prime
Minister
VisionNESDBBOB• Planning• Public investment• Development budget• Budgeting(investment &recurrent)

FPO
DTEC/
TICA
• Technical assistance• Fiscal policy

Delegate
authority toplan andadminister
policyCentralBank
PDMO(1999-)• Monetary policy• Public debt management(including foreign loans)A more detailed description of the approaches to fiscal and debt management, as well as the annual
budget formulation, by these core macroeconomic agencies will be provided in the sections that follow.

1-2 Fiscal Discipline
Strong aggregate fiscal discipline has been a key to Thailand’s macroeconomic stability, which in turnhas assisted rapid growth led by the private sector (Christensen et al. 1993). Such fiscal conservatism
has been primarily the result of strong inter-agency coordination among the NESDB, the BOB, theFPO (and the PDMO after 1999), and the BOT. These core macroeconomic agencies have shared
responsibility and acted collectively. They meet at the beginning of the fiscal year to decide the natureof the government’s fiscal policy (for example, expansionary or contractionary, austere or free-spending, conservative or progressive) and set the ceiling for the new fiscal year. These agencies are also
empowered to reject and postpone projects if they exceed the government’s expenditure and externalborrowing ceilings (Institute for Economic and Social Research, University of Indonesia 2005).
Thanks to a subtle check-and-balance function among the central economic agencies, the legal limit
has worked as a tool to enforce fiscal discipline. Although the central government’s spending increased
rapidly during 1975-1985 (see Figure 4-3 and Figure A-1), the government largely succeeded in71restraining the growth of public expenditures under the legal limit (with the exception of the period
during 1972-1974). The 1959 Budgetary Law limits the deficits to no more than 20 percent of government expenditures, although the law was relaxed in 1974 to accommodate the expenditures on principal repayments. The revised budget law stipulated that the size of the deficit must not exceed 20 percent of the proposed level of public expenditures, plus 80 percent of the proposed budget allocated toprincipal repayments. Even during the period of 1975-1985, increased spending never exceeded thelegal limit, ranging from 84 to 98 percent of the maximum amount (Ramangkura & Nidhiprabha1991).
In addition, there exists a built-in mechanism for scrutinizing financial management of state-owned
enterprises (SOEs). Because SOE investments could have significant macroeconomic implications, all
SOEs (including those that do not receive financial support from the government) must submit theirfinancial plans to the BOB together with their current and capital budgets. SOE capital budgets are
subject to review and approval from the National Committee on State Enterprises, whose secretariat
function is shared by the NESDB, the BOB, and the FPO. SOE investment plans are scrutinized indetail at this stage, allowing the NESDB to tailor the proposed investment plans to the priorities stipulated in the five-year plan (NESDP). Once approved, projects seeking budgetary support from the government receive further review by the BOB. Such support, if granted, then becomes part of the central
government’s expenditure budget. 45
The externally-driven export and investment boom of the late 1980s certainly helped Thailand’s fiscal
adjustment efforts. Moreover, fiscal discipline was restored in the country around the same time due tothe strong role played by the executive branch, as well as the close coordination among the coremacroeconomic agencies.
Figure 4-3
Millionsof Baht

Trend of Expenditures by Five-Year Planning Periods (1972-1991)
Central Government Expendituresby 5 Year Plan Period in 1978 constant prices

900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
3rd NESDP
1972-76

4th NESDP
1977-81

5th NESDP
1982-86

6th NESDP
1987-91

Source: IMF, Government Finance Statistical Yearbook (various years).

Based on Warr and Nindhiprabha (1996), pp.92-93; also confirmed by the GRIPS mission’s interview with the BOB
officials (January 2006).

4572

1-3 Public Debt Management
Public debt management is another example of the Thai government’s financial conservatism. The
governments avoided external borrowing prior to the 1960s, and it was only after the early 1960s when
it became actively engaged in foreign borrowing with the launching of its first development plan andheavy public investment in infrastructure. Thailand’s adjustments to the oil price shocks of the 1970s
and the high interest rates of the early 1980s were financed to a large extent by foreign borrowing,
which showed a marked increase beginning in the 1970s. Thailand has managed to follow the dictum
whereby such a policy remains sustainable as long as the borrowed funds are invested productively,
allowing loans to be repaid (in sharp contrast, for example, to the Philippines) (Warr & Nidhiprabha1996).
Here again, inter-agency coordination among the core macroeconomic agencies has played a central
role. In 1960, the National Debt Policy Committee (NDPC) was established to monitor and regulate
the foreign borrowing activities of government departments and SOEs. These core macroeconomic
agencies form the principal members of the NDPC, which is chaired by the Minister of Finance andreports to the Cabinet. Review by the NDPC has become mandatory for public investment projects
requiring foreign loans (Warr & Nidhiprabha 1996). According to the national borrowing regulation
revised in 1985, the NDPC consists of 14 members (representatives from the Ministry of Finance,
BOT, NESDB, BOB, Comptroller-General’s Department, DTEC, FPO, Loan Policy and Management
Division). 46 Since 1999, the newly created PDMO has acted as a secretary to the NDPC. All members
are technocrats aside from the Minister of Finance and his deputy, and there was no direct politicalinfluence exerted upon the NDPC’s decisions.
There has also been effective enforcement of legal limits, as the 1960 Public Debt Law set a 5 percent
ceiling on the government’s debt service ratio and limited the size of foreign debt service to less than
13 percent of the level of exports. Although the legal ceilings were amended by subsequent governments, such rules have acted as binding constraints on government policy. The history of Thai public
debt regulations is summarized in Table 4-1.
By the mid-1980s, the NESDB had begun to closely scrutinize SOE investment plans in order to assess
their implications for foreign debt service. 47 This is because by 1985 SOEs accounted for about twothirds of the public sector’s outstanding foreign debt. Not only are SOEs required to have foreign anddomestic borrowing plans examined by the NDPC, but all such loans must be negotiated and signed by
the FPO of the Ministry of Finance (after 1999, the PDMO).
It should also be noted that in order to avoid mismanagement of infrastructure funds, the NDPC
encouraged foreign borrowing from the World Bank and other aid agencies, which are known for theirstrict project supervision and monitoring (Warr & Nidhiprabha 1996).
Based on Regulation on National Borrowing, B.E. 2528 (1985). Initially (in 1960), the NDPC consisted of five members from the MOF, NEDB, BOB, BOT, and a foreign representative.
47
In 1977, the foreign debt policy commission became empowered to control the foreign borrowing of public enterprises.
In 1981, the MOF became empowered to negotiate foreign loans for military procurement (Ramangkura & Nidhiprabha1991).
4673

1-4 Annual Budget Process
Thailand’s budgetary process is distinguished by the following: (i) a centralized role of the executive
agencies; (ii) limited involvement by the legislature; and (iii) a key role played by the BOB in providing a vertical link between the central economic agencies and the spending agencies (UN 1993). These
are all institutional features that have contributed to sound fiscal performance. Thai budget processes
were strongly centralized prior to the current budget reform, and budget preparation has been largely
confined to the domain of the executive branch. At the executive level, core macroeconomic agencies
are responsible for establishing the macroeconomic framework from which aggregate expenditure ceilings are determined. The BOB and the NESDB jointly prepare budget allocation strategies, and the
BOB assumes a central role in facilitating the annual allocation of expenditures between the Cabinet,line ministries and departments. Moreover, because of the importance of the annual budget process inthe context of Thailand’s “indicative” development planning, the BOB plays a relatively important roleby serving as both a vertical and horizontal link between the core macroeconomic agencies and thespending agencies—thereby enforcing hard-budget constraints.

Table 4-1
Year
1959
1960

1964
1976

1977

1981
1984
1986
1990

A Chronology of Public Debt Policy, 1959-1990

PolicyGovernment budget deficit limited to less than 20 percent of government expenditures.
Ceiling on public sector debt service ratio (DSR) set at 5 percent.
Foreign debt service of public sector limited to less than 13 percent of forecast revenue.
National Debt Policy Committee (NDPC) set up to monitor and regulate foreign borrowing.
Ceiling on DSR raised to 7 percent.
Total public sector foreign borrowing limited to less than 10 percent of total government
expenditures.
Ministry of Finance empowered to borrow from abroad.
Ceiling on DSR raised to 9 percent, of which 2 percent was reserved specifically for military
borrowing.
NDPC empowered to control foreign borrowing from public enterprises.
Ministry of Finance empowered to negotiate foreign loans for military procurements.
Ceiling on DSR set at 9 percent to include borrowing for both military and nonmilitary purposes.
DSR ceiling temporarily raised to 11 percent for the period of 1984-1987 to accommodate
refinancing program.
A limit on total public sector foreign borrowing for all purposes established at 1 billion dollars per
year.
Limit on public sector foreign borrowing raised to 2.5 billion dollars per year. (DSR ceilingremained at 9 percent.)

Source: Warr, P.G., and Nidhiprabha, B. (1996). Thailand’s Macroeconomic Miracle: Stable Adjustment and Sustained
Growth. Washington D.C.: World Bank. p. 94, Table 4.7.

74

In contrast to Malaysia, which is a frontrunner of the Program Performance Budgeting System(PPBS), Thailand followed the line-item budget system for a considerable period of time (1959-1982).
Under this system, the budgets were allocated according to established heads of expenditure such as
salaries, wage payments and materials, rather than by the purpose, objective or targets set by the country’s specific development plan. In 1982 the system was changed to a Planning Programming Budget
System (PPBS), in order to overcome the perceived weaknesses such as over-attention to line-item
details, input focus, and inflexibility in budget administration (UN 1993). The PPBS aimed to give agreater role to the ministries in allocating budgets for their departments, and for strengthening the linkages among different activities that support the same objectives by organizing a program structure
across departments and ministries. In reality, however, the line-item budget system coexisted for an
extensive period, and PPBS did not firmly take root. Even under PPBS, it was mostly the BOB thatstructured programs by interacting with the departments or ministries concerned. 48
A performance-based budgeting system, called the Strategic Performance System (SPS), was introduced in 2003 as part of the government’s finance reform program under Prime Minister Thaksin. SPS
includes the development of a Basis of Strategic Delivery Target, Public Service Agreement, MediumTerm Expenditure Framework (MTEF), Monitoring and Evaluation System, Budgeting Information
System, etc. Specific activities include formulating the budget policy process with government policy
statements and establishing a framework for revenue and expenditures framework. Both of theseprocesses are conducted over three-year periods of time, and represent a radical departure from thepast two budget systems. Theoretically, the central economic agencies are responsible for formulating
government policy over three-year period, as well as the three-year revenue and expenditure framework; and ministers are responsible for arranging public service agreements with the BOB and theNESDB, and specifying strategic delivery targets and performance indicators (Institute for Economic
and Social Research, University of Indonesia 2005). At present, SPS or the performance-based budgeting system is yet to be fully operational. 49
Thailand’s budget formulation cycle can be summarized as follows (see also Figure A-3). 50

1-4-1 Executive Level
Toward the beginning of the fiscal year, around November-December, the central economic agencies
set a budget structure that is composed of revenue projections, budgeting ceiling, debt burden andloans. Detailed budget preparation then begins in each ministry after the ceiling has been approved by
the Cabinet. Budget preparation at this stage is strictly within the domain of the executive branch, withthe legislative branch having no involvement (Doner & Laothmatas 1994).

Based on the GRIPS mission’s interview with the BOB officials (January 2006).
Ditto.
50
In Thailand, the fiscal year covers the period of October-September.
48
49

75

The BOB announces the Budget Guidelines in January, and requests ministries and line agencies tosubmit budget proposals by February. The Budget Guidelines do not set the ceiling by ministry andagency, but instead instruct spending agencies to provide information such as the status of budget
approval in the previous years, results from NESDB’s review of new projects, progress of ongoingprojects, and so on. While personnel, operations and maintenance budgets are solely under BOB
responsibility, investment projects are subject to a division of labor whereby the NESDB examines
feasibility and strategic relevance, and the BOB inspects budgetary implications. While departments
traditionally prepared respective budget proposals, ministers have been made responsible for proposing
budget proposals more recently (especially under the Thaksin government). Budget planning wasstrictly an annual exercise prior to the current budget reform, with no formal, medium-term planning
framework in existence.
From February to April, the BOB scrutinizes budget plans proposed by ministries and line agencies interms of unit costs (especially for public works and equipment), adherence to the five-year plan, budget constraints, and so on. A unique feature of this process is that the BOB dispatches a team of budget
analysts called a “Mobile Unit” to each department in order to conduct detailed reviews. This unit is apivotal actor, providing vertical and horizontal links between spending agencies and core macroeconomic agencies (see Box 4-1).
When the BOB has completed its inspection, it prepares a draft budget lists classified by ministry andaggregate expenditure remaining under the budget ceiling approved by the Cabinet. It then submits

Box 4-1 “Mobile Unit” and the Role of Budget Analysts in the BOB
Within the BOB, the Budget Analysis Division assumes primary responsibility for scrutinizing thebudget plans proposed by spending agencies. This division reviews the proposed plans in terms ofalignment with the prioritization in development plans (using the Budget Guidelines prepared by the
Budget Policy and Information Division), the status of project implementation, appropriateness ofthe balance between recurrent and capital expenditures, and overall resource availability. To this end,a team of budget analysts known as a “Mobile Unit,” are dispatched to each spending agency (normally at the level of department), where they conduct detailed reviews of the proposed budget plans.
The reviews by the “Mobile Unit” form an important, second stage of the “two-tiered approach” inselecting and deciding resource allocation for public investment projects. The budget ceiling for eachdepartment and ministry are decided on the basis of such reviews, covering both recurrent and capital expenditures, and utilizing the previous year’s ceiling as reference. The same criteria and procedures are also applied to ODA-funded programs and projects. In addition, the BOB reviews the allocation of counterpart funds for all technical assistance administered by the Department of Technicaland Economic Cooperation (DTEC). In this way, the Budget Analysis Division plays a pivotal role,ensuring vertical and horizontal links between spending agencies and the core macroeconomic agencies.
Source: Based on the interviews with the FPO officials in October 2005 and a NIDA researcher (former BOB official) in January 2006.

76

these documents to the appropriate ministries for approval or suggested changes. Following this, the
BOB incorporates the suggested amendments from the ministries and submits the new draft to the
Cabinet for approval. When this has been secured, the draft becomes a fiscal budget bill that is thensubmitted to the Parliament in June along with supporting documents (Doner & Laothmatas 1994).

1-4-2 Legislative Level
The legislature retains only a modest influence on the budget process. 51 The Parliament is legally prohibited from initiating spending bills, and its role in controlling the budget is limited to its participationin the deliberations of the Budget Scrutiny Committee. This committee is empowered only to cut or
reduce the original budget bill, with the exception of such items as capital repayment, interest payment
and payments already earmarked by law. Moreover, the Budget Scrutiny Committee is an ad hoc committee that is appointed only for the purpose of budget bill consideration. It is chaired by the Ministerof Finance, with the Director of the BOB acting as secretary of the Committee and representatives
from core agencies answering questions from committee members. Thus, its deliberations are normally completed rapidly in order to allow the budget to be put into place by October 1 (UN 1993).

2.

Malaysia

2-1 Major Characteristics of Macroeconomic Coordination
As explained in Chapter 3, the five-year plan in Malaysia is regarded as the government’s “statementof resource allocation” over the medium-term. The plan is backed by fiscal and debt sustainability
implications, and the approval of priority public investment projects takes place at the time of theplan’s formulation. In this sense, the annual budget may be seen as a rolling plan for the implementation of the five-year plans. Figure 4-4 highlights the annual budget and debt approval processes in relation to development planning and public investment programming.
Figure 4-5 illustrates the mechanisms of macroeconomic coordination in Malaysia, where the bodies
responsible for macroeconomic policymaking have been concentrated in the Prime Minister’s Department and the Ministry of Finance (MOF). The Economic Planning Unit (EPU) is regarded as thesuper-ministry, and has a strong command over the alignment of policy and resources with development priorities. The MOF works closely with the EPU to realize the vision for long- and medium-term
development plans. The EPU plays a central role in deciding the allocation of development expenditures, as well as enforcing the aggregate and sectoral ceilings of development expenditures throughout
the plan period, and also selecting priority public investment projects. The MOF undertakes the annual
planning exercise in conjunction with its annual budget preparation, and in light of prevailing macro-51
It is also notable that the planning document does not require the Parliament’s approval. It is submitted from the Prime
Minister to the King, who then signs it. (The planning is not based on the Law, but the King’s order.)77economic conditions. In other words, the MOF—guided by the EPU—is responsible for the annual
scrutiny and allocation of both development and recurrent budgets under the framework of mediumterm development priorities and expenditures.
A more detailed description of the approaches to fiscal and debt management, as well as annual budget formulation, by these core macroeconomic agencies will be provided in subsequent sections.

Figure 4-4

Overview of Development Planning, Macroeconomic Coordination,and Investment Programming in Malaysia<Malaysia Plan>◆ Development planning◆ Annual budget and debt

- Public investment planningapproval- Project approval<Focal point><Focal point>

EPU (Economic Planning Unit)

MOF (Ministry of Finance)<Coordination>◆<Coordination>◆

Coordination for planning:■ National Planning Council (Cabinet level)■ National Development Planning Council (Officials
level)■ Inter-Agency Planning Groups (Working level)◆

Coordination for project approval:■ Development Projects Examination Committees(ministries, agencies, state gov’ts)

Budget hearings and dialogues:■ “Planning cells” in the relevant
ministries and agencies■ State governments■ Private sector■ NGOs◆ Consultation:■ EPU■ ICU (Implementation Coordination Unit)■ PSD (Public Service Department)<Coordination mechanisms>➜ Rule-based operations duly installed in the coordination machinery78

Figure 4-5

Macroeconomic Coordination Mechanism in Malaysia

Balanced macroeconomic management

Prime
Minister
Vision• Budgeting (investment& recurrent)• Fiscal policy• Public debt management(including foreign loans)

EPU

Technical
support arm torealize PM’svision• Planning• Public investment• Development budget• Development assistance

MOF
CentralBank• Monetary policy

ICU
Project monitoring

2-2 Fiscal Discipline
In contrast to Thailand, Malaysia is known for fiscal activism. The size of Malaysia’s central government expenditures and that of outstanding debt, as percentage of GDP, were the largest of the three
countries. During the 1970s-1980s, the Malaysian government did not necessarily adhere to financial
conservatism. Geared to the implementation of the New Economic Policy (NEP), the 1970s saw rapid
expansion of the government’s intervention in the economy. To finance the large public expenditures
envisaged under the second, third and fourth Malaysia Plans, the government took an expansionary fiscal stance until 1981, when macroeconomic imbalance reached the level of crisis (see Figure 4-6). At
this time, a deficit in the government’s operating budget emerged for the first time since 1972 (UN1993), and the public sector deficit and debt also increased during the same period.
Nevertheless, overall the Malaysian government operates in accordance with a balanced budget principle. It borrows only to finance development expenditures, which are financed by external as well as
domestic loans, as well as any excess revenue that remains after providing for operating expenditures.
Operating expenditures for a particular year are financed from revenue collected during that year.

79

Figure 4-6

Millions of
Ringgits

Trend of Development Expenditures by Five-Year Planning Periods(1971-1990)

Public Sector Development Expendituresby 5 Year Plan Period in 1978 constant prices

70,00060,00050,00040,00030,00020,00010,00002MP, 1971-74

3MP, 1976-80

4MP, 1981-85

5MP, 1986-90

Source: Director General Economic Planning Unit, Mid-Term review of the Sixth Malaysia plan 1991-1995 (1993).
Note: MP indicates “Malaysia Plan” (five-year development plan).

In mid-1982, the Malaysian government adopted austerity measures and shifted to a more prudent
expenditure strategy that included economizing the operating expenditures, as well as cutting thedevelopment expenditures to bring public investment more closely in line with available domestic
resources. At the time of the mid-term review, major revisions were made to the fourth Five-Year Plan
(1981-1985) involving rationalization of the public sector development programs. As a result of thegovernment’s fiscal austerity drive, federal government expenditures declined consecutively beginningin 1983. With this improvement in the economic situations, development expenditures began to recover by the late 1980s. In this way, while embracing the ambitious targets of the NEP, the Malaysian
government demonstrated its willingness, pragmatism and flexibility to make the adjustments thatwere necessary in order to restore economic stability.

2-3 Public Debt Management
In Malaysia, the EPU and the MOF have centralized control over resource mobilization for financing
development. In order to finance its fiscal deficits, Malaysia relied on both domestic and external borrowing. This was particularly the case during the 1980s, although the country managed to significantly
reduce its level of outstanding foreign debt by the mid-1990s (see Figure A-1 in Appendix). Roughly,
there are two sources of domestic borrowing: (i) savings generated by the Employees’ Provident Fund
(EPF), as well as similar forced savings schemes; and (ii) surpluses generated by the NFPEs, especially from a national oil company called PETRONAS (Petroliam Nasional Berhad). The EPF is a compulsory savings scheme supervised by the MOF that is aimed at providing a measure of security to its

80members following retirement and in their older years. Until 1990, the EPF was required to invest atleast 80 percent of its total investment in government securities. 52 PETRONAS was established in
1974, and has made important contributions to the government’s revenues since this time.
As stated before, economic crisis and the resulting slow growth in government revenue during theearly 1980s reduced the savings that were available to finance development expenditures. The
Malaysian government increasingly resorted to financing deficits with foreign borrowings from 1981
to 1986, resulting in a sharp rise in debt service obligations among operating expenditures.

2-4 Annual Budget Process
The annual budget is prepared by the MOF in close cooperation with the EPU. The MOF allocates
operating and development budgets, and the EPU appropriates development allocations across different sectors and states (Ismail Muhd Salleh & Saha Dhevan Meyanathan 1993). Although development
and operating budgets are prepared and documented separately, the process for the two is quite similar—especially with regard to the timing and calendar of events. Thus, the development and operating
budgets are examined together. Box 4-2 explains how the MOF and the EPU coordinate in order todetermine the annual development budget allocation.
In 1969, acting as a frontrunner of public administration reform among developing countries, Malaysia
moved from a traditional line-item budgeting system to a program performance budgeting system(PPBS), utilizing program and activity structures, performance measurement elements, and performance evaluation. In 1990, it shifted to an output and outcome-based budgeting system known as the
Modified Budget System (MBS).

Box 4-2 Coherence among Development Plans, Project Approval, and Annual
Budget Allocation
After the five-year plan is approved by the Malaysian Parliament, the relevant ministries and agencies may only start the implementation process upon obtaining budget approval from the MOF on anannual basis. The EPU circulates a list of approved projects to the various agencies after the Parliament has approved the five-year plan, and by the time the agencies have received the list, approved
projects have already been listed with the Implementation and Coordination Unit (ICU) Central
Computer. The agencies then begin the process of bidding for funds under the annual development
budget, based on the guidelines of the MOF Circular that are distributed sometime around April ofeach year. In the case of funding for the first year of the plan period, where budget approval has to beobtained in the previous year during the period of plan preparation, annual budget requirements fordevelopment projects are incorporated into the agencies’ overall plan submissions.
Source: Khan, M. Adli (1992), World Bank Institute Working Papers.

52
This was reduced to 70 percent under the amended EPF Act of 1991 (section 26). Also, the Minister of Finance has been
empowered to change this figure (Umezaki 2004).

81

Malaysia’s budget cycle can be summarized as follows (see also Figure A-4). 53

2-4-1 Executive Level
In the beginning of the fiscal year, the MOF and the EPU prepare an economic and fiscal report
reviewing national and global economic developments, and projecting fiscal revenues and expenditures
under various macroeconomic scenarios. The Cabinet then determines the government’s fiscal strategy
and the overall spending ceiling for the next fiscal year on the basis of this report.
The MOF requests ministries and agencies to submit operating budgets proposals in January by issuing a “call circular”—a set of budget preparation guidelines that outline budget policy, procedures tobe followed, formats to be used, and the date for completion and submission. While spending agencies
then proceed to prepare their proposals, the MOF makes a projection of the operating budget level inthe context of the revenue that has been forecast. For the development budget, the MOF also issues
guidelines such as the level and priorities of expenditures. The level of the development budget isdetermined based not only upon the forecast revenue, but also upon the borrowing capacity of the government and the availability of loans.
In March, prior to undertaking detailed budget examinations, the MOF holds a series of preliminary
hearings and consultations with spending agencies and the private sector that are known as “Budget
Dialogues.” In order to ensure consensus among the central agencies regarding the conduct of budget
examinations, the MOF consults with the EPU and the ICU on issues relating to development budget,
as well as with the Personnel Service Department (PSD) 54 on establishment matters. In order to better
incorporate business perspectives into budget priorities, as well as to respond to the growing role of theprivate sector in the economy, the practice of consultation with the private sector was introduced under
the Mahathir administration during the early 1980s.
Budget examination by the MOF starts in April after budget submissions are received from spending
agencies. The MOF then holds joint Budget Hearings with the EPU and the ICU, scrutinizing thebudget proposals according to the criteria laid down in the call circular. The MOF recommends fundallocation amounts to the ministries and agencies for the coming year, based on each spending
agency’s capacity to implement its projects and subject to the overall plan ceilings that are in place.
During the 1970s-1980s the annual budget was prepared based on the PPBS, requiring ministries toundertake an annual review of the efficiency and effectiveness of their programs and activities. As partof its budget submission, each ministry was required to detail the past and expected performance foreach of its programs and activities during the current financial year. Ministries were also required to

53
Malaysia’s budget year corresponds to the calendar year, i.e., January to December. The following part is based on UN
1993, as well as the GRIPS team’s interview with the MOF and the EPU officials (during January 2006 mission).
54
The PSD is the central personnel agency, responsible for all matters related to the civil service (except for recruitment
and discipline, which falls under the purview of the Public Service Commission).

82

provide justifications in cases whereby changes were proposed in the scope of program operations or
activities for the forth coming year (UN 1993).
Once the Budget Hearings are completed, the MOF prepares an annual budget to be brought before
Parliament for approval in October. After the Supply Bill and Development Estimates Resolution are
passed by Parliament in November, the Minister of Finance issues a General Warrant to the Accountant General authorizing the Accountant General to make payments on behalf of the ministries anddepartments from their respective allocations as approved by Parliament.

2-4-2 Legislative Level
Under a parliamentary system, it is often the case that the legislature has only limited influence on thebudget process as long as the ruling party has a sizable majority. This has been the case for Malaysia
during the past several decades, as well as for Thailand. 55 After scrutinizing the budget estimates, Parliament then passes the Supply Act that appropriates moneys according to programs, activities andgeneral objects of expenditure.

3.

The Philippines

3-1 Major Characteristics of Macroeconomic Coordination
Despite the existence of inter-agency coordination mechanisms, linkages among the Medium Term
Development Plan (MTPDP), the Medium-Term Public Investment Program (MTPIP), and the annual
budget have not always been strong in the Philippines. Neither MTPDP nor MTPIP provides cost estimates for proposed strategies, targets, or programs (see Chapters 3 for details). Only after public
investment projects have been selected does an in-depth analysis of their fiscal and debt sustainability
takes place. Figure 4-7 highlights how the annual budget and debt approval processes are related todevelopment planning and public investment programming.
Figure 4-8 illustrates the mechanism for macroeconomic coordination in the Philippines. With the legislative branch (Congress) exercising strong power over the executive branch, the working relationshipbetween the executive and Congress tends to be more divisive than in Thailand or Malaysia. Particularly in the budgetary process, there is an inherent tension in reconciling the conflict between the
spending priorities of the executive branch and those of elected representatives in the Congress. Furthermore, the prevalence of special congressional initiatives weakens the national budget process—particularly in terms of allocative efficiency and budget comprehensiveness. Expenditures from suchinitiatives are frequently “off budget,” in the sense that they are not evaluated during the budget formulation stage. In sum, a “dual track” exists within the budget and public investment planning process55
For example, Majid Haji Hussein and John Anthony Xavier note that during the last 30 years, the parliament has merely provided minor changes in development plan (UN 1993).

83

that is comprised of separate administrative and legislative channels. Although Congressional scrutiny
itself is an important element of democratic accountability, the problem in the Philippines is that Congressional debates do not necessarily consist of constructive discussions that are geared toward achieving a vision of shared national development. Fragmentation exists not only in the actual decision making, but also in the vision behind it.
A more detailed description of the approaches to fiscal and debt management, as well as annual budget formulation by these core macroeconomic agencies, will be provided in the subsequent sections.

Figure 4-7

Overview of Development Planning, Macroeconomic Coordination,and Investment Programming in the Philippines◆ Project approval<Medium-Term Philippine
Development Plan (MTPDP)><Focal point>

NEDA◆ Development planning<Coordination>◆ Coordination for project approval:

Weak linkage■ NEDA Board Investment Coordination
Committees (ICC)- ICC-Cabinet Committee- ICC-Technical Board- ICC-Secretariat<Medium-Term Public
Investment Program (MTPIP)>◆ Public investment programming<Focal point>

NEDA (National Economic andDevelopment Authority)◆ Annual budget and debt
approval<Coordination>◆ Coordination for MTPDP:■ Planning Committees■ Technical Working Groups■ Legislative Executive Development
Advisory Council (LEDAC)<Focal point>◆<Coordination>

DBM (Department of Budget andManagement)

Coordination for MTPIP:■ NEDA Board Committees■ Planning Committees■ Regional Development Council
Committees◆ Coordination for budget process:■ Development Budget Coordination
Committee (DBCC)

84

Figure 4-8

Macroeconomic Coordination Mechanism in the Philippines

Dual
track

Legislature

Intervention(especially during budget process)

Executive branchPresident

NEDA Board Cabinet level interagency committees• Planning• Budgeting• Public investment• Regional development etc.

Vision?

DOF

DBM• Public debt
management(including
foreign loans)• Budgeting(investment &recurrent)

NEDA

CentralBank• Planning• Monetary policy• Public investment• Development budget• Development assistance• Other relevant
Departments

3-2 Allocative Efficiency of Public Expenditures
In aggregate terms, annual average spending levels in the Philippines are comparable to those of other
Asian countries, and as such, it cannot be accurately stated that the government’s spending is excessive. Public expenditures in the Philippines averaged 16.7 percent of GDP during the 1980-1990 period, which was below the average for neighboring Asian countries (about 22 percent) and much lower
than that in Malaysia (30 percent) (World Bank 1995). Even during the 1990s, the annual average offiscal aggregates in the Philippines was less than 20 percent of GDP (World Bank 2003). Therefore,apart from the revenue-side problems (i.e., the need for increased tax collections), key issues are howmuch the government spends relative to its revenues—and whether or not spending is efficient—rather
than the level of fiscal aggregates.
In the Philippines, allocative efficiency has been seriously undermined by congressional initiatives.
Congress is authorized to make budgetary reallocations by providing additional allocations for programs/projects or new items in the budgets of some agencies, as well as for the creation of special purpose funds. Individual senators and congresspersons are also entitled to a variety of additional funds
for development purposes, other congressional initiatives, and compensation allowances. These congressional funds in effect represent a significant amount of “off-budget” resource allocation not subject
to prioritization or the transparency requirements that are imposed upon other expenditures during thebudget preparation process (World Bank 2003). (The Constitution, however, prohibits Congress fromincreasing the national budget submitted by the President.)85

In this regard, the Priority Development Assistance Fund (PDAF) and the Department of Public Worksand Housing (DPWH) Infrastructure Fund are the most prominent Congressional allocations. 56 PDAF
was initially adopted as the “Countrywide Development Fund,” and appropriated in the annual budget
from 1990 to 1998. The DPWH Infrastructure Fund is the other lump sum allocation in the budgets of
DPWH. PDAF-listed projects are supposed to be implemented by agencies other than DPWH. Regardless of whether the allocation comes from the PDAF or the DPWH Infrastructure Fund, the expenditure is identified by the members of Congress but implemented by either a national government
agency, a Local Government Unit (LGU), or a Government Owned and Controlled Corporation(GOCC). DBM estimates that in 2005, the PDAF allocation amounted to about P19 billion, 57 which is
not a negligible sum because it accounts for roughly 10 percent of the total discretionary spending of
the central government. The general attitude of the government officials is to regard this sort of “dualtrack” nature of budget and public investment planning as the “costs of running a democracy,” and assuch, to make efforts to contain the potentially adverse effects of congressional initiatives by increasing the transparency and efficiency thereof (see Box 4-3).
Another issue with fiscal implications is the operational inefficiency of the GOCCs, which grew significantly during the 1970s (especially in terms of the provision of infrastructure services). During
1975-1984, the GOCC sector borrowed one fifth of domestic loanable funds and absorbed almost halfof external loans to the country (World Bank 1995). Although massive privatization took place during
the 1990s, when the DOF began efforts to strengthen its supervision of GOCCs’ performance, most of
the existing GOCCs remain inefficient and dependent on the national government’s resource transfers.
According to the World Bank (2003), while GOCCs contributed less than 2 percent of GNP by value
added, their budgetary support needs accounted for 60 percent of public sector spending. Furthermore,
the Foreign Borrowings Act—which sets a $7.5 million ceiling on outstanding government guarantees
of foreign loans for GOCCs—has limited effectiveness in controlling the government’s contingent liabilities since some of the largest GOCCs are exempted from being charged against this ceiling (WorldBank 2003).

Box 4-3 Administrative Efforts vs. Legislative Interventions
The executive branch has been making a series of efforts to increase the transparency and efficiencyof PDAF. Recent efforts include the following: (i) DBM consultation with both Houses of Congressto encourage the alignment of PDAF allocations to the President’s Ten-Point Agenda and
MTPDP/RDP priorities; (ii) disclosure of general information regarding PDAF projects on the DBM
website; and (iii) application of new procurement regulations to PDAF projects, including competitive bidding (expected to be fully implemented beginning in 2008).
Source: Based on the World Bank (2003), as well as information provided by the DBM officials and experts to the
GRIPS mission in March 2006.

Previously, there existed a number of congressional allocations chargeable against agencies’ budgets. According to theWorld Bank (2003), the government achieved a breakthrough in 2002 by localizing these congressional allocations to the
PDAF and DPWH lump-sum budgets and sparing other department budgets from its distorting impact.
57
Based on an interview with a DBM senior official held in March 2006.
56

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3-3 Annual Budget Process 58
The annual budget process has multiple, lengthy stages because Congress (both the House and the
Senate) exercise strong power to change the budget proposal that has been submitted by the executive
branch. 59 While Congress cannot raise the expenditure program proposed by the President, it has theprerogative of reallocating provisions for various budget lines and imposing conditions on their utilization (e.g., the use or waiver of competitive procurement procedures on the supply of services, and theaward of construction contracts during calamities). In addition, Congress may pass special legislation
provided that the national treasurer certifies that funds are available for the budgets requested, or thatfunds are forthcoming from other revenue sources.
The Philippines’ budget cycle may be summarized as follows (see also Figure A-5). 60

3-3-1 Executive Level
Among the six cabinet-level inter-agency coordination committees (as explained in Chapter 2), theDevelopment Budget Coordination Committee (DBCC), a top-level interagency fiscal policy coordination body, is vital for its role in linking the annual budget to the overall development plan. The DBCC
is composed of the following members: the Secretary of the Department of Budget Management(DBM) as chairman, the Governor of the Central Bank (Bangko Sentral ng Pilipinas), the Secretary of
the Department of Finance (DOF), the Director General of the National Economic Development
Authority (NEDA) and a representative from the Office of the President. Within in the DBCC, eachagency/department has its own role: the DBM is responsible for resource allocation and management,
the DOF is in charge of revenue generation and debt management, the Central Bank focuses on monetary measures and policy, and the Office of the President works as an oversight agency.
The DBCC determines overall expenditure levels, revenue projection, deficit levels and the financing
plan, and then submits all of these to the Cabinet and to the President. After approval of budget parameters by the President and the Cabinet, the DBM issues a Budget Call sometimes around January-February that directs the different governmental agencies to prepare their budget proposals in accordancewith approved overall budget ceilings and parameters. The NEDA has primary responsibility only inthe first stage, which is the approval of budget parameters by the DBCC. In the past, NEDA also participated in budget forums and technical budget hearings, but this is no longer being conducted due tothe government’s recently implemented austerity measures. 61
The DBM then holds a series of technical Budget Hearings and Budget Forums by department andagency in April-May in order to set indicative expenditure ceilings of departments and agencies that

Unless otherwise specified, this section draws on UN 1993 and updated information obtained during the GRIPS missionin March 2006.
59
For example, as of March 2006, the FY 2006 budget was yet to be approved by Congress (based on information given
to the GRIPS mission in March 2006).
60
The Philippines’ budgetary year corresponds to the calendar year, i.e., January to December.
61
Based on the GRIPS mission’s interview with NEDA officials (in March 2006).
58

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are consistent with the sectoral and subsectoral ceilings set by the DBCC. The departments and agencies in turn issue guidelines for their regional offices, which conduct budget consultations in close
coordination with the Regional Development Councils (RDCs). These regional offices then submit
their RDC-approved budgets to their respective head offices in Manila, which in turn collate all budget
proposals that have been submitted by regional offices throughout the Philippines in order to consolidate them into a single agency departmental budget proposal.
The DBM then scrutinizes the budget proposals in order to make the overall expenditure level consistent with that determined by the DBCC and approved by the President. In July, the DBM presents anoverall proposed budget to the Cabinet and then to the President, who submits the proposed budget toCongress in the form of a detailed National Expenditure Program that is also accompanied by the Budget of Expenditures and Sources of Financing (BESF), the President’s Budget Message, and theRegional Allocation of the Expenditure Program.

3-3-2 Legislative Level
Within Congress, the House Committee on Appropriations and the Senate Finance Committee serve as
the principal committees for the review of the proposed BESF submitted by the President for enactment as the General Appropriations Act.
The proposed budget goes first to the House of Representatives, where a House Committee summonsthe different national agencies of the government to explain and justify their respective budgets. Fromthe House of Representatives, the budget bill then goes to the Senate and is referred to the Senate
Finance Committee, who likewise asks the various agencies to explain their respective budgets as contained in the budget bill. It then proposes amendments to the House Budget Bill for approval by the
Senate body. In practice, budget hearings by the House and the Senate are formally held during thesame period. The differences between the two committees are reconciled by a conference committee
made up of representatives of both chambers, and the budget is then submitted for final reading andapproval by both Houses.
During this appropriation process, as stated previously, the Congress has the power to insert appropriations for items that have a lower priority in the view of the executive branch. Congress may also
approve projects that have not been evaluated by the executive branch, and appropriate funds for projects that clearly fall within the mandate of local authorities—all of which distort allocative efficiency
and weakens the overall budget process.
Once a common budget bill has been approved by a separate vote from both Houses, it is submitted to
the President who can exercise line veto powers before signing it into law. This is then known as a
General Appropriations Act, which mandates the DBM to implement the expenditure program as thestaff arm of the President.

883-4 Ongoing Efforts for Public Expenditure Management Reform
Since the late 1980s, the government has been making a series of attempts to address the weaknesses
stated above and strengthen policy and resource alignment with development priorities. These include
the introduction of the following: (i) a Synchronized Planning, Programming and Budgeting System(SPPBS); (ii) forward budget ceilings through the Medium-Term Expenditure Framework (MTEF);(iii) Operational Performance Indicators Framework (OPIF), Sectoral Effectiveness and Efficiency
Review (SEER), as well as linking OPIF and SEER to the annual updating of the MTPIP Matrix (seeBox 4-4 for complementarities among these instruments).
The initial attempt to introduce SPPBS began in and around 1988-1989. SPPBS is a collaborative
effort by DBM and NEDA that is aimed at linking development planning together with budget planning and the processes of execution and monitoring. The main features of SPPBS include the following: a synchronized calendar of activities extending over a two-year cycle, coordinated input and output from various agencies and regional or local bodies that feed into each other in an orderly sequence,stronger local government participation in the synchronized activities, and stronger policy formulationand program performance assessment functions by line departments and agencies at the national level(Alburo et al. 1993). The efforts to make SPPBS workable are still continuing.

Box 4-4 Complementarities among MTEF, OPIF and SEER
MTEF, OPIF and SEER are the government’s latest attempts to institutionalize Planning-Programming-Budgeting functions and processes. These methodologies are complementary, and as such aredesigned to make the budget a primary tool for driving national government agencies to perform
according to set standards and indicators.
•••

The MTEF aims to introduce the concept of multi-year budgeting in accordance with thedevelopment framework of the MTPDP and priority investments in the MTPIP. DBM is
responsible for formulating the MTEF.
The OPIF is an attempt by DBM to introduce performance accountability in the government.
Expenditure and performance reviews are undertaken semi-annually to provide incentives towell-performing agencies, as well as to impose corrective measures upon agencies whose performance is below expectations. (OPIF reports provide important input to the SEER process.)
The SEER is undertaken by NEDA as an exercise to support the requirements of the MTEF.
SEER reports are utilized in the annual budget exercise to help determine which programs,
activities and projects (PAPs) are to be included and protected within the budget.

Source: Based on information provided by the NEDA and DBM officials to the GRIPS mission in March 2006.

89

MTEF, OPIF, and SEER constitute the three pillars of the government’s public expenditure management
reform program. The MTEF was introduced in the FY2000 Budget Call (World Bank 2003) to serve as
an indicative forward estimate by setting limits on aggregate and sectoral resource allocations. 62 Moreover, along with the MTEF, DBM introduced OPIF in the FY2000 Budget Call to monitor agency performance. NEDA introduced SEER in the FY2001 Budget Call to make an annual assessment of ongoing programs, activities and projects (PAPs). Based on the indicative planning figures issued by DBM(and approved by the DBCC programming process), NEDA instructs agencies to formulate the threeyear MTPIP rolling list, and then utilizes the SEER process to prioritize the agencies’ proposed PAPs.
All of these measures are intended to make a rolling list of MTPIP as consistent with the fiscal program and prioritized through the SEER criteria.
While such administrative efforts in public expenditure reform are certainly laudable, there remains arisk that these efforts might be undermined by legislative intervention. Although the legislative intervention itself should not be viewed negatively since it provides an important check- and control function, it is important that this remain in line with national development priorities. It is also vital, moreover, that these administrative efforts be supported by a broad political coalition under a vision ofshared national development.

Executive Order 292 lays down that “The annual budgets of the national government shall be prepared as an integral
part of a long-term budget picture.”62

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Chapter 5 Public Investment Programming and Project Approval

This chapter will analyze the mechanism for public investment programming and project approval in
Thailand, Malaysia and the Philippines. We aim to explain concretely how each country has been trying to ensure development policies/priorities and resource alignment, while maintaining a particularfocus on the administrative process and coordination features for public investment project approval.
We also analyze how and to what extent aid mobilization decisions and selection criteria for aid-funded projects are integrated into the development policy-making process itself.
As we have seen in previous chapters, Thailand, Malaysia and the Philippines have different mechanisms, approaches and configurations in terms of development planning and macroeconomic coordination. Correspondingly, relevant features for investment programming and project approval also vary
among the three countries since each exists as an integral part of development management as a whole,and all are closely related to one another (see Figures 5-1, 5-6, 5-8).
In the case of Thailand, substantial changes in public investment project approval took place after
1992, when new legislation related to public-private partnerships was enacted. Hence, the analysis will
be focused on the changes that took place before and after 1992, with a brief supplementary explanation of the social and political contexts during this period. In the case of Malaysia, substantial changes
in the basic features of public investment project approval are not recognized as fully as those in Thailand. Therefore, recent practices in Malaysia are taken up for concrete analysis. Recent practices in thePhilippines are also scrutinized in order to understand issues related to the further enhancement ofongoing reform efforts in public expenditure management (as described in Chapter 4).

1.

Thailand1-1 Major Characteristics of Public Investment Programming and Project Approval
In Thailand, as described in Chapter 3, public investment project approval takes place after development planning as part of the annual budget and debt approval process. The Thai government has taken“two-tiered approach” in deciding the selection and resource allocation for individual public investment projects—prospective development projects outlined in the five-year National Economic andSocial Development Plan (NESDP) must be later scrutinized and pruned throughout the annual budget
process to secure necessary funding. In addition, the Thai government did not introduce public investment plan (PIP), except for the Third and the Fourth NESDPs, which contained PIPs. This is the very
reason that Thailand’s NESDP has been considered “indicative” in nature. Figure 5-1 highlights how
the process of public investment project approval is related to development planning, as well as budget
and debt approval.

91

Figure 5-1

Overview of Development Planning, Macroeconomic Coordination, andPublic Investment Programming in Thailand<National Economic and Social Development
Plan (NESDP)>◆ Annual budget and debt approval◆ Development planning◆ Project approval conducted as a part of theannual budget/debt approval process<Focal point>NESDB (National Economic andSocial Development Board)<Focal point><Coordination><Coordination>◆ Coordination

mainlyamong

BOB (budget) andFPO+PDMO(1999-) (loans)◆ Budget hearings and dialogues:

central■ BOB “mobile units■ State enterprises

economic agencies :■ NESDB■ BOB (Bureau of the Budget)■ FPO (Fiscal Policy Office) + PDMO (Public
Debt Management Office, 1999-)■ Central Bank

◆ Consultation with other central
economic agencies:■ NESDB■ FPO, PDMO
■ Central Bank

*macro-sector coordination relatively weak

<Coordination mechanisms>➜ Centralized system, with strong coordination among central economic agencies(CEAs)—subtle check and balance functions built-in, leading to shared responsibilities
among CEAs

1-2 The Evolving Role of Development Plans in Public Investment Selection
Since the early 1990s, there have been major changes in the roles of development plans and the
National Economic and Social Development Board (NESDB) in public investment programming. This
reflects the growing role of the private sector in economic activities, as well as the progress of decentralization. During the 1970s and 1980s, the Third (1972-1976) through the Sixth (1987-1991) NESDPs established quantitative and strategic guidance with respect to development expenditures as awhole, including infrastructure investment. As a result, they effectively functioned as a strategic core
document for the other central economic agencies, line agencies and ministries. For example, theBureau of the Budget (BOB) utilized the development plans for its subsequent budget allocation92

process, and the line agencies and ministries were able to verify whether their prospective projects
were regarded as priority.
After 1992, however, the development plans for the Seventh (1992-1996) through the Ninth (20022006) NESDPs have become less specific and are limited to qualitative analysis. Recent development
plans have reduced their function for strategic guidance in terms of resource allocation across specificsectors, let alone project selection. As a result, each line agency and ministry has become inclined tointerpret the plans in a manner suiting its own convenience, thereby undermining the effectiveness andselectivity in the subsequent budget allocation process. The Ninth NESDP played virtually no role inguiding infrastructure investment, and in fact, its content was radically different from the strategic priorities of the Thai government then.
This fact clearly explains the evolving role of the NESDB as the central economic agency, which used
to exercise strong power to decide the strategic priorities of national development and approve investment projects through the appraisal process. In short, the NESDB has reduced much of its power andcapacity to exert its most fundamental roles, including development planning and investment programming (Webster & Theeratham 2004). 63

1-3 Decision-Making Parameters and Coordination Mechanisms for Public Investment
Selection
More specifically, substantial changes took place in 1992 with regard to the role of the NESDB in the
public investment selection and prioritization process, with the enactment of the legislation related to
public-private partnerships (namely, the Royal Act on Private Participation in State Undertakings). The
1992 Act was said to be introduced from the government’s new policy to actively utilize private capitalso as to restrain government’s public investment under financial difficulties. 64 Notably, the year 1992
coincided with the beginning of the Seventh NESDP, which reduced its function of strategic guidance.
This also suggests that in accordance with the rising power of the private sector, the functions andresponsibilities of the NESDB were substantially reduced.
In fact, before 1992, all public investment projects were required in theory to go through the NESDB’s
scrutiny process for approval (see Figure 5-2). The NESDB formerly exercised strong powers, basedon the National Economic and Social Development Board Act of 1978 that lay down its formal legal
authorities such as public investment provisions (Article 12 of the 1978 NESDB Act). At this time, the
NESDB verified whether proposed projects were in line with overall economic policy and development strategies at the macro level, and also scrutinized the feasibility of individual projects by undertaking a cost-benefit analysis, among other things. Thus, the NESDB was in a position to review projects in a systematic manner from macro down to micro levels. The involvement of the line agencies
and ministries was limited since the NESDB exercised centralized, “top-down” power in the public

63
64

Also based on the interview with the TDRI researchers held in October, 2005.
Interview with TDRI researchers held in October, 2005.

93

investment approval process until the mid-1980s, and a substantial amount of information was thus
concentrated within the NESDB.
As decentralization progressed following the end of the Prem Administration in 1988, the line agencies
and ministries increased their involvement in the process of planning and investment programming.
Ministries gradually began to make budgetary requests for their prospective projects, bypassing theNESDB in its prior project approval process. In fact, as for public investment projects costing less than
one billion baht 65 that are financed fully from the government’s budget, ministries in recent years are
increasingly using the shortcut process as a normal procedure. In such cases, ministries submit theirproject proposals directly to the BOB, which then scrutinizes them as part of the annual budget process(see Figure 5-3). Specifically, the BOB scrutinizes proposed projects from a budgetary perspective forboth recurrent and capital budgets as per its mandate. It looks into the unit costs of respective investment projects, financial requirements in accordance with their preparation and physical progress,
budget constraints, etc. The systematic analysis and prioritization of projects from a comprehensive
perspective, including the analysis of macroeconomic impacts, is absent under this shortcut approachthat goes around the NESDB altogether. 66
Ministries also started using this type of shortcut process for public investment projects over one billion baht. In fact, with the exception of State Owned Enterprise (SOE) projects, ministries have frequently been bypassing the NESDB in their normal project approval process. In other words, for any
public investment project over one billion baht in value, ministries must submit project proposals to
the NESDB for SOE projects, 67 but may submit proposals for non-SOE projects either through the
NESDB or else to the Cabinet directly—thereby bypassing the NESDB as a shortcut (Webster &Theeratham 2004) (see Figure 5-4).
As for public and private partnership joint venture projects exceeding one billion baht in value (asdefined in the 1992 Act on Private Participation in State Undertaking), ministries are required to propose new projects to the NESDB. For on-going projects, however, such as expansion and new concessionaires’ arrangements for existing assets, ministries are to submit project proposals directly to the
Ministry of Finance (MOF) without involvement of the NESDB. The Cabinet then gives final approval
to proceed with the implementation of both new and existing projects (Articles 8, 9 of the 1992 Act)
(see Figure 5-5). As for any joint venture projects that cost less than one billion baht, the Cabinet may
allow implementation while bypassing the NESDB’s official approval process (Article 11 of the 1992
Act).

As of December 1, 2006, US$1 is equivalent to 36.019 Thai Baht (IMF data).
Interviews with TDRI researchers and the PDMO officials held in October, 2005.
67
According to the interview with the TDRI officers held in October, 2005, SOE projects that are relatively smaller inscale have not been required to go through the NESDB pre-approval process.
65
66

94

1-4 Preparation and Decision Making Process for Public Investment Projects (LocallyFunded Projects and ODA Projects)
The procedures for preparing, screening and selecting locally-funded and ODA projects have been
more or less the same, with the exception of requirements related to environmental safeguards, public
hearings and gender issues. For ODA projects, donors usually require more rigorous standards thanthose applied to the locally-funded ones. The Thai government complies with donor requirements insuch cases, requiring additional time and transaction costs. 68 Thus, in the case of ODA projects, theThai government has been sensitive to the degree of complexity of additional procedures when deciding from which donor to request support. 69
In terms of prospective project feasibility studies, the required content (such as coverage and depth ofanalysis) and criteria have been basically same between the locally-funded and ODA projects. Lineagencies usually do not conduct feasibility studies on their own, but instead outsource them to qualified consultants. To enhance the quality of such feasibility studies, the Thai government introduced asystem in 1987 to select only qualified consultants. More concretely, the MOF manages the list of consultants who meet specific requirements, and announces it in the Royal Gazette to ensure that the consultants who conduct the feasibility studies will be selected from that list. 70
Public investment projects involving either domestic or foreign borrowing must be compliant with the1985 Regulations on National Borrowing (which are the revisions of the 1982 version). This requirement is also applied to the preparation of ODA loan projects. The National Debt Policy Committee(NDPC) must review public investment projects with domestic and foreign loans, and is authorized toformulate an Annual Borrowing Plan for both domestic and foreign loans. This plan specifies: (i) the
name of the implementing agency, (ii) potential loan source(s), (iii) loan amount, (iv) borrowing
schedule, (v) required baht counterpart fund, and (vi) other relevant details for each project. Subsequently, the Cabinet reviews and approves the Annual Borrowing Plan (see Figures 5-2, 5-4, 5-5).
The Thai government has been conscious of strategically utilizing foreign loans (see Chapter 6 for a
specific example of the Eastern Seaboard Development Plan). Since the government has always been
sensitive to possible future constraints with respect to foreign debt burdens, it assesses the implicationof foreign borrowing (including ODA loans) from both political and economic dimensions, and tries toselect only urgent, high-priority projects.

Interviews with TDRI researchers and PDMO officials held in October, 2005.
Interview with the PDMO officials held in October, 2005.
70
Interviews with TDRI researchers and PDMO officials held in October, 2005.
68
69

95

96

Reportingministries ofgovernment units
or stateenterprises (SOE)
NESDB
FPO
(domestic
and foreignloans)

Inclusion in
AnnualBorrowing Plan
(both domestic
and foreignloans)

CabinetAnnual debt approval processby line agencies or SOE

Inclusion in
AnnualBudget Plan

CabinetParliament

Source: Author—drawn upon provisions from the National Economic and Social Development Board Act of 1978, as well as information provided to the GRIPS team by
BOB, FPO and PDMO.

FPO: Fiscal Policy Office

BOB: Bureau of the Budget

CabinetBOB(gov’tbudget)Annual budget approval process

Project Approval Process Prior to 1992: All Public Investment Projects in a Theoretical Sense(Based on the National Economic and Social Development Board Act of 1978)NESDB: National Economic and Social Development Board

Line agencies
or stateenterprises(SOE)

Figure 5-2

97Reporting ministries ofgovernment units orstate enterprises (SOE)BOB

CabinetLink up with the annual budget approval process

Inclusion in
AnnualBudget Plan

Public Investment Projects Less Than One Billion Baht, Financed Fully from the Government Budget

Project Approval Process (Recent Normal Procedures with Shortcut) —Parliament

Source: Modification of the figure in “Policy Coordination, Planning and Infrastructure Provision: A Case Study of Thailand”, a background paper commissioned for the
Asian Development Bank-Japan Bank for International Cooperation-World Bank East Asia and Pacific Infrastructure Flagship Study in 2004.

Line agencies orstate enterprises(SOE)

Figure 5-3

98

Shortcut

NESDB

Required if SOE

Reportingministries ofgovernment units
or stateenterprises (SOE)
PDMO(domestic andforeign loans)

CabinetAnnual debt approval process

Inclusion in
AnnualBorrowing Plan
(both domestic
and foreignloans)

Inclusion in
AnnualBudget Planby line agencies or SOE

BOB(gov’tbudget)Annual budget approval process

CabinetParliament

Source: Modification of the figure in “Policy Coordination, Planning and Infrastructure Provision: A Case Study of Thailand”, a background paper commissioned for the
Asian Development Bank-Japan Bank for International Cooperation-World Bank East Asia and Pacific Infrastructure Flagship Study in 2004.

PDMO: Public Debt Management Office* PDMO was formed after 1999 through transfer of divisions and units from the
FPO and the Comptroller General’s Department to ensure coherent public
debt management under one agency

CabinetIf a shortcut route is taken,
Cabinet will solicit comments
prior to approval fromconcerned agencies,
including the NESDB, theMOF and the BOB.

Public Investment Projects (Including SOE Projects) Over One Billion Baht

Project Approval Process (Recent Normal Procedures) —For SOE projects, ministries must
submit project proposals to the NESDB.
For non-SOE projects, they may submit
project proposals either through the
NESDB, or directly to the Cabinet(bypassing the NESDB via a shortcut).

Line agencies
or stateenterprises(SOE)

Figure 5-4

99

Reportingministries ofgovernment units
or stateenterprises (SOE)

Existing projects

MOF

NESDB

New projects

CabinetInclusion in
AnnualBorrowing Plan
(both domestic
and foreignloans)

Inclusion in
AnnualBudget Plan

CabinetAnnual debt approval process

MOF-PDMO(domestic
and foreignloans)

by line agencies or SOE

BOB(gov’tbudget)Parliament

CabinetAnnual budget approval process

Project Approval Process After 1992: Public and Private Partnership Projects Over One Billion Baht
(Based on the Act on Private Participation in State Undertaking in 1992)

Source: Author—drawn upon provisions from the 1992 Act on Private Participation in State Undertaking, as well as information provided to the GRIPS team by BOB, FPO
and PDMO.

Line agencies
or stateenterprises(SOE)

Figure 5-5

2.

Malaysia

2-1 Major Characteristics of Public Investment Programming and Project Approval
In Malaysia, as described in Chapter 3, public investment project approval is conducted as part of thedevelopment planning process. The five-year Malaysia Plan specifies the size and allocation of the
public sector development program, and plays the role of a de facto investment plan. In other words,
the Malaysia Plan clearly lays out the public investment priorities that are backed by budget implications—a feature that results in the Malaysia Plans being regarded as “directive” compared to the NESDPs of Thailand. Figure 5-6 highlights how this process of public investment project approval is related to development planning, as well as budget and debt approval.

Figure 5-6

Overview of Development Planning, Macroeconomic Coordination, andInvestment Programming in Malaysia<Malaysia Plan>◆ Development planning◆ Annual- Public investment planningbudgetanddebt

approval- Project approval<Focal point><Focal point>

MOF (Ministry of Finance)

EPU (Economic Planning Unit)<Coordination>◆ Budget hearings and dialogues:<Coordination>■ “Planning cells” in the relevant
ministries and agencies■ State governments■ Private sector■ NGOs◆ Coordination for planning:■ National Planning Council (Cabinet level)■ National Development Planning Council(Officials level)■ Inter-Agency Planning Groups (Working level)◆ Consultation:◆ Coordination for project approval:■ Development Projects Examination Committees(ministries, agencies, state gov’ts)■ EPU■ ICU (Implementation Coordination Unit)■ PSD (Public Service Department)<Coordination mechanisms>➜ Rule-based operations duly installed in the coordination machinery100

2-2 Decision-Making Parameters and Coordination Mechanisms for Public Investment
Selection 71
2-2-1 Project Approval Process
As discussed above, public investment selection and prioritization take place as part of the projectapproval process within the Malaysia Plans. As such, the processes of public investment programmingand project selection form part of the overall formulation process of the Malaysia Plans.
More specifically, the project approval process begins with the Economic Planning Unit’s (EPU’s)issuance of the call circulars to ministries, departments, statutory authorities, state governments andnon-financial public enterprises. The call circular has two basic objectives: (i) to inform the government machinery of the preparation of the Malaysia Plan, including future strategic objectives; and (ii)to obtain development allocation bids for the next five years in order to implement the identified
strategies. The circular provides general guidelines on procedures for plan preparation, submission
schedule, timing, and criteria for proposed projects and programs. The various ministries, agencies andstate governments are then requested to review their strategies and development objectives. They arealso asked to identify, prepare and submit proposals for candidate projects and programs, both for ongoing and new projects, together with bids for the funds that are necessary in order to implement themduring the period of the plan.
Upon receipt of submissions from relevant ministries, agencies and state governments, the EPU evaluates targets, concepts and proposed projects and programs, and also determines the overall objectives,
scope and costs in terms of the Malaysia Plan. The Macro Economic Section in the EPU analyzes theviability of candidate projects and programs from a medium-term macroeconomic framework, and sets
the overall aggregate development budget ceiling. Each sectoral division in the EPU also scrutinizes
candidate projects and programs in terms of technical feasibility, financial viability and effectiveness.
The Budget Section in the EPU coordinates with each sectoral division in the EPU to consider development budget allocation to ministries, agencies and state governments. The Technical Services Section in the EPU checks the project/program costs based on the specified (unit) cost standards. 72 Here,the same cost standards are applied for both domestic- and ODA-funded projects.
In determining projects and programs for the Malaysia Plan, relevant sections in the EPU consult withthe planning sections (“planning cells”), as well as with other appropriate divisions of concerned ministries, agencies and state governments (see Chapter 3, Box 3-1). In some cases, the EPU may have toconsult and coordinate directly with the secretary generals or deputy secretary generals of relevant
ministries, agencies and state governments as it deals with policy issues that even their planning cells
may not be able to determine. 73

Information from this section was mainly drawn from “Development Planning in Malaysia” issued by the EPU in 2004.
Cost estimations based on market price are made in feasibility studies for large scale projects, as unit cost standards are
not specified for such cases.
73
The information in this paragraph was based on an interview with an EPU senior official held in January, 2006.
71
72

101

In sum, each sectoral division in the EPU examines the candidate project proposals that have been submitted by relevant ministries, agencies and state governments, and ranks them according to priority
within the initial budget ceilings that have been established for each sector. These projects are then discussed in meetings held by the Development Projects Examination Committees (DPEC), which are
chaired by the EPU and comprised of members from the ministries and agencies submitting the projects, as well as the Ministry of Finance (MOF) and other relevant agencies. The DPEC goes throughthe project list, and the concerned ministries and agencies are required to provide justification for their
proposed projects. Project lists are drawn up for each sector, and then consolidated and examined by
the sectoral divisions of the EPU. If necessary, the development budget is reallocated among sectors at
this stage based on priorities and the quality of submitted projects. While resources are allocated by
sector, the project list also includes projects proposed by states in order to give due attention to regional considerations. The consolidated project list is then submitted to the Cabinet together with the draft
chapters of the Malaysia Plan (see Figure 5-7).

2-2-2 Project Prioritization
During the project approval process, the EPU prioritizes candidate projects and matches them withoverall financial resources and development goals. The call circular mentioned above indicates thebroad criteria applied when prioritizing projects and programs: growth promotion, project viability,
social obligation and needs, poverty reduction and promotion of regional balance. The development of
infrastructure projects is largely guided by master plans, helping to determine prioritization. Appropriate distribution is also carefully considered with regard to sectors as well as regions. In fact, when
deciding candidate projects, ministries and agencies take regional distribution aspects into accountprior to submitting proposals to the EPU. Usually, projects in lesser developed states and regions are
given more weight than those in the more developed ones, and ongoing projects are given priority overnew projects.
To decide regional priority, the candidate projects proposed by the state branches of Federal Ministries
and the state governments must be first discussed with the State EPUs (SEPUs), which are responsible
for evaluating, examining, and recommending projects in addition to determining their needs andrequirements. Projects proposed by the state branches of Federal Ministries may be submitted to Federal headquarters only after they have been examined by the SEPUs, and projects proposed by stateagencies need to be scrutinized by the SEPUs prior to being submitted to the EPU.
With regard to projects proposed by state corporations that have plans/potential for privatization, theEPU scrutinizes them more carefully than those proposed by ministries, departments and state governments in terms of financial viability and profitability. The Privatization Section of the EPU looks into
privatization plans of relevant state corporations. 74

74

Interview with a EPU senior official held in January, 2006.

102

2-3 Preparation and Decision Making Process for Public Investment Projects (LocallyFunded Projects and ODA Projects) 75
Since locally-funded and ODA projects are prepared and selected as part of the development planning
process, there exists no difference between the two in terms of the process for procedures andapproval. Regardless of funding source, any candidate project must be included in the project list in
the Malaysia Plans in order to secure resources for implementation.
After final approval of the Malaysia Plans by Parliament, the EPU’s External Assistance Section considers funding arrangements for donor assistance in consultation with other sections in the EPU, theMOF, and concerned ministries and agencies. Past experience has shown that relatively large-scale
projects have been the main target for foreign assistance. Small-scale projects have been financed
locally, and the content of such projects were mainly scrutinized during the annual budget processrather than the development planning process of the Malaysia Plans.
Feasibility studies are not required for all projects. For example, they are not usually prepared forsmall-scale projects such as the construction of school buildings and hospitals. In such cases, the project scope is determined by the ratio of students/patients as estimated by the population distribution in
the region in order to come up with the estimated size of the facilities.
Although there are no regulations that specify the minimum project cost, feasibility studies are normally required for large-scale projects that exceed MYR200-300 million 76 (depending on the type andcharacteristics of the project). Feasibility studies may be prepared either directly by relevant ministries, agencies and state governments, or else they may be outsourced. Each ministry, agency andstate government has its own internal guidelines that stipulate the criteria for public investment projectstudies, including quantitative standards such as the internal rate of return and a cost-benefit analysis.
Coverage and depth of the analyses, as well as the criteria of feasibility studies, are the same for both
locally-funded and ODA projects.
In some cases, donors require standards beyond those applied to locally-funded projects, such as environmental and social safeguards. In such cases, the Malaysian government complies with the donor
requirements in accordance with the stipulated guidelines. While the Malaysian government observes
donor requirements in terms of additional administrative procedures, however, it does not accept any
conditions that would result in critical policy implications for the country, including changes in important policy decisions or foundations for administrative machineries. A typical example is the decisionby the Malaysian government to firmly maintain a fixed exchange rate system by rejecting International Monetary Fund (IMF) recommendations at the time of the Asian financial crisis.

75
76

Information in this section is also largely based on an interview with an EPU senior official held in January, 2006.
As of December 1, 2006, US$1 is equivalent to 3.597 Malaysian Ringgit (IMF data).

103

104

EPU

CabinetReallocation of thedevelopment budget
among sectors, if
necessary

EPU

As a part of Five-year Development Planning process

EPU
ICU
PSD

MOF

Budgethearings
anddialogues

Parliament

Annual budget and debt approval process“Planning cells” inrelevant ministries
and agencies.
State governments
Private sector
NGOs

Consultation

Parliament

Source: Author—drawn from “Development Planning in Malaysia” issued by the EPU in 2004, as well as information provided by EPU to the GRIPS team.

EPU: Economic Planning Unit
MOF: Ministry of Finance
ICU: Implementation Coordination Unit
PSD: Public Service Department

State EPUs

Development
Projects
Examination
Committees
Chair: EPU

by ministries/agencies andstate government(for both development andrecurrent budget)

Project Approval Process for the Malaysia Plans (Five-Year Development Plans)

Consultation(If federal ministries,
consultation throughstate branches)

Ministries
Agencies
State governments

Figure 5-7

3.

The Philippines

3-1 Major Characteristics of Public Investment Programming and Project Approval
As described in Chapter 3, public investment project approval in the Philippines takes place after the
public investment planning process and before the annual budget and debt approval. The six-year
Medium-Term Philippine Development Plan (MTPDP) and its companion document, the MediumTerm Public Investment Program (MTPIP), are prepared prior to public investment project approval.
However, they play a limited role with regard to the alignment of policy and resources with development priorities. While there are ongoing efforts to enhance the management of public expenditures(see Chapter 4), linkages among the MTPDP, the MTPIP, investment project selection and the annual
budget have not always been strong, and the public investment plan tends to be viewed as a “wish list”
of projects. Figure 5-8 highlights how this process of public investment project approval is related todevelopment planning, public investment planning, and budget and debt approval.
While the National Economic and Development Authority (NEDA) is responsible for both MTPDP
and MTPIP, linkages remain weak and few resource-binding functions are internalized in the planning
process. In theory, the MTPIP is intended to do the following: (i) tighten planning, programming andbudgeting linkages; (ii) function as the basis for public sector resource allocation and screening of
publicly-funded projects and programs (including ODA) as well as for the private sector and otherfinancing sources; and (iii) monitor the performance of public investment in terms of achieving thegoals and targets established in the MTPDP. 77 In reality, however, the scope of the MTPIP is only asubset of total public expenditures or of the total budget. It includes capital-forming public investment
projects and programs, both ongoing and new, and covers all departments and agencies, including
locally-funded and ODA projects.
On the other hand, the MTPIP excludes administrative capital expenditures (i.e., in support of regular
agency operations such as improvements in existing office buildings), debt payment, and projects andprograms to be financed purely from the Local Government Unit (LGU) revenues. 78 Moreover, being awish list of projects and programs, the MTPIP includes even low-priority projects that are incoherent
in terms of efficient allocation. One main reason why the MTPIP has not served its expected role liesin the status of the MTPIP itself. As explained in Chapter 4, the MTPIP does not define budget allocation. In order to secure funding, therefore, potential projects and programs must still be evaluated andapproved by the Investment Coordination Committee (ICC) even after they are included in the MTPIP.
In addition, they must be scrutinized by the Department of Budget and Management (DBM) based on
the department’s budgetary ceilings.
In sum, the inclusion of projects and programs in the MTPIP does not have any binding effect on theirsuccessive investment selection and budgeting process. Furthermore, since the MTPIP has been
regarded as a gatekeeper for actual investment budgets, sector departments have every incentive to77
78

Based on the interview with NEDA officials and their presentation materials (in March 2006).
Ibid.

105

Figure 5-8

Overview of Development Planning, Macroeconomic Coordination, andInvestment Programming in the Philippines◆ Project approval<Medium-Term Philippine
Development Plan (MTPDP)><Focal point>

NEDA

◆

Development planning<Coordination>◆ Coordination for project approval:■ NEDA Board Investment Coordination
Committees (ICC)- ICC-Cabinet Committee- ICC-Technical Board- ICC-Secretariat

Weak linkage<Medium-Term Public
Investment Program (MTPIP)>◆ Public investment programming<Focal point>

NEDA (National Economic andDevelopment Authority)◆ Annual budget and debt
approval<Coordination>◆ Coordination for MTPDP:<Focal point>■ Planning Committees■ Technical Working Groups■ Legislative Executive Development
Advisory Council (LEDAC)

DBM (Department of Budget andManagement)<Coordination>◆ Coordination for MTPIP:◆ Coordination for budget process:■ NEDA Board Committees■ Planning Committees■ Regional Development Council
Committees■ Development Budget Coordination
Committee (DBCC)

have their projects and programs included in the MTPIP (World Bank 2003). In addition, the “congressional insertions” that occur during the annual budget process create distortions, leading to the selection of inappropriate programs and projects that are not fully aligned with national objectives, strategy
and priority. Such legislative intervention undermines the role and credibility of the MTPDP and the
MTPIP.
As a result, the government of the Philippines faces more complicated and profound challenges thanThailand and Malaysia. This is the case not only in terms of macroeconomic management, but also fordevelopment planning and investment selection.

106

3-2 Decision-Making Parameters and Coordination Mechanisms for Public Investment
Selection
The NEDA serves as a focal point for evaluating and programming public investment projects by coordinating ODA and appraising projects and programs. The ICC, one of the six inter-agency committeesof the NEDA Board, is responsible for deciding which projects are to be financed, particularly for
ODA and Build Operate Transfer (BOT) projects. Potential projects are to be submitted to the ICC by
the proponent departments and agencies via NEDA Technical Staff. Investment projects that have beencleared and recommended by ICC are then submitted to the NEDA Board for final funding approval(see Figure 5-9).
The chair of the ICC is the Department of Finance (DOF) Secretary, and the co-chair is the NEDA
Director-General. Members include the Executive Secretary, as well as the Secretaries of Budget andManagement, Trade and Industry, Agriculture and Energy, the Governor of the Central Bank (Bangko
Sentral ng Pilipinas), and the BOT Center. The ICC is supported by technical working groups that conduct the technical evaluation of projects for the deliberation of the ICC. Its core members are drawn
from the technical staff of the oversight agencies (i.e., the NEDA, the DBM, the DOF and the CentralBank). The ICC conducts the following in deciding which projects to be recommended to the NEDA
Board for final approval (Medalla 2004):●●

Reviews the fiscal, monetary and balance-of-payment implications of major capital projects, andSubmits to the President: (i) a status of the fiscal (budgetary), credit (monetary) and balance-ofpayment implications of major capital projects; and (ii) review/evaluation of specific major capital projects in light of technical, financial, economic, social, environmental, and institutional
development, as well as feasibility/viability in the context of sectoral plans and geographicalstrategies.

Because the ICC approval process comes only after the MTPIP has been prepared, the projects andprograms listed under the MTPIP usually have not gone through rigorous scrutiny as required underthe ICC process. Accordingly, what tends to result is a sort of “wish list.” As explained previously, various initiatives are underway through the administrative channel (headed by the NEDA and the DBM)
in order to strengthen the effectiveness of the MTPIP and enhance linkages between planning andbudgeting.
Projects that require ICC clearance are as follows: (i) any public sector undertaking with a total project
cost of 500 million pesos 79 and above, resulting in new capital investment irrespective of financing(i.e., whether for local funding or through loans/grants for foreign funding); (ii) public sector projects
with foreign borrowing of at least US$5 million; (iii) projects from the private sector seeking concessional ODA financing under on-lending arrangements and/or national government financing guarantees (e.g., BOT projects); and (iv) other projects and programs not defined above, as considered on acase-by-case basis. In reality, those capital investments that are subject to ICC approval are limited to79

As of December 4, 2006, US$1 is equivalent to 49.695 pesos (central bank data).

107

ODA and BOT projects. Purely locally-funded public investment projects are smaller in scale and turnout to be outside the requirements of the ICC review. According to NEDA officials, no locally-fundedpublic investment projects have gone through the ICC review process, since those submitted for local
funding are below the cut-off point of 500 million pesos.
It is also noteworthy that projects funded by the PDAF (i.e. pork barrel funds) that are allocated toeach legislator are not subject to ICC approval. In short, the administrative system allows legislativeintervention that may conflict with national and sectoral development strategies, leading to distorted
allocation and also undermining both transparency and efficiency in public investment selection.

3-3 Preparation and Decision Making Process for Public Investment Projects(Locally-Funded Projects and ODA Projects)
In reality, as explained above, the procedures and requirements for project preparation and selection
are different for locally-funded projects and large-scale ODA initiatives. The ICC system virtually
excludes locally-funded investment projects (as well as projects prepared by congresspersons mobilizing their pork barrel funds) from having to undergo intensive scrutiny, as only the large-scale ODA andBOT projects are subject to the ICC process. The absence of ICC reviews may lead to a decrease intransparency and efficiency, thereby creating loopholes in the system of development administration.
This is a distinctive feature of the Philippines as compared to Thailand and Malaysia, both of whichhave the same basic approval procedures and requirements for both locally-funded and ODA projects.
In the case of locally-funded projects, the relevant line agencies submit proposals to the DBM and/or
the NEDA, depending on the size of the project. In the absence of the ICC review, the inclusion of the
project in the national budget by the DBM becomes the crucial investment selection decision. Hence,
when the project is included in the national budget, it may be regarded as essentially approved (seeFigure 5-9).
Donor requirements for ODA projects are usually more rigorous (comparable to international standards) than the government’s requirements for locally-funded projects in terms of the quality of feasibility studies, social and environmental safeguards, standards for operations and maintenance, requirements for implementation and monitoring, procedures for selection and management, etc. Because
donors need to maintain accountability and transparency to taxpayers in their home country, as well as
minimize fiduciary risks in the respective ODA operations, it is understandable that requirements forrecipient countries tend to be increased. In other words, there is a certain rationale behind institutionalizing ICC evaluations for ODA projects.
However, setting up a dual and exceptional system for ODA would increase the gap that exists
between the procedures of ODA and locally-funded projects, and might only enlarge the administrative
burden borne by the government. Furthermore, setting the ICC threshold by the total project amountmight induce inefficiency, as it would create perverse incentives for the proponent line agencies tofragment projects in order to evade the ICC evaluation process. The consequence of such a dual systemfor project screening and approval—more rigorous rules applied for ODA projects and less so for108

locally-funded projects—might also create distortion and inefficiency to the economy as a whole.
While ODA may function as a catalyst and serve as an entry point to facilitate the institutional andcapacity-building efforts for the broader system of government, there is a potential risk that additionalrules and complex procedures required by donors could raise the transaction costs of the government.

109

110

DBM

ICC-Technical
Board

DBCC

Source: Author—drawn from information provided by NEDA to the GRIPS team.

NEDA
Board

President

Congress

Inclusion of the project in thenational budget constitutes
final project approval

Project approval

Annual budget approval process

Cabinetby line agencies

ICC-Cabinet
Committee

NEDA: National Economic and Development Agency
ICC: Investment Coordination Committee
DBM: Department of Budget and Management
DBCC: Development Budget Coordination Committee

ICC Secretariat(NEDA Technical Staff)

Three levels of ICC

Project Approval Process—Public Investment (Namely ODA and BOT) Projects Subject to ICC Approval

Locally-funded projects are submitted to
the DBM and/or the NEDA depending on
the size of the project. With few exceptions, the ICC has yet to evaluate and approve a locally-funded project, as projects
submitted to the DBM for local funding aremostly below the ICC threshold of 500 million pesos. Hence, inclusion of the projectin the national budget by the DBM becomes the crucial selection decision for locally-funded projects.

Lineagencies

Figure 5-9

Chapter 6 Case Study: Eastern Seaboard Development Plan in Thailand

This chapter will examine the specific case of one of Thailand’s most notable mega-projects, the Eastern Seaboard Development Plan (ESDP). The pages to come will follow an analysis of the ESDP, so as
to illustrate what major factors contributed to the advancement of its development, with a specific eye
on institutional settings and coordination mechanisms, as well as the corresponding roles of the Thaigovernment, political leadership, technocrats, and central economic agencies. To date the general presumption has been that the synergetic whole of a multiplicity of interacting factors had more or lesscontributed to fomenting development. However, we will break down this amorphous whole and lookin detail at each factor therein, including external global factors that had positively impacted the project in their own way.
The analysis of institutional settings and coordination mechanisms will focus on the central economic
agencies in order to best illuminate the good reasons behind adopting a centralized system for the
implementation of this type of development. In fact, mega infrastructure investments in general require
high levels of capacity for planning, complicated coordination, competency in technical issues and themobilization of vast resources. Large-scale infrastructure development is inherently characterized by:capital intensive investment disbursed over extended periods of time, economies of scale, network
effects, linkage effects on business activities, the involvement of a variety of stakeholders, and the needfor advanced technical expertise, among other things. As such, the central economic agencies havebeen in the prime position as main players in the execution of this mega -public-investment project, the
ESDP.

1.

Overview of the Eastern Seaboard Development Plan (ESDP)

1-1 Main Features of the Plan, as well as its Political and Economic Background
The Eastern Seaboard is located 80-200 km southeast of the Bangkok Metropolitan area. Regional
development of this land involved the creation of special integrated economic zones with diverse typesof capital-intensive infrastructure projects. Two industrial complexes were built in the formerly tranquil fishing villages of Laem Chabang and Map Ta Put, respectively, where currently many manufacturing firms, such as those related to automobiles, electronic consumer goods, petrochemicals, andother industries, are operating. Also, two deep seaports, one commercial and one industrial, were constructed at the same sites. Associated infrastructure projects were commenced, such as water resource
development and water supply projects, roads and railway projects, and power and communication
facility development. In sum, the Eastern Seaboard has become Thailand’s second largest industrial
zone, next to Bangkok’s metropolitan area, and has made remarkable contributions to the country’s
economic growth.
The ESDP is considered Thailand’s first forward-looking, strategic initiative aimed to fuel a robust
economic takeoff. Two major objectives of development in this area were: (i) to strengthen international competitiveness by building an industrial base suitable for accelerating industrialization, and (ii) to111

systematically expand economic activities out towards regional areas while generating employment
outside of Bangkok so as to mitigate concentration levels, and other strains of urbanization, in
Bangkok.
The ESDP was one of the first regional development initiatives that had taken an intersectoral, programming-oriented planning approach, wherein annual budget plans for development were compiled
by integrating across the board all agencies concerned, so that the overall budget for whole programs
could be easily grasped. The plan involved varying sectors with more than twenty government agencies and state enterprises contained therein. Thus, development issues could not be neatly separated
into specific sectors and a more broadly-encompassing perspective became necessary. Also, organic
integration between numerous funding sources and development schemes became crucial for effectiveplanning and programming.
The ESDP was regarded as being of the highest priority at the time of the Fifth (1982-1986) and the
Sixth (1987-1991) National Economic and Social Development Plans (NESDPs). Its basic idea wasformulated in the late 1970s and a master plan was completed in 1982.
Starting within the context of the Third NESDP (1972-1976), the Thai government endeavored toachieve a big leap in economic performance by shifting its industrial strategy from import-substitution
to export-oriented industries promotion. In fact, policymakers were steadfastly determined to see to itthat “catching up” in terms of industrialized nation status be Thailand’s priority goal. However, in reality, Thailand was only able to close in on this goal after the late 1980s, when the development of theEastern Seaboard, and several external global factors, together contributed to the inflow of direct
investment to the region.
As a matter of fact, the development of the Eastern Seaboard evoked a lot of controversy within thegovernment from the start. Standoffs between proponents and opponents of the ESDP lasted throughout the development process. Technocrats debated over macroeconomic issues, such as whether, underdifficult circumstances, the country should prioritize macroeconomic stability for the present or
longer-term economic development for the future. 80 Also, on a more acute scale, issues of whether topostpone, downsize or shelve specific projects within the plan in order to make painful adjustments
during the recession caused protracted, hot debates (see section titled “Leadership”). Hence, the factthat the Eastern Seaboard’s development had in fact started during a turbulent era for the Thai economy meant that overall development processes were complex, and even more difficult to manage.
In the early 1980s, when the ESDP was initiated, Thailand was suffering from an economic recession,
primarily caused by hard-hitting changes in the global environment, such as the oil crisis, trade imbalance and debt problems. Thailand was particularly susceptible to being affected by the world economy
because of its high dependence on primary commodities and external finance. Hence, the global market’s recession directly impacted the Thai economy. For example, both international trade and the cur-

“Eastern Seaboard Development Ex-Post Evaluation Report (Third Party)”, Yasutami Shimomura, Japan Bank forInternational Cooperation, 2000.

80

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rent account deficit were aggravated by the fall in export prices and the rise in import prices. The escalation of world oil prices following the 1979 crisis also further exacerbated trade deficit problems. So,
no matter how much Thailand increased its exports, costs incurred by import bills could not be recovered. In fact, the Thai government borrowed from the World Bank twice, in the form of Structural
Adjustment Lending in 1982 and 1983, in order to cover its slide in meeting the balance of payments.
The Thai government also received Standby Credits from the International Monetary Fund (IMF).
Moreover, while the government countered external forces by maintaining strict fiscal discipline andtight control over monetary policy under the World Bank’s structural adjustment program, it devalued
the baht in 1981 and 1984, overriding political resistance from the military. 81 Thus, Thailand was
unable to achieve industrialization objectives owing to its continued heavy dependence on exporting
primary products, and, in response, the government had to reorganize industrial structures to overcome
the nation’s deteriorating situation. In fact, political leaders and technocrats were gripped by a sense ofpolitical and economic urgency stemming from a fear of foreign encroachment, and this served as
motivation for deeper commitments to industrialization as a means to robust economic growth. 82
In addition to global factors as described above, there were also two key domestic factors that led tothe initiation of the ESDP: (i) the 1973 discovery of natural gas reserves in the Gulf of Thailand, and(ii) the desire to alleviate strains caused by excessive urban concentration in the Bangkok Metropolitan
area. With respect to the discovery of natural gas reserves, the government was eager to create anindustrial base, especially within the petrochemical industries, to make the most of its future potential.
And in regard to problems in the Bangkok metropolitan area, the government had to effectively handlesocial and structural issues raised by regional disparity, traffic jams, and air and water pollution,
among other things, in its congested urban areas.

1-2 External Financing and the Involvement of Donors
In the realm of external financing, key investors in Thailand were Japan, the European Union (EU) andthe United States (US). Of these, from 1982 Japan provided wide-ranging assistance funding 16 major
infrastructure projects via 27 loan agreements, amounting to a total loan commitment of 179 billion
yen. 83
Initially, the Thai government requested that the World Bank assist in preparing the master plan, but
after completion of the plan, the government redrafted the master plan on its own while drawing uponadvice from Japan. In fact, the World Bank had proposed that Thailand take a least-cost approach todevelopment in view of the difficult fiscal situation it was in at the time. The World Bank advised that
the Thai government utilize the existing naval port, Sattahip Port, rather than develop new deep sea

Ibid.
Drawn from the views of Toshio Watanabe: “Shinseiki Asia no Koso (Designing Asia for the New Century)” publishedby Chikuma Shinsho; Tokyo, 1995.
83
The Japanese implementing agency was the Overseas Economic Cooperation Fund of Japan (OECF), presently theJapan Bank for International Cooperation (JBIC).
81
82

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ports. The Thai government then went on to explore the possibility of requesting Japanese assistance,
as it was aware that Japan had shown interest in supporting the plan. Japan made a counterproposal
recommending the construction of new deep-sea ports at Laem Chabang and Map Ta Put, and the Thaigovernment ultimately reflected Japan’s recommendation in the final master plan. 84 Japan also proffered advice based on its own lessons and experiences from the past to the Thai government. It emphasized the importance of developing commercial seaports outside of Bangkok that could function as
new gateways for other countries to come and engage in economic exchange. Japan also pointed out
the significance of developing industrial bases capable of attracting foreign direct investment. Subsequently, a mission sent by the Japanese government and headed by Dr. Saburo Okita, a former Foreign
Minister, came to Thailand to discuss the possibility of Japanese assistance for the ESDP. 85
In the end, the Thai government, duly under its own best judgment, made the decision to formallyrequest assistance from Japan. It should be noted, however, that the Thai government received recommendations from donors other than Japan and the World Bank, such as the United Nations (UN), Belgium and the United Kingdom (UK). 86 The Thai government consciously sought to gain advice fromas many sources as possible from the onset, rather than limit itself to just one. The Thai government
initiated its own probe into changing economic conditions, and used the analysis thereof to pragmatically decide on the most suitable donor for supporting its development strategy. On the other hand, thefact that Dr. Sanoh Unakul, former Secretary General of the National Economic and Social Development Board (NESDB) and Dr. Saburo Okita came into negotiations already linked by what they saw as
a personal relationship of trust is nevertheless worthy of attention, as it was likely to have greatly
impacted discussions between the two parties. 87
As mentioned earlier, Thailand was in the midst of a deep recession, provoked by external global factors, during the initial stages of the ESDP. However, after the Plaza Accord in 1985, there was an economic upswing and, by the late 1980s, an economic boom of historical proportions was taking place.
Hence, economic conditions during the 1980s were seen as highly volatile, ranging dramatically fromthe deep recession to its subsequent outstanding economic climb. On the other hand, the political situation domestically was relatively stable throughout most of the 1980s under the administration ofPrime Minister Prem Tinsulanonda (1980-1988). Hence, the Eastern Seaboard Development wasplanned and implemented mainly during a period of domestic political stability, which stood in sharp
contrast with rough waters of the global economic seas.

Interview with a National Economic and Social Development Board (NESDB) official held October 2005. The sameofficial worked in charge of the ESDP during the 1980s at the Office of the Eastern Seaboard Development Committee.
85
Following this visit, the Japan International Cooperation Agency (JICA) prepared feasibility studies for the plan centered on Map Ta Put areas.
86
Interview with an NESDB official held October 2005.
87
Interview with an NESDB official held October 2005.
84

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2.

Major Driving Forces Pushing the Plan Forward

2-1 Leadership
One notable element of the ESDP is the role of Thailand’s leadership in carrying out its development.
Prime Minister Prem had a sound vision for how to best benefit public interest, and his deep sense ofcommitment and dedication to ensuring the success of this plan was recognizable to many. His actions
underscored the importance of Thailand’s strong ownership and initiative in regard to both development management and donor management.
Prime Minister Prem created a centralized administrative framework exclusively for managing theESDP. A coordination mechanism for decision-making and implementation was inserted into thisframework, and Prime Minister Prem himself led the process. The mechanism foremostly featured theestablishment of the Eastern Seaboard Development Committee (ESDC), a cabinet-level national committee chaired by Prime Minister Prem himself, for decision-making, and the Office of the Eastern
Seaboard Development Committee (OESD), 88 created within the NESDB, as the ESDC Secretariat incharge of overall coordination. This highly centralized structuring contributed to effective planning in,
and implementation of, the ESDP. The workings of the overall mechanism and specific functions ofmajor bodies therein are described in greater detail in “Institutional Settings” below.
In fact, a number of legal avenues for introducing this administrative framework, such as by law, act,royal decree, or executive order by the prime minister were considered, especially in regard to the creation of the OESD. Ultimately, the Prime Minister’s Executive Order, the most simplified form of regulation, was adopted. Initially, possibilities for creating a government corporation in the form of a
Regional Development Corporation were discussed; however, this would have necessitated promulgation of laws, thereby inevitably requiring considerable time for coordination and approval processes.
Hence, Prem adopted the Prime Minister’s Executive Order to expedite the highest-level of policy
structure for decision-making. Herewith, the ESDC led by Prime Minister Prem was created and the
OESD was established within the NESDB to act as secretariat for the ESDC. 89
Prime Minister Prem placed his confidence in technocrats, especially the NESDB technocrats, and delegated the authority to realize the ESDP to them. Hence, he deployed highly motivated, competenttechnocrats to central economic agencies, including the NESDB and the OESD, established therein
and utilized them as his supporters. Dr. Sanoh Unakul, Secretary General of the NESDB for two terms,
in 1973-1975 and in 1980-1989, recalled that the NESDB technocrats were seen as possessing highcredibility in the eyes of Prime Minister Prem during his administration (1980-1988). Dr. Sanoh
Unakul stated as follows:

Initially, upon the creation of the ESDC in 1981, the Center for Integrated Plan and Operations (CIPO) was also established. Later, the CIPO was transferred to the OESD, out of a need to strengthen its role as secretariat after the ESDP had
progressed to the implementation stage.
89
Interview with an NESDB official held October 2005.
88

115

I think during the period of General Prem Tinsulanonda Administration, under the Fifth
and the Sixth National Plans, the NESDB (technocrats) played a vital role in national
development. I also believe that the NESDB (technocrats) obtained high credibility from
General Prem during that time. This was because our views and recommendations werevery logical with supporting facts and tangible actions. All policy recommendations fromthe NESDB were translated into action in which our collaborative efforts helped facilitate
the implementation of the plan. This was indeed as a result of establishing various agencies and restructuring of existing organizations 90 related with the implementation ofnational economic policy.......General Prem himself attended every committee meeting
which gave full credit to it. 91 (Parenthesis added by author)
Prime Minister Prem placed great importance on achieving economic results by relegating politicalinterests to the metaphorical back burner as often as possible. Hence, he insulated technocrats frompolitical pressures, and created an environment where they were free to focus on contemporarychanges in economic conditions and come up with the pragmatic decisions required of them. The
devaluation of the Thai baht in 1984, mentioned earlier, stands as a case in point, signifying that technocrats were effectively kept safe from political pressure under Prime Minister Prem’s wing. This casealso reveals the independence of the Central Bank (the Bank of Thailand). 92 Hence, it was mainly thetechnocrats, rather than politicians and the military, who engaged in debates regarding the ESDP, andtheir arguments on economic dimensions rather than political aspects. As explained above, in the midstof widespread fiscal and monetary instability, technocrats debated how the problems at hand could be
solved while keeping the country’s longer-term economic goals from slipping out of sight. Their disputes revolved around how to discover the most effective ways for making adjustments to existingplans. For example, initially in 1981, the Thai government had formulated a plan for development of
the heavy chemical industry in Map Ta Put comprising four sectors: petrochemical, chemical fertilizer,
soda ash and deoxidized iron. However, as a result of thorough studies on their feasibility and profitability, the projects other than those for the petrochemical sector were abandoned until the start of the
ESDP’s full implementation in 1998. Courage was required over the course of making each policy
decision since a number of individuals had their benefits and privileges, at some point, revoked. Thesetypes of decisions were made based on regularly conducted studies on the economic performance ofindividual projects, as well as reviews reflecting changes in the economic situation. 93 In sum, while
maintaining core objectives, the Thai government was able to revise specific points in the development
program with relative flexibility given shifts in the economy. 94 Because discussions focused mainly on
economic analysis, the overall direction of policy and countermeasures to problems related to development were for the most part reasonable and pragmatic.

90“...establishing various agencies and restructuring of existing organizations...” seems to be referring to various national-level committees and sub-committees, including the ESDC and smaller sub-committees created under the ESDC during
the Prem administration.
91“Five Decades of NESDB,” published by the NESDB; February 2000.
92“Eastern Seaboard Development Ex-Post Evaluation Report (Third Party),” Yasutami Shimomura, Japan Bank forInternational Cooperation, 2000.
93“Eastern Seaboard Development Plan Impact Evaluation Report,” Japan Bank for International Cooperation, 2000.
94
Interview with an NESDB official held October 2005.

116

Prime Minister Prem himself functioned effectively as a balancing force. He seemed to have a capacity for listening to a variety of different voices with patience, and this contributed to his well-balanced
judgment and ability to produce reasonable solutions. 95 The incident involving the World Bank master
plan, as mentioned above, is a fair depiction of his qualified leadership. Prem listened to the World
Bank, Japan, and a wide array of domestic opinions before finally coming up with a decision to seek
assistance from Japan. The case of the chemical fertilizer project in Map Ta Put, explained above, isanother example. The project was originally planned for construction with the support of a Japaneseloan. However, in the end, the Thai government cancelled its ODA request after cautious scrutiny of its
own economic analysis bringing light to international market situations. In making such highly sensitive decisions, delicate for their potential diplomatic impact, Prime Minister Prem conscientiously listened to a number of opinions from the pertinent ministries and reviewed advice from donors. Prime
Minister Prem himself worked in close coordination with Dr. Sanoh Unakul and other concerned ministers for consensus building. The relationship of mutual trust between Prem and Sanoh seems to havecontributed greatly for effective policy coordination and decision-making positively beneficial for
Eastern Seaboard development. 96

2-2 Technocrats
Before and during the 1980s, government officials, and especially technocrats, at the central economic
agencies were highly motivated and served in their duties to bring forth economic development inThailand with competence. The leading technocrats considered to be central players in drawing up policy for development of the Eastern Seaboard were Dr. Sanoh Unakul and Mr. Sommai Hoontrakool,
formerly a Finance Deputy Minister and Finance Minister during 1974-1975 and 1980-1986. 97 They
were regarded as outstanding on the job and carried with them a depth of experience and excellent
sense of balance. 98
The central economic agencies, especially the NESDB, attracted many elite candidates clamoring for
employment. The NESDB was a reservoir where the finest in human resources were found, owing to
the fact that it drew many employees noted for their knowledge, leadership and voice from other agencies. 99 Many considered having a career as a government officer to be a prestige. As early as the 1950s,
with financial assistance from the US and other countries, many promising technocrats were sent
abroad to study at graduate schools. They acquired master’s degrees and even PhDs. Upon their return,they were assigned to work in key government positions to serve their country. The Thai government
utilized foreign aid to support their pursuit of human resource development and aggressively sought tobring knowledge from abroad back home, so as to incorporate it into the Thai system. For example, the“Eastern Seaboard Development Ex-Post Evaluation Report (Third Party)”, Yasutami Shimomura, Japan Bank forInternational Cooperation, 2000.
96
Interview with an NESDB official held October 2005.
97
Interview with a former NESDB Secretary General held January 2006.
98“The Role of Governance in Development Revisited: A Proposal of an Alternative View”, Yasutami Shimomura, FASID
Discussion paper on Development Assistance No.5., 2005.
99
Interview with an NESDB official held October 2005.
95

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budget management system introduced in the 1950s was actually a combination of Thailand’s own
system blended with elements from that of the US. The Budget Procedures Act, introduced in 1959,
was also one product of this initiative. 100 In short, Thailand’s ability to sustain vision and strategy forthe long-term in regard to developing human resources has become the foundation for its development
administration. 101
Dr. Sanoh Unakul, himself an experienced and fair technocrat who was sent abroad to study before
being transferred from the Ministry of Finance to the National Economic Board (predecessor of theNESDB), recalled the high competency of technocrats who worked with him during the NESDB’s pioneering era of the 1950s as follows:...I always emphasized the fact that I was lucky to have worked with a team of quality
people. At that time, a number of energetic and talented people were joining the Division
including Dr. Phisit Pakkasem, Mr. Kosit Panpiemras, Mr. Kasem Sanitwong na Ayudhya,
Mr. Sathaporn Kavitanon and many more. Apart from these heavyweights of first generation, there were next generations as talented including Mr. Sommai Phasi, Mr. Santi Bangor, etc. We worked like a family in a very enjoyable and productive environment...Under
good guidance and directions, these talented and creative people rapidly developed theirfull potential. I always said that the people who worked with me would end up more capable than I. It would be very unfortunate if they would not be more capable. And it turned
out that almost all of my team members were better than I in their field of duties... 102
The most competent technocrats were selectively picked out from the best of each government agency,
including the NESDB, to follow the ESDP’s mission. The technocrats took deep pride in being part ofa force undertaking a top-priority national project. While salary itself did not change after a transfer,technocrats recognized that the fact one has been assigned to work at the OESD was sure to advance
one’s career. Originally, the OESD (Center for Integrated Plan and Operations, or CIPO, was its predecessor) started off with around thirty officers. However, by the mid 1980s the number had grown to
include around one hundred, including supporting staffs and foreign advisors, because, over time,
expansion had become necessary for covering a growing range of institutional functions necessary forbringing its plans into action. 103
In this way, technocrats applied themselves fully in utilizing their knowledge, initiative and sense ofnational responsibility to undertake the ESDP, while, at the same time, the significance of their roleand their work was reinforced by the strong willingness of the people to follow the path towards economic development. At the root of these circumstances lay a sense of political and economic urgency
existent within the Thai government. Factors such as: (i) political intent to reorganize industrial structures, (ii) conflicts of interest between the proponents of each of national security and development,Interview with a former Minister of Finance and NESDB Chairman held October 2005.
Interview with an NESDB official held October 2005.
102“Five Decades of NESDB”, published by the NESDB in February 2000.
103
Interview with an NESDB official from the Spatial Development Office held January 2006.
100
101

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stemming from limited resource allocation after the US’s withdrawal at the end of the Vietnam War,and (iii) the international economic environment, rife with troubles relating to the oil crisis, tradeimbalances and debt problems, all helped to augment the public’s willingness to accept the technocratled bureaucratic polity to the extent that it kept order and implemented policies conducive to growth.
Therefore, the structures of the system, oriented on centralism and elite leadership as it was, appeared
to be legitimized by a national sense of urgency. 104
The fact that technocrats competent in their work, including those in the NESDB and the OESB, continued to maintain policy coherence, even in the years after the Prem administration, also greatly contributed to facilitating development in the Eastern Seaboard. Proponents of the development plan,
including Dr. Savit Phothivihok, the Head of the OESD, remained posted in their official positions forquite a few years and continued to promote the ESDP following the administration’s change of hands. 105
In view of this, it is clear that the technocrats were the dominant players and their proficiency allowed
them to handle policy administration with stability in the interest of the country’s longer term goals
and vision.

2-3 Central Economic Agencies (and the NESDB, in Particular)
As described in Chapter 2, macroeconomic management in Thailand has utilized the ability of the central economic agencies to check and balance each other; these agencies are: the NESDB, the Bureau of
the Budget (BOB), the Fiscal Policy Office (FPO), the Public Debt Management Office (PDMO) 106
and the Bank of Thailand (BOT). These agencies as a whole have consistently powered prudent
macroeconomic management, tempered with relatively strict fiscal and monetary discipline. The distribution of specific functional tasks and their corresponding authorities relating to planning, programming, and budgeting, as well as the implementation and monitoring thereof, has been arranged among
different organizations, including these agencies. Thus, in regard to the congregate of these operational
fields and responsibilities, no singular organization has been assigned to oversee the structural whole.
Yet, mechanisms for relatively workable coordination have been built into the system, including specific coordination mechanisms for the Eastern Seaboard Development, expressly to strengthen decision-making on important matters as needed.
The NESDB was noted for its power to effectively counteract political pressures on, and unreasonableinterventions into, development affairs as well. During the 1970s, when political leadership hadchanged frequently, parties in power, whether of military or political origin, often intervened in thebudget process with the aim of controlling sector agencies. However, the NESDB, led by Dr. Sanoh
Unakul succeeded in warding off these intrusions into its administrative branches. Hence, development
planning and budgeting executed by the government were maintained without substantial deviation. In

Drawn from the views of Toshio Watanabe: “Shinseiki Asia no Koso (Designing Asia for the New Century)” publishedby Chikuma Shinsho; Tokyo, 1995
105
Interview with an NESDB official from the Spatial Development Office held January 2006.
106
The PDMO was established on October 1, 1999 as a unit in the Office of the Permanent Secretary for Finance.
104

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the 1980s, Prime Minister Prem allocated and even portion of responsibility to the NESDB for its role
as a counteractive force. This held especially true for large-scale investment projects involving thetremendous political and economic interests of a variety of stakeholders. In short, the power of theNESDB resided in its crosschecking function over comprehensive matters of development planningand macroeconomic management. 107
As mentioned earlier, the NESDB was staffed with many competent technocrats and esteemed highly
by Prime Minister Prem as an agency of credibility. During the Prem administration (1980-1988), thePrime Minister assigned the NESDB to act as secretariat for a number of major national committees,such as the National Rural Development Committee and the Joint Public-Private Consultative Committee (JPPCC) (see Chapter 3). Prime Minister Prem himself attended every meeting of these majorcommittees to supervise proceedings as chair.
The ESDP was no exception and the NESDB itself became the focal point of the whole development
process. In sum, the NESDB acted as the most influential liaison in seeing that plans and policies werebrought into action.
The overall role of the NESDB in respect to development was: (i) to function as the Secretariat of the
ESDC, (ii) to coordinate operations with relevant government agencies and bodies so as to best planand execute the development plan, and (iii) to oversee the whole of the development process andensure its conformity with the plan in order to achieve its targets. The OESD was created exclusively
to undertake the ESDP within the NESDB. Its specific role and the scope of its authority are described
below.

2-4 Institutional Settings
As mentioned earlier, Prime Minister Prem had introduced special mechanisms for operational coordination and decision-making exclusively for the ESDP. Its legal basis was the Prime Minister’s own
Executive Order, namely, the “Regulations of the Office of the Prime Minister Governing the Eastern
Seaboard Development B.E. 2528 (1985)”. This executive order actually replaced one previous regulation titled the “Order of the Office of the Prime Minister on Improvement of the Eastern Seaboard
Development Committee B.E.2526 (1983)”. The coordination and decision-making mechanisms thatensued can be summarized as follows (see Figure 6-1).
Generally in Thailand, coordination among central economic agencies and sectoral agencies is known
for being weak. However, in the case of the ESDP, the pertinent agencies maintained relatively good
coordination in terms of investment planning, budgeting and implementation. The ESDC and the
OESD both played a significant role in enhancing the coordination mechanisms.

107

Interview with TDRI researchers held October 2005.

120

121

Propose

Department of Technical andEconomic Cooperation (DTEC)Technical Assistance

Loan
Fiscal Policy Office(FPO)

Appoint

Government agencies (central, regional, local) and State enterprises

Bureau of the Budget(BOB)

BudgetSub-committees
Chair: Minister of government agencies in charge

Propose• Coordinate• Oversee• Advise

Office of the Eastern
Seaboard Development
Committee(OESD)
within the NESDBSecretariat

Source: Author—drawn upon provisions from the Regulations of the Office of the Prime Minister Governing the Eastern Seaboard Development (1985) and information
provided by NESDB, TICA, BOB, FPO, PDMO and MOI to the GRIPS team.

• Approve• Control• Direct• Supervise

CabinetOverview of the Coordination and Decision-Making Mechanisms

Eastern Seaboard Development Committee (ESDC)
Chair: Prime Minister (later, Deputy PM)
Secretary: Secretary General of the National Economic and Social Development Board (NESDB)

Figure 6-1

As indicated at the top of Figure 6-1, the Cabinet gave the final approval. The ESDC submitted proposals to the Cabinet to have a final decision passed on any issues that could not be settled or agreed
upon by relevant parties internally. The ESDC was a cabinet-level national committee chaired byPrime Minister Prem himself. Thus, the ESDC functioned to engineer interagency coordination for
decision-making at the highest level, in a very real sense. The secretary general of the NESDB was
appointed as the secretary to the ESDC. In fact, the ESDC was the only national committee in Thailand’s history to have been given the cabinet-level authority with the Prime Minister as the chair. Currently, however, national committees with sub-cabinet-level authorities, chaired by the Deputy Prime
Minister, do exist. 108 In this respect, institutional settings and the ESDC structure were characteristically unrivaled under the Prem administration, when the NESDB itself exercised extensive power.
Various sub-committees were created by appointment of the ESDC. Sub-committees, chaired by ministers of relevant agencies, discussed specific issues including those involving budgets, technical assistance and loans, and submitted proposals to the ESDC.
The OESD, created internally within the NESDB, was authorized by the Prime Minister to act as secretariat for the ESDC. The OESD also functioned as the focal point for coordination, oversight andadvisory for other agencies. For example, the OESD played an important role in making adjustmentswith relevant agencies when conditions involving changing macroeconomic environments, resources
mobilization, technical assistance needs, and/or delays in the physical progress of constructions
required such.
Hence, the OESD operated at the nexus of planning and management—comprehensively in charge of
coordinating a multitude of sectors for the whole project. In fact, as mentioned earlier, intersectoraland programming-oriented approaches to planning and budgeting had been adopted by the OESD
under the authorization of the Prime Minister. More than twenty government agencies and state enterprises took part in the implementation of specific projects under the ESDP.

2-5 Coordination Features
The mechanism was highly centralized. Important policy issues were decided by and directed througha top-down approach, meaning that government agencies each only had to follow directives passedalong by those from the top. On the other hand, a bottom-up approach was introduced mainly in the
instance of dealing with technical issues. Specific matters related to procuring contractors, for example, were brought up in consultations by the agencies and state enterprises directly in charge of operations on the ground. Wherever necessary, these agencies would come forth with issues for discussion
consciously utilizing sub-committees as a platform for ironing out internal differences of opinions.
Coordination with private-sector stakeholders was also guided through seminars, sub-committees andnational committees, which included the Joint Public-Private Consultative Committee (JPPCC).

108

In Thailand, the fiscal year covers the period of October-September.

122

This mechanism facilitated de facto a fast-track process. Because the ESDC was a cabinet-level committee led by the Prime Minister, any decisions made at the ESDC were honored by all the agencies. In
any case, inter-ministerial coordination was made possible by the OESD’s streamlining. For example,
in the case that any agencies faced difficulties in reaching a consensus, the OESD would exhaustively
assess the issues and decide whether to submit it for discussion at a higher-level, i.e., to the sub-committees and subsequently to the ESDC. Issues involving important policy decisions were also brought
up before the ESDC via the OESD. Clause 7 of the Prime Minister’s Executive Order stipulates that:“If any undertaking in respect of the Eastern Seaboard Development fails to achieve its targets or does
not comply with the policy, plan, project or procedure as stipulated hereunder, the OESD shall reportany issues arising therefrom to the ESDC or the Prime Minister without delay for further
instructions.”
In effect, a multilayered, check and balance mechanism had been built into the system. While agencies
and state enterprises forged ahead with the projects put in their charge, the OESD oversaw the comprehensive picture of the plan, the BOB scrutinized items of strategic priority for budget allocation under
its own prudent macroeconomic management, the Department of Technical and Economic Cooperation (DTEC) conducted screenings of potential technical assistance by donors objectively outside thesphere of their influence, and the FPO established a ceiling on external debt and an overall framework
for expenditures. Checks and balances within approval processes were also incorporated into the system, as given below.
Mechanisms applying strategic use of donor assistance were also built into the system, thus making
possible pragmatic and independent judgments as illustrated by when Thailand was ensconced in thedebate over whether to tailor the master plan with the advice of the World Bank or Japan.

2-5-1 Coordination Relating to Annual Budget Approval Processes
As explained in Chapter 4, Thailand’s budgetary process is characterized by each of: (i) the centralizedrole of the economic agencies, (ii) limited involvement by the legislature, and (iii) the BOB’s key rolein providing a vertical link between the central economic agencies and the spending agencies (UN1993). These institutional features have contributed to overall sound fiscal performance.
In addition to the above features, intersectoral and programming-oriented approaches to planning werereflected in the ESDP’s budgeting process as well, while checks and balances were also additionallyincorporated. Figure 6-2 illustrates the coordination mechanisms relating to the ESDP’s annual budget
approval processes.
Initially, the OESD had compiled the annual budget plans concerning both investment and recurrent
budget items from each of the pertinent agencies and state enterprises, and prepared, exclusively for
the ESDP, one integrated budget and development program therefrom. In this way, a number of projects involving the ESDP were programmed into a single regional development plan, and, thus, theintersectoral, programming approach to budgeting were officially introduced under the mandate of the
OESD. The OESD maintained close coordination with the BOB during this process, and the drafted
program was then submitted to the ESDC for review.
123

124

Budget hearings

BOB
Budget bill

Coordination

ESDC

BOB: Bureau of the Budget
OESD: Office of the Eastern Seaboard Development Committee
ESDC: Eastern Seaboard Development Committee

Call CircularLine agencies orstate enterprises

OESD

Preparing integrated budget
and development programs

Final budget approval(legal document)

Parliament(Budget Scrutiny Committee)◆ Intersectoral and programming-oriented approaches also reflected in the budget process◆ Checks and balances incorporated in the system

CabinetCoordination Relating to Annual Budget Approval Processes

Source: Author—information provided by BOB and NESDB to the GRIPS team.

BOB

Figure 6-2

On the other hand, each agency and state enterprise went through the prescribed annual budget procedures in order to secure the necessary funding for its own activities, including those involving the
ESDP (see Chapter 4 for details of the budget process). In other words, while the OESD took charge ofthe comprehensive budgeting regarding development, other agencies and enterprises went through theordinary, annual budget processes as dictated within their own field of authority. Hence, other agencies
and enterprises were only able to grasp a fragmented portion of the whole plan.
After thorough scrutiny of all items by the BOB, consistency between budget information submitted
by each side was checked and submitted to first the Cabinet, and then the Parliament, for final budget
approval. Hence, checks and balances were properly and effectively built into the system.

2-5-2 Coordination Relating to Technical Assistance (TA) Approval Processes
Both checks and balances and mechanisms applying strategic use of donor assistance were duly incorporated into the system for TA approval. In this case, just as with other TA approval processes, theDTEC functioned as the nexus for TA coordination. Figure 6-3 depicts the coordination mechanism
relating to the ESDP’s TA approval processes.
The OESD compiled all TA requests (e.g., necessary requirements and terms of reference relevant toexternal advisors) from the pertinent agencies, and then submitted these to the DTEC. Associated line
agencies also submitted requests for TA to the OESD addressing their needs in regard to preparing
master plans and/or feasibility studies for specific projects. The DTEC possessed the authority toscreen TA needs and make recommendations, from a position of objectivity, non-biased by donors, on
the most suitable form of TA requirements. The DTEC listened to the wishes and concerns of the
OESD, line agencies and prospective donors in the process, all the while avoiding prejudicing or limiting itself to any particular donor’s opinions by intentionally gathering as many different views and perspectives as possible. In fact, the DTEC was the organization responsible for coming up with recommendations for which TA requirements would be most suitable based on stipulations carried in theForeign Assistance Plan, a document regulating Thailand’s grant aid mobilization. During the screening process, the DTEC consulted, and listened to the opinions of, the NESDB, the BOB and the Civil
Service Commission concerning issues of development policy, budgeting and staffing, respectively.
In sum, the DTEC’s role in making strategic use of donor assistance was pivotal in the sense that it
alone was entrusted with all information relating to TA needs, and could thus panoptically review all
TA needs in the context of the comprehensive picture. In addition, the DTEC was positioned so that its
stance when scrutinizing TA needs was neutral and objective, far from donor pressure. In short, thesystem expressly facilitated independent judgment of TA matters. Recommendations presented by the
DTEC were further discussed first at sub-committees, then at the ESDC and ultimately at the Cabinet
for final approval. The DTEC was responsible for enacting timely mobilization of important technologies and resources necessary for ESDP implementation. In fact, the DTEC was also authorized by the
Cabinet to officially make TA requests to foreign donors.

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126

BudgetDevelopment
PolicyStaffing

DTEC

Authorization

CabinetOfficial request
for foreignassistance

Donors

OESD: Office of the Eastern Seaboard Development Committee
DTEC: Department of Technical and Economic Cooperation
NESDB: National Economic and Social Development Board
BOB: Bureau of the Budget
ESDC: Eastern Seaboard Development Committee

Civil Service Commission◆ Checks and balances incorporated into the system◆ Mechanisms applying the strategic use of donor assistance incorporated ➜ role of DTEC as a focal point

Source: Author—information provided by BOB and NESDB to the GRIPS team.

BOB

Consult if necessary

Sub-committees- Project sub-committee- Fellowship sub-committee- Technical sub-committee

Request for approval

ESDC

Coordination Relating to Technical Assistance Approval Processes

Screening basedon Foreign
Assistant Plan

DTEC

NESDB

Line agencies orother gov’t
agencies

Request for TA

OESD

Figure 6-3

127

PDMO

CabinetAnnual Borrowing
Plan (both domestic
and foreign loans)

National Debt Policy Committee
Chair: Minister of Finance

Annual andThree-year
Borrowing Plans(both domestic andforeign loans)

Consult

OESD

ESDC

Coordination Relating to Loan Approval Processes

After the loan
agreement (during the
project
implementation
stage), the PDMO
enforces, andmonitors andevaluates external
debt ceilings
established annuallyby the FPO.

◆ Mechanisms applying the strategic use of donor assistance incorporated

Source: Author—drawn upon provisions from the Regulations of National Borrowing (1985) and information provided by NESDB, FPO and PDMO to the
GRIPS team.

OESD: Office of the Eastern Seaboard Development Committee
PDMO: Public Debt Management Office
ESDC: Eastern Seaboard Development Committee
FPO: Fiscal Policy Office* PDMO was formed after 1999 through transfer of divisions and units from the FPO and the Comptroller General’s
Department to ensure coherent public debt management under one agency.

Project proposal

Line agencies orstate enterprises

Considerutilization ofloan

Figure 6-4

2-5-3 Coordination Relating to the Foreign Loan Approval Processes
A mechanism for applying strategic use of donor assistance was incorporated into the system withrespect to the loan approval process for external borrowing. Figure 6-4 depicts the coordination mechanism relating to the loan approval processes.
It was the responsibility of the OESD to gather all project proposals from line agencies and thereupon
check whether the projects were in conformity with standards for, and proceeding harmoniously with,the overall macroeconomic policy, national development plans and master plans. The OESD also gave
consideration to both the political and economic implications of each case of foreign borrowing.
The Thai government was aware that foreign loans would necessarily play a crucial role in national
development, but, at the same time, it was fully aware of the fact that loans also had to be repaid andthe debt burden created thereby could potentially constrain future fiscal operations. In other words, theThai government considered some degree of “sacrifice” necessary for the country’s economic development. Therefore, only the most salient and urgent of projects were given high priority to access to foreign borrowing.
Following such selection, the OESD submitted loan proposals to the National Debt Policy Committee,
which was chaired by the Ministry of Finance (MOF), for inclusion in each of the annual and threeyear borrowing plans. In the process, the OESD also consulted with the PDMO, the main function ofwhich is to enforce, as well as monitor and evaluate, ceilings on external debt. Finally, the ESDC andthe Cabinet reviewed the proposals and proffered final approval.
Here again, the Thai government was highly conscious of the strategic use of donor assistance. Policy
makers held a deep sense of pride in their country, and exhaustively explored the most efficient andeffective policy options for more dynamically generating self-sufficiency. Their judgment was lessdriven by political interest, than it was by sincere and significant consideration for Thailand’s economic future.

2-6 External Factors
It would only be fair to mention that in addition to the previously discussed factors, external global
factors also contributed to the facilitation of the ESDP to a large extent. In fact, extremely favorable
international economic conditions after the Plaza Accord in 1985 lent a fair amount of momentum tothe development plan. The Plaza Accord led to a rapid appreciation of the Japanese yen, and thisprompted many Japanese investors to turn to Thailand for direct investment. As a matter of fact, significant expansion of foreign direct investment in Thailand had also contributed to the country’s rapid
growth in succeeding years.
On the one hand, the Thai government’s strategy was to advance the ESDP by staying on track with its
proven, coherent policy and thereby encourage foreign investors to come on board, while, on the other
hand, global factors also worked synergistically to propel this policy forward. Viewed from another128

standpoint, the Thai government was capable of taking full advantage of the shifting external environment by the grace of its effective leadership, and support thereof from its competent technocrats, inutilizing already existent coordination mechanisms. These mechanisms had cemented a channel fordelivering timely and rational policy decisions regarding resumption and further promotion of the
ESDP in light of the Thailand’s own stringent economic analysis. As the economy recovered anddemand on the market rapidly grew, bottlenecks caused by infrastructure shortages became serious. In
response, the Thai government again had to make a number of pragmatic decisions, just as it had inregard to program adjustments during the recession. And the fact that technocrats remained in key
positions in the NESDB and the OESB undoubtedly positively affected Thailand’s ability to maintaincoherency in long-term vision at the foundation of directive policy despite changes in political leadership.

3.

Other Issues to be Considered

While perceptions of the outcome of the ESDP itself tend to generally be positive, there are also views
that rather emphasize the ultimate success of the development as being primarily due to the tremendous impact of external global factors; that is to say, that without the Plaza Accord results could havebeen entirely different. Indeed, nobody can deny that rapid appreciation of the yen after 1985 induced
substantial Japanese direct investment in Thailand, and this one element alone contributed greatly tothe country’s robust economic recovery.
It is difficult to emphatically argue for which factors among the leadership, technocrats, central economic agencies, institutional settings, and coordination mechanisms were actually responsible for thedevelopment, and each to what extent. However, even to take just the one case of the Plaza Accord, if
the Thai government had not been capable of taking advantage of this golden opportunity, the end
result could have been remarkably different.
A brief comparison of development at the Eastern Seaboard with the case of the New Bangkok International Airport (Suvarnabhumi Airport) 109 should hereby serve as stimulation for understanding thesignificance of each present factor. The question that would be raised here is—“What is at the root of
the differences between the two mega projects?”
Plans for the New Bangkok International Airport project were originally conceived of more than 35
years ago in the early 1970s, though construction did not first begin until 1996 when loan assistancefrom Japan was secured. The project had been accorded high implementation priority, but the many
twists and turns that arose during its execution required frequent changes to policy. For this reason,
this project was considered to be problematic by some because sizable opportunity costs were lost in
the course of policy changes. Some others did consider it in more positive ways, pointing out that
although progress had been slow, the project did move ahead, and policy changes simply reflected thechanging environment; the government had not necessarily adhered to the original plans, but it had

109

The Airport opened in September, 2006.

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flexibly incorporated the necessary changes. Hence, the general perception of the airport project tends
to be, for the most part, controversial when compared with that of the ESDP.
A former NESDB official pointed out that while a national committee 110 was established exclusively
for the airport project, by that time the nature of coordination in the development process had alreadychanged. More specifically, a central organization operating at the macro level with regards to comprehensively planning, coordinating and monitoring the development process seems to have been lacking
in this case. Hence, horizontal coordination across various sectors and agencies seemed to have weakened, or, to state it bluntly, each agency only carried out the duties within its mandate, without engaging in sufficient mutual coordination. As a result, coordination at the technical-level also weakened,
thereby creating significant project delays.
Then what would be the main cause for the above problems? Changes in social and political structuresin the 1990s (especially after the Asian economic crisis in 1997) could conceivably be seen as one.
Democracy and decentralization had triggered a phenomenon of stakeholders outside of the Thaibureaucracy playing a growing role in national development, and along with these changes, the relative
importance of planning as well as the depth and quality of NESDB and technocrat involvement werediluted. Both politicians and the private sector, for example, have become more influential in policy
decisions, which oft times occluded the coherence of policy since these former parties may be driven
by different motivations, such as their constituencies or financial profits. In fact, political involvementin national committees, including that at the time of the airport project, has increased leading to reductions in the NESDB’s power and significance, accordingly. Hence, the NESDB and its technocrats
have not been able to function with full effectiveness despite the fact that they are entrusted with tending to the interests of the national public by administering development with a vision for the longterm. Therefore, talented young economists and planners naturally no longer saw the NESDB as an
attractive option for employment, which has sparked a decline in its quality. General quality and the
involvement of leadership have also changed significantly under the Thaksin administration. 111 Case inpoint, the Ninth NESDP (2002-2006) was prepared by the NESDB in collaboration with other agencies—yet, the Thai Rak Thai Party, the ruling party led at the time by its founder, former Prime Minister Thaksin, had practically no input into the plan. In fact, the NESDP under the Thaksin administration has been virtually kept on the shelf, and actual dominant policy and strategic priorities, as handled
by the Thai Rak Thai Party, have been substantially different from those stipulated in the NESDP.
Hence, relations between the political leadership and technocrats have changed, and therewith, the
NESDB has lost much of its power. In sum, even when looking within only one country, the role ofeach factor contributing to facilitating development programs necessarily changes with the needs ofthe time; further analysis of the factors with respect to the ESDP could prove to be enlightening for
future work.
110
Unlike the ESDC, the national committee did not have cabinet-level authority in this case. The committee has beenchaired by the Prime Minister and other key actors include the MOF (secretariat to the committee), Thai Airways, theRoyal Irrigation Department, the State Railway of Thailand, and the Department of Highways, among others. (“Policy
Coordination, Planning and Infrastructure Provision: A Case Study of Thailand,” Douglas Webster and Patharaporn
Theeratham, a background paper commissioned for the Asian Development Bank-Japan Bank for International Cooperation-World Bank East Asia and Pacific Infrastructure Flagship Study in 2004.)
111
Former Prime Minister Thaksin Shinawatra was ousted in a military coup in September, 2006. General Surayud Chulanont, a retired army officer and Privy Councillor, was appointed the 24th Thai Prime Minister in October 2006.

130

4.

Conclusion

It was the cumulative synergetic effect of a number of factors that had contributed to pushing the
ESDP forward. These included:
●
●
●
●
●
●

Effective leadership to ensure the public’s interest,
Competency of technocrats,
Powerful central economic agencies (especially the NESDB),
Special institutional settings,
Functioning coordination mechanisms, andExternal global factors.

The above list may not be exhaustive and there may be other critical factors to be considered. However, one important point to keep in mind is that the Thai government at the time was capable of taking
hold of the changing social, political and economic environments, so as to ultimately produce rational
policy options in view of how the country may better benefit the people. Thailand was fortunate
enough to have excellent leaders at the time of its structural transformation. In addition to the leadership, each of the above factors contributed more or less to translating a vision for Thailand’s future
into concrete actions. In other words, a mechanism to make rational judgment with regard to policy
coherence was built into the system. Also, the government was capable of taking full advantage of positive external factors (i.e. 1985 Plaza Accord) by utilizing existing coordination mechanisms managed
by technocrats. The ESDP could not have come off well any more if any one factor had been missing.

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Figure 6-5

Map of Thailand

Chiang Mai

Khon
Kaen

Kanchanaburi

Bangkok
Chon Buri

RayongEastern Seaboard

PhuketSource: JBIC Institute (2006)

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Chapter 7 Key Factors Affecting the Formulation and Enhancement ofDevelopment Administration

This chapter will examine critical factors that had affected the formulation and enhancement of development administration in three East Asian countries, namely, Thailand, Malaysia and the Philippines,
by looking into the dynamics of development administration.
In previous chapters, we examined how the configuration of development administration differed ineach country, thus affecting how organization in pursuit of national development goals took form. The
institutional frameworks, coordination mechanisms and procedures and operations of the three countries all varied substantially as they related to development planning, budgeting, investment programming, project approval and aid management. Such variances have had different impacts on policy
coherence, and the attainment of vision and objectives in development. We have also examined that
key actors, including political leaders, technocrats and legislators, have played important roles inbuilding development administration.
In the following pages, we will review specifically what major factors contributed to or undermined
the formulation and enhancement of development administration within each country.

1.

Key Factors Affecting the Formulation and Enhancement of Development
Administration

After examining the real experiences of Thailand, Malaysia and the Philippines, our findings show
that, among a number of considerable factors, the following are of particularly significant importance:(i) Quality of leadership●
Whether the leadership has a long-term vision regarding development, and the political will
to carry it out;(ii) Alliances between the leadership and technocrats●
Whether technocrats possess sufficient clout, authority and the required capabilities to shareand realize leaders’ visions;(iii) Political interference in executive branch affairs●
Whether a broad political coalition focused on realizing development under a common
vision for the benefit of the whole nation exists;●
Whether political circumstances inhibit the achievement of national development objectives
and policy coherence or undermines executive efforts, and if it does, then to what extent;(iv) Fear of international and/or domestic crises●
Whether a sense of political, social and/or economic urgency has become the driving force
behind a will to overcome crises, and potentially create opportunity for reforms and institutional changes; and(v) Utilization of aid as an integral part of development management●
Whether the government manages the entire development process and uses aid integrally
therein.

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One may safely presume that these multiple factors have synergistically worked together to more orless affect the formation of each country’s overall development administration. In addition, uncontrollable external factors, both positive and negative, greatly influenced development administration as
well. An important point to note is that the quality of leadership mattered, especially at the criticalstages of development; Prime Ministers Sarit and Prem of Thailand, and Prime Ministers Razak and
Mahathir of Malaysia were all visionary and committed leaders who acted in key positions to drive
reforms and institutional changes at turning points in their nations’ histories. Leaders, as a primaryforce of change, set the directional character for factors such as those listed above.
In the next section, a concrete review of issues pertaining to each of these five factors as concerns
Thailand, Malaysia, and the Philippines, with specific attention given to the formulation and enhancement of development administration, will be detailed. At the same time, each country’s utilization ofaid will also be addressed so as to deepen our understanding of the role that both donors, and the foreign aid that they provide, play. Table 7-1 summarizes dynamics visible in development administrationand the use of aid, as they took form in Thailand, Malaysia and the Philippines.

1-1 Thailand
1-1-1 Quality of Leadership< Prime Minister, Field Marshall Sarit Dhanarajata (1959-1963 ) >In the late 1950s and early 1960s, Prime Minister Sarit demonstrated his clear vision for development
while exercising strong leadership during this initial stage of the formulation of Thailand’s development administration. With the strong support of Dr. Puey Ungphakorn, a former governor of the Bankof Thailand, Prime Minister Sarit installed the basic foundations for coordination among the central
economic agencies so as to more effectively administer development policy and macroeconomic management. Prime Minister Sarit also played a substantial role in the formation of a bureaucratic polity
where political leaders delegated authority to elite technocrats located in the central economic agencies, a move which ultimately allowed substantive power to be exercised in a centralized manner.
In order to attain robust economic development, specifically by way of his conceptualization of ‘development through growth,’ Prime Minister Sarit called for institutional arrangements and administrative
approaches much like those given above in line with his development vision. With emphasis squarely
placed on the importance of developing infrastructure to achieve growth, terms of which were stipulated in the first national development plan—the First National Economic Development Plan (19611966), it was imperative that well-founded central economic agencies and elite technocrats were able
to exercise power as strategic core functions. The bureaucratic polity served as a foundation for Thailand’s development administration wherein technocrats were insulated to a large extent from subsequent political interference. Hence, the Thai government has been able to maintain consistent policy
coherence despite frequent changes in political leadership, especially as was seen during the 1970s.

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Table 7-1

Dynamics in Development Administration and the Use of Aid as Seen

Enhancement of Development
Administration

Formation of Development Administrationin Thailand, Malaysia, and the Philippines
Thailand• Late 1950s-early 1960s:
with donor advice (World
Bank, US, etc.), the basic
foundations fororchestrating coordination
among central economic
agencies established;disciplinary functions
institutionalized.

• 1980s: national-levelcommittees andsub-committees establishedto facilitate thecoordination of priority
policy agenda (e.g., ruraldevelopment, regional
development, private sector
participation).
• Public-private coordination
system strengthened.

Malaysia• Late 1950s-early 1960s:
with donor advice(World Bank, US, UK,etc), the basic
foundations for planningand coordination
mechanisms established,with strong role of Prime
Minister’s Department(British system adopted).

• 1970s: new functions(especially the ICU:
Implementation
Coordination Unit)
added to the existing
administrative machinery
to better enforce the New
Economic Policy.
• 1980s: greater efficiencyof public administration
pursued, andpublic-private
coordination systemstrengthened.

•

•

•

•

Philippines
1970s: one centralized
development
administrative body (theNEDA: National
Economic andDevelopment Authority)
created, to support
President Marcos’s
dictatorship.
After 1986: NEDA
reorganized, andcoordination amongagencies initiated via the
involvement of NEDA
inter-agency committees
1990s: the NEDA Board
inter-agency committee
functions further
institutionalized, andODA management
strengt hened.
Congressional
intervention undermined
above efforts by the
executive branch.

< Prime Minister, General Prem Tinsulanonda (1980-1988) >Prime Minister Prem implemented a consensus-oriented style of leadership, thereby acting effectively
as a balancing force. In the early 1980s, when Prime Minister Prem took his post, Thailand was
already suffering an economic recession caused primarily by dramatic changes in the economic environment internationally. The Thai government was struggling to structurally transform itself via
national development, macroeconomic management and industrial strategy so as to overcome the diresituation. Prime Minister Prem took the initiative and created committees and sub-committees
designed to deliberate and coordinate priority policy issues such as rural development, regional development and private sector participation at the national level. These committees and the related administrative framework were set up, primarily under the initiative of the Prime Minister in a highly centralized manner, as specific means to pursue policy objectives. Prime Minister Prem himself had in fact

135

served as chair of the committees and was known to attend every meeting. As elaborated in Chapter 6,
the Eastern Seaboard Development Committee (ESDC) was one national committee created during thePrem administration to manage the Eastern Seaboard Development Plan (ESDP), one of Thailand’smore notable mega infrastructure projects. Just as he had done for other major national committees,
Prime Minister Prem delegated authority to the National Economic and Social Development Board(NESDB) as the Secretariat for the ESDC, while the NESDB acted as a focal point in coordinating andimplementing the work thereof. In other words, he deployed and utilized highly competent technocrats
as support to ensure the pursuit of priority policy objectives. Wherever complex circumstances or hot
debate arose, Prime Minister Prem functioned to effectively balance conflicting forces throughout the
ESDP’s development process. He worked in close coordination with technocrats so as to build consensus and create an environment for the promotion of pragmatic and reasonable decision-making, andthis was facilitated by insulating technocrats from political pressures as often as possible.

1-1-2 Alliances Between the Leadership and Technocrats
From the late 1950s to the early 1960s, when Prime Minister Sarit began formulating the structure ofThailand’s development administration, Dr. Puey Ungphakorn, a British-trained economist and former
governor of the Bank of Thailand (1959-1972), made a critical contribution. In line with Prime Minister Sarit’s development vision, Dr. Ungphakorn created the basis for engineering coordination among
central economic agencies, thus providing a foundation for the bureaucratic polity. He sent his technocrat aides and allies to take up key positions within each of the agencies and then used them to facilitate interagency coordination. Dr. Ungphakorn also set a basic tone for the country’s macroeconomic
management by installing a regime of financial conservatism and strict fiscal discipline within a mechanism enabling the central economic agencies to check and balance each other.
In the 1980s, the Prime Minister delegated authority to technocrats within the central economic agencies, including the NESDB, to carry out development policies and macroeconomic management, as
described above. Strong trust-based alliances were built between the political leadership and competent technocrats sharing the same vision for national development. The technocrats took deep pride inplaying a significant role in the country’s development and fully applied their knowledge to their workwith a strong sense of responsibility for the nation.

1-1-3 Political Interference in Executive Branch Affairs
Within the bureaucratic polity, the government kept technocrats concentrated inside of the central economic agencies, where they would handle development and investment planning as well as macroeconomic management, while simultaneously insulating them to a large extent from political matters taking place outside. Hence, technocrats were able to exercise substantive power away from politicalpressure, and better foster rational policy decisions. They managed the macroeconomic sphere prudently in light of the country’s economic circumstances. As discussed in Chapter 6, Prime Minister
Prem created an environment for technocrats to make pragmatic decisions based on objective economic analyses during the course of the ESDP.

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1-1-4 Fear of International and/or Domestic Crises
A sense of urgency regarding international and domestic crises prompted the Thai government to execute reforms and institutional changes. As explained in Chapter 3, from the late 1970s to the 1980s,
Thailand was going through a macroeconomic crisis and deep recession, and nothing less than structural transformation could possibly lead the nation to overcome the difficult situation. Thailand was
blessed with a well-balanced and dedicated leader, Prime Minister Prem, at this critical juncture. The
three principal pressing issues of the time were:(i) Intensifying tensions between proponents for national security and those for economic development.
●
After the Vietnam War, funds that had flowed into Thailand from the United States (US) for
long-standing economic and military programs decreased, and conflicts between the military
and the government intensified over how necessary resource allocations could be met fornational security objectives without neglecting economic development, or vice versa. The
government had to meet funding requirements set for its priority issues in order to realizeboth objectives with only limited resources. In the end, the Cabinet decided to lift the ceilingon national borrowing from 9 percent of total public expenditure to 11 percent, 112 as a solution (in 1984).
(ii) Industrial strategy necessitated a shift from an import substitution oriented approach to industrialization to one more export-oriented.
●
In the early 1980s, when Thailand was suffering from a deep recession, the Thai economy
was susceptible to damages incurred from changes in the global economy because of its highdependence on primary products and external finance. By transforming its industrial structure, the government strove to achieve robust economic development and accomplish a great
leap forward in economic growth.
(iii) Stringent macroeconomic management was indispensable in light of the country’s economic situation.
●
The Thai government borrowed funds from the World Bank twice, once in 1982 and once in
1983, in the form of Structural Adjustment Lending, and additionally received Standby
Credits from the International Monetary Fund (IMF) in order to overcome its tough financial
predicament.

1-1-5 Utilization of Aid as an Integral Part of Development Management
Aid was used as an integral part of the Thai government’s management over the entire development
process. That is, the Thai government considered foreign aid to be both supplementary and temporary
as a resource for filling in financial gaps in the domestic budget, as well as in administrative gaps
affecting overall institutional and human capacity. Thailand wished to become a self-sufficient country,
non-reliant on donor assistance as per its ‘exit strategy.’ The government carefully looked to sectors
and activities fit for the receipt of foreign assistance, rather than mobilize funding and resource from112

“Five Decades of NESDB”, published by the NESDB; February 2000.

137

domestic sources. In doing so, it considered the comparative advantages found for each donor and tried
to match them with the country’s developmental needs and requirements. At the same time, the Thaigovernment was sensitive to the concessionality of loans. With each developmental stage, it consciously tried to shift donor composition and forms of aid strategically. It utilized forms of aid with lesser
degrees of concessions as development progressed (see Chapter 1). Also, while it was utilizing foreignaid, the government endeavored to generate its own resources through both the private sector anddirect investment from foreign sources. In this respect, the Thai government strategically and selectively utilized foreign aid in line with its graduation strategy.
During the initial stages of formulating development administration in the 1950s, the Thai government
actively sought technical assistance from the World Bank in setting up institutional structures foradministering development policy and drafting national development plans (see Chapter 3). In fact, theNational Economic Development Board (NEDB), predecessor to the NESDB, was created in 1959,
based on the World Bank recommendations, to establish a permanent economic planning agency. The
World Bank also played a significant role in supporting the government’s national development planning process from the First (1961-1966) to the Third (1972-1976) plans. As a matter of fact, the government harbored an underlying motive for following the World Bank advice as it anticipated receiving
successive financial assistance for capital investments in addition to already delivered World Banktechnical assistance. The Thai government also received grant assistance from the US for academic,
economic and national defense objectives.
As early as the 1950s, with funding from the US’s Fulbright program as well as financial assistancefrom other countries, the Thai government sent many promising young technocrats abroad to study at
graduate schools. They acquired master’s degrees and even PhDs relevant to serving for the country’s
development. After their return to Thailand, they were assigned to key government posts thereby
bringing their knowledge and technological skill back to the Thai system. Hence, the government had
been utilizing foreign aid in an attempt to galvanize human resource development and, in turn,required returning graduates to play a critical part in formulating the administrative system by aggressively localizing their foreign knowledge and skills. For example, the budget management system
introduced in the 1950s was actually a combination of Thailand’s own system blended with that of the
US (see Chapter 6).

< The Importance of the Department of Technical and Economic Cooperation (DTEC), an
Agency Specializing in Administering Technical Cooperation > 113
The Thai government intended to manage its donors by maintaining a hold on bargaining powers that
could be used against them. The way in which the Department of Technical and Economic Cooperation (DTEC) managed foreign aid would serve as a specifically useful illustration of this. The DTECThe DTEC was transferred from the Prime Minister’s Office to the Ministry of Foreign Affairs in October 2002, whenthe major reorganization of government ministries and agencies was enforced under the Thaksin administration. In 2004,
the DTEC was formally transformed into the Thailand International Cooperation Agency (TICA) as an agency responsible
for providing technical cooperation. (The DTEC had started to provide technical cooperation to the neighboring countries
even before the TICA was established.)
113

138

acted as a single agency appointed to exclusively manage the country’s technical assistance (TA) in acentralized manner. 114
As described in Chapter 6, the DTEC possessed the authority to screen for TA needs and make objective recommendations while coordinating with prospective executive agencies, unbiased by donors, on
the most suitable form of TA requirements. The DTEC conducted screening over TA in conformity
with the Foreign Assistance Plan (FAP), which stipulates national policy for receiving grant assistanceincluding forms of TA, sector development policy, monitoring and evaluation. Hence, the DTEC wasin a unique position allowing it to scrutinize, prioritize and select TA with a comprehensive eye. The
DTEC listened to the wishes and concerns of line ministries and agencies as well as those of prospective donors. As such, the DTEC deliberately refrained from prejudicing itself by listening to only alimited set of donors and, instead, collected a broad range of views and advice necessary to tailor its
own decisions, in line with the FAP, most appropriate for pursuit of the country’s development objectives.
Even after TA was approved, the Thai government tried to maintain greater leverage against donors by
bearing the cost of the necessary counterpart funds. This was common practice since the 1950s, when
Thailand had been receiving assistance from the US. The DTEC also played a focal role in domestically securing and administering counterpart funds as well as monitoring the overall implementation of TA
programs, as the Cabinet had delegated such authority to them. The DTEC set up Project Steering
Committees and technical working groups, which consisted of the DTEC, pertinent executive agencies,and related donors for monitoring implementation. With regard to the counterpart funds, the DTEC, atcenter, gathered necessary funding requests from all executing agencies and checked them against existing standardized cost regulations on housing, transportation and other items. The DTEC would thensubmit requests for counterpart funds to the Bureau of the Budget (BOB) on behalf of each executing
agency, and later provide the necessary funding to these agencies once secured. In fact, the DTEC managed both counterpart funds as well as funds from donors kept in internal DTEC accounts. 115 Regardless of donor or funding source, the DTEC had set standardized salaries and costs for foreign experts,
and urged each donor to utilize Thailand’s own system. 116 In this manner, the DTEC dared to visibly
and openly levy bargaining power over donors by seeing to the application of uniform procedures andstandards pertaining to TA.

Also we would like to note that in Malaysia and in the Philippines, no such agency exclusively mandated to administer
foreign aid exists. In Malaysia, the External Assistance Section of the Economic Planning Unit (EPU) manages foreign aid
for both loans and technical assistance. Meanwhile, in the Philippines, the Public Investment Staff of the National Economic and Development Authority (NEDA) is responsible for providing technical staff support for coordination andreview of foreign assistance. Both the EPU and the NEDA are the central economic agencies responsible for development
planning and coordination.
115
This had been common practice except for a few donors that provided TA in the form of in-kind assistance.
116
Information regarding the DTEC was taken from an interview with Thailand International Cooperation Agency (TICA)
officials held in October 2005.
114

139

1-2 Malaysia
1-2-1 Quality of Leadership< Prime Minister, Tunku Abdul Rahman Putra (1957-1970) >Prime Minister Rahman, the first prime minister installed immediately after Malaysia won its independence in 1957, was a leader committed to carrying out rural development. He is often referred to as
the “Father of Independence” and the “Father of Malaysia.” 117 Prime Minister Rahman emphasizedsocioeconomic development’s place at the top of national priorities. He was determined to raise thesocioeconomic well-being of Malaysians, especially for those living in rural areas. Hence, he initiateda variety of rural development programs aimed at modernizing the lives of rural Malaysians. In fact,
Malaysia’s abundant jungles were transformed to create farmlands for the sake of many of the nation’s
people. Prime Minister Rahman attached great importance to securing solid political stability and heproved to be the driving force behind the country’s economic development.
< Prime Minister, Tun Abdul Razak bin Dato Hussein (1970-1976) >Prime Minister Razak, who served as the Minister of National and Rural Development and, later, as
the Deputy Prime Minister during the Rahman administration (1957-1970) also exercised great leadership in regard to rural development. During his time as Deputy Prime Minister, he introduced the ‘Red
Book’ and ‘Operations Rooms’—two structural tools utilized under the British system for facilitating
the systematic preparation, implementation and monitoring of development plans, especially in ruraldevelopment.
When Razak succeeded Rahman in 1970 to become the nation’s second prime minister, he played acrucial role in responding to the most critical of domestic predicaments—the aftermath of the 1969
ethnic riot. He was determined to reunite the country by presenting a national vision shared by all citizens, and adopted the National Economic Policy (NEP) as part of this, to address matters at the root
cause of the riot. In order to ensure enforcement of the NEP, he initiated enhancements on existingdevelopment machinery so as to facilitate implementation. Accordingly, the Implementing Coordination Unit (ICU) was created in the Prime Minister’s Department to monitor the overall implementationof programs and projects meant to make the NEP vision a reality. In fact, the ICU was a modified version of the earlier ‘Operations Rooms,’ created by reinforcing the ability of agencies at each level to
implement and coordinate monitoring tasks.

< Prime Minister, Dr. Mahathir Mohamad (1981-2003) >Prime Minister Mahathir exercised strong leadership as evidenced by his ability to institutionalize
coordination between the public and private sectors in order to realize NEP objectives. In fact, he further enhanced the basic foundation of the administrative machinery for development, as established in
the 1970s, to achieve greater efficiency. Prime Minister Mahathir is regarded as a visionary leader,
responsible for Malaysia’s turn in a new direction regarding development owing to his propensity for

Abdullah Firdaus Haji, 1994. “The Prime Ministers of Malaysia” (Chapter 13), “Malaysian Development Experience,
Changes and Challenges,” the National Institute of Public Administration, Kuala Lumpur.

117

140

taking into account pertinent political, economic and social matters of the time. His aim was to create
jobs and wealth within a broader effort to solve racial imbalances by redistributing incomes and accessto opportunity. Prime Minister Mahathir believed that economic growth must come before all else
because, as long as the whole economic pie continued to grow, all Malaysians would be ultimately satisfied. Therefore, he emphasized making the public sector responsible for providing an environment
conducive to greater private sector participation. In this way, his administration strengthened the workings of formal and informal coordination between the public and private sectors. A number of initiatives including the ‘Look East Policy’ and the ’Malaysia Incorporated’ were introduced under Prime
Minister Mahathir’s astute guidance to enhance both efficiency and public-private coordination.

1-2-2 Alliances Between the Leadership and Technocrats
Technocrats in Malaysia fully assumed responsibility for making national development aims a reality
as set forth and shared in the greater political vision. The technocrats engaged in the work required ofthem at multiple levels and were consistent in taking steps towards establishing and upgrading development machinery for national planning and implementation. They shared a strong sense of urgency
inspiring them to work towards creating one united nation—a country of peoples ethnically integrated
and living in harmony and partnership—and this became the strongest driving force for the executionof successive reforms and institutional changes. Furthermore, the general public came to understandand accept the role technocrats necessarily played in translating this overriding policy objective to thereal world.

1-2-3 Fear of International and/or Domestic Crises
Malaysia, a multiethnic country with visible socio-economic disparities along racial and regional lines,
envisioned a clear mission for itself—to achieve the specific objectives of promoting national unity
through poverty eradication and restructuring society, paramount above all else. People harbored astrong and urgent desire to never again go down the path that was taken in the racial riot of 1969, andthis very fear of crisis prompted reforms and institutional changes.
Since 1971, when the NEP was introduced to remedy issues at the principal root cause of the ethnic
riot, the strategy of ‘growth with equity’ has served as both the basic principle and overall framework
for the country’s development. In fact, the Malaysian government utilized and enhanced its own development machinery as a tool to realize the NEP objectives. Policy coherence was maintained steadfastly by each of Malaysia’s successive leaders. The country was blessed with political leaders who possessed a strong sense of commitment and dedication to overcoming all odds in times of crisis.

1-2-4 Utilization of Aid as an Integral Part of Development Management
The Malaysian government, much like the Thai government, strategically and selectively utilized aid
to become a country self-sufficient and non-reliant on donor assistance as per its ‘graduation strategy.’141

The Malaysian government, much like the Thai government, strategically and selectively utilized aid.
Malaysia was not an aid-dependent country and the volume of aid mobilization itself was the lowest
among the three countries in the late 1980s (see Chapter 1). On the other hand, the government wasvery strategic in the way it utilized aid in the sense that it clearly identified the particular sectors andareas that would be mobilized after comprehensive consideration of all points. The government hadprioritized the whole nation’s development objectives and then carefully and determinately considered
how aid resources would be mobilized (i.e., in which selective sectors and areas) as well as where they
appeared to be subject to the most suitable use.
Early on in the formulation of the development administration in the late 1950s and 1960s, theMalaysian government actively sought technical assistance from the World Bank and the United Kingdom (UK) to be used for institution building, human resource development, and capacity building fornational development planning. In fact, at the time of Malaysia’s independence in 1957, the UK wasproviding economic and military assistance. The development administration that the Malaysian government adopted was basically identical to that of the British system (see Chapter 3). The Malaysian
government, after consulting with the World Bank, restructured and strengthened the Prime Minister’s
Department so that it could play a key role in development administration. It established a small Economic Secretariat headed by an expatriate adviser. In 1961, the department was upgraded and relocated to the Economic Planning Unit (EPU) within the Prime Minister’s Department, and became thecentral agency for economic and social development planning, as well as public investment programming and selection. Despite their insufficient professional skills, local officials were put in key positions in the EPU, thus gradually replacing expatriates. The first two national development plans weredrafted with the assistance of the UK and the World Bank.
Just as in the case of Thailand, the Malaysian government sent highly competent young technocrats
abroad to study and expected them to come back with the knowledge and skills necessary for serving
the country. Especially during the initial stages of administrative formation, elite technocrats played acritical role. Upon returning to Malaysia after acquiring their master’s degrees and PhDs, these young
graduates were assigned to work in key government positions, replacing foreign experts. They contributed greatly to the installment of core functions built into development administration machinery. 118
In fact, the Malaysian government had envisaged its long-term human resource development strategies
with a focus on graduation strategy since the 1970s, and this initiative for providing the elite withhigher education abroad would be regarded as one vital part to achieving success.

< The Important Role the National Institute of Public Administration (INTAN) Played in
Human Resource Development for Civil Servants >The Malaysian government created the National Institute of Public Administration (INTAN) in 1972
under the Public Service Department (PSD) to provide necessary training to government officials. As
mentioned, the Malaysian government had envisaged a graduation strategy for its long-term humanInterview with Tan Sri Thong Yaw Hong in January 2006. He was the first Malaysian head of the EPU and contributed
tremendously to the formulation of Malaysia’s development administration, including in regard to matters of humanresource development for government officials at the time.

118

142

resource development program and the INTAN played a pivotal role in this. In the 1970s, the government aggressively utilized aid, requesting foreign experts to provide training to Malaysian government
officials at INTAN. By the 1980s, a sufficient level of capable ability within local staff had been built,
which enabled the government to manage training on its own. In fact, ever since 1981, the Malaysian
government has been providing technical assistance to developing countries, the number of which
totaled 135 countries as of 2005. The External Assistance Section of the EPU manages this initiative aspart of ‘South-South Cooperation’ operated through the Malaysian Technical Cooperation Program(MTCP). 119 The Malaysian government has always regarded human resource development as being a
top priority policy that serves to build the very foundation of the country’s operative system. Each of
Malaysia’s successive national development plans, in fact, feature chapters stipulating education andhuman resource development.
As in the case of Thailand, the Malaysian government placed a high degree of importance on managing its donors and having an exit plan. The government was particularly sensitive to donors interferingin domestic policy. In this regard, the Malaysian government did not necessarily listen to everythingthat donors suggested. For example, when Malaysia launched the NEP, every international agency critically asserted that it was an attempt at “socio-economic engineering” and anticipated its failure.
Despite such criticisms, however, the Malaysian government firmly continued forth with its policy andsuccessfully overcame the crisis. 120
When it comes to prioritization of external assistance, the Malaysian government was mindful of thecharacteristics of and comparative advantages presented by each donor. The External Assistance Section of the EPU scrutinized specific sectors and activities where aid would be suitable for fillingdomestic gaps in financing or resource capacity. It appears that the government prioritized certain sectors so as to encourage foreign direct investment—for example, power generation was brought to thefore in peninsular Malaysia—yet, at the same time, foreign aid was not sought for funding all required
aspects of the private sector. Such astute prioritization contributed to attracting more private sector
actors and furthered development. 121

119
In fact, since the Seventh Malaysian Plan (1996-2000), one chapter has been added, which extensively discusses
Malaysia’s international cooperation policy—bilateral, regional, and multilateral cooperation, as well as the MTCP. The
new chapter provides the Malaysia’s perspectives as an emerging donor and a responsible member of the global community. Previously, this topic was included in the chapter of public sector program and its financing.
120
Taken from a remark made by a former Deputy Director General of the MIDA (Malaysian Industrial Development
Authorities), at a seminar organized by GRIPS and held in November 2006.
121
Taken from a remark made by a JBIC (Japan Bank for International Cooperation) official, at a seminar organized by
GRIPS and held in November 2006.

143

1-3 The Philippines
1-3-1 Quality of Leadership< President, Ferdinand Marcos (1965-1986) >The National Economic and Development Authority (NEDA), a centralized administrative body forplanning, was created during the Marcos administration. Although development planning in the Philippines began as early as 1935, tasks therein were dispersed across different bodies and organizations,preventing practical visualization of the comprehensive scope of objectives and visions pertaining tonational development. This centralized system for development planning, however, was utilized only
as a means to maintain President Marcos’s dictatorship. As a result, power was limited to, and amassedby the technocrats and cronies who faithfully obeyed his word. Hence, unlike as seen in the cases ofThailand and Malaysia where the centralized bureaucracy shared and supported political leaders’development visions so as to best serve public interest, the centralized administrative framework in thePhilippines was of unsound motives.
< President, Corazon Aquino (1986-1992) >President Corazon Aquino put an end to Marcos’s dictatorship and initiated a democratization process
following the turning point of 1986. She undertook a government-wide structural reorganization,
wherein the NEDA was also revamped. As embodied in the President’s 1987 Executive Order 230 andthe 1987 Philippine Constitution, the NEDA was authorized with the distinctive advantage of being an
independent planning agency (see Chapter 2).
Hence, the NEDA became the focal point for interagency coordination, and six cabinet-level interagency committees headed by the President were created. In addition, the divisions in charge of foreignassistance were streamlined within the NEDA. Aquino’s successor, President Ramos (1992-1998),
took over this administrative system, and strengthened the NEDA so that its functions included more
control over coordination of the NEDA Board interagency committees and ODA management.

1-3-2 Alliances Between the Leadership and Technocrats
After the democracy was restored and bureaucracy was reorganized in the Philippines, technocrats
worked to enhance and strengthen development planning and administration. In fact, the central economic agencies, including the NEDA and the Department of Budget and Management (DBM), hadbeen working to facilitate institutional reform and strengthen the administration. They endeavored toaugment policy coherence by enhancing development planning, investment programming, implementation, and monitoring and evaluation. In fact, since the late 1980s, the government had been implementing a series of reforms to reinforce policy and resource alignment in accordance with development priorities (see Chapter 4). However, due to insufficient coordination, decision-making structures
have become dualistic and fragmented among the differing government agencies. In addition, development policies are less predictable in the Philippines owing to numerous changes in the political leadership and policy, which have undermined efforts made by technocrats to otherwise strengthen consis-

144

tency in executing policy. 122

1-3-3 Political Interference in Executive Branch Affairs
Despite the continuous efforts of the executive branch to temper the administration of development,interference in the legislative sphere ultimately came into play, whereby development planning andinvestment programming were obviously beginning to run dual tracks, most evident during the budgeting process where allocative distortions were generated (Oft cited as ‘dual track development administration’). Legislators tried to include superfluous projects and programs, geared to benefit their own
constituency, without going through the proper administrative channels and oversight procedures. Thishas created an underhanded route for local interests to be reflected in the national budget through special projects prepared by politically motivated congresspersons. Hence, it is not uncommon that suchdiscretionary projects and programs displace priority ones that had been rightfully identified and prioritized through administrative channels.
Generally speaking, interference by the legislative arena should not itself be viewed in a negative context because legislature is expected to check and balance policy decisions. Therefore, what is important is whether the whole nation, including politicians, shares common vision of development designedin the people’s best interest. In the case of the Philippines, despite the government’s efforts to formulate and realize the nation’s priorities in regard to development from a holistic and comprehensive
view, politicians showed more concern for their own personal agenda, separate from national development priorities.
The Priority Development Assistance Fund (PDAF), which is often considered equivalent to pork barrel funds, allows individual congresspersons and senators to allocate public funds to personally selected expenditures. Thus it may be the source of the power behind their interventions. Owing to its socialand political histories, such legislative intrusion into the administrative channel is often regarded as a“necessary evil” and one of the “costs of running democracy” in the Philippines. In order to both effectively expunge from the system such arbitrary intervention, while improving transparency and efficiency in investment selection, technocrats have proactively adopted an array of initiatives designed tostrengthen the mechanisms found in development administration (see Chapter 4).

With respect to personnel changes within the bureaucracy caused by changes in the political leadership, in the Philippines, the government officials occupying the positions of assistant director, director, assistant secretary, undersecretaryand secretary at any agency are political appointees. But this is only in the sense that their appointment papers are signedby the President of the Philippines. When a change in leadership or the administration occurs, usually political practiceshows that Secretaries (i.e. Cabinet members) tender their respective resignations. The new president will decide whether
to re-appoint incumbent secretaries or appoint new ones. Assistant directors, directors and assistant secretaries are normally retained since they tend to be officers who have managed to ascend the management ladder. Undersecretaries (and, attimes, assistant secretaries) lie somewhere in between—they are either replaced or retained. (Information provided by agovernment official in the Philippines.)

122

145

1-3-4 Utilization of Aid as an Integral Part of Development Management
The Philippine government has utilized foreign aid actively, but has had mixed experiences in aid management. Although the NEDA was created in the 1970s to centrally administer to development under
the Marcos administration, there was little coordination among the different ‘Staffs’ of the NEDA
resulting in policy decisions and approvals that took fragmented and incoherent courses, even within
the NEDA. Furthermore, the NEDA was unable to functionally coordinate between agencies (seeChapter 2). Since the late 1980s, technocrats had worked towards augmenting NEDA functions such as
in the preparation, prioritization and selection of public investment projects so as to improve efficiency. However, two separate systems, the local system and the ODA, operated differently with the ODA
being more rigorous in its requirements and standards. In fact, procedures for the selection and management of locally funded projects are less intensive and well-defined than those applied to ODA projects; as such, consideration required by each for quality of feasibility studies, social and environmental
safeguards, standards for operations and maintenance, requirements for implementation and monitoring, and other fields are dualistic. Thus, decision-making structures built between the governing institutions have been fragmented and operate with inconsistency that fluctuates according to the differing
sources of funds. Locally funded projects (as well as projects prepared by congresspersons mobilizing
their pork barrel funds) have been all but immune to scrutiny from the NEDA Board Investment Coordination Committee (ICC), which has created loopholes in the development administration system.
The absence of ICC reviews may lead to a decrease in transparency and efficiency. In fact, only the
ODA and Build-Operate-Transfer (BOT) projects have been subject, in any practical sense, to the ICC
review process (see Chapter 5).
On the one hand, ODA may function as catalyst for broader institutional reform, but on the other hand,potential risks suggest that additional ODA rules and complex procedures might lead to inefficiency
and an increase in transaction costs to the government. This is a distinctive feature to the Philippines
among the three countries, particularly when considering the fact that approval procedures and requirements designated by each of locally funded projects and ODA projects are basically identical within
the systems operating in Thailand and Malaysia.

2. Summary
Each of the following tables offers a summary of the formulation and enhancement of development
administration in Thailand, Malaysia and the Philippines (Tables 7-2, 7-3, 7-4, respectively). The factors chosen may not be exhaustive, and additional critical issues may yet need to be considered, but
our findings confirm that the cumulative synergetic effect of the factors given below contributed to thecreation of extensive institutional frameworks, coordination mechanisms and approval procedures.
Such diversity in the formulation of development administration impacted, in a multitude of ways, policy coherence, and the degree to which development vision and objectives were attained. Therefore,
donors need to be mindful of the local context within a country when providing assistance—key factors may be manifested in a diverse range of forms across any number of countries, and such differences need to be carefully and considerately taken into account.

146

Table 7-2
Quality ofleadership

Alliances between
the leadership andtechnocrats

Political
interference in
executive branchaffairs
Fear of externaland domestic
crisesUtilization of aid
as an integral partof development
management

Thailand: Key Factors Affecting Development Administration• Prime Minister Sarit (late 1950s-early 1960s) showed keen development visionand exercised strong leadership. He adopted the concept of ‘development
through growth’ and introduced a top-down approach to planning.
• Prime Minister Prem (1980s) functioned as a balancing force and played aleading role in national development and especially priority policy agenda. He
created national committees, to be led by the Prime Minister, for formulating
priority policy agenda and gave competent technocrats the authority toadminister policy.
• Competent technocrats acted in a supporting role for the administration of policy.

➢ Dr. Puey Ungphakorn, the longest serving Governor of the Central Bank
(1959-1972), created the foundation for coordination among the central
economic agencies, in support of Prime Minister Sarit’s vision.
➢ Technocrats at the central economic agencies (especially at the National
Economic and Social Development Board (NESDB)) played a significant
role in coordinating for the Prime Minister-led national committeesorchestrated under the Prem administration. The NESDB acted as secretariat
for major national committees.

• Technocrats were effectively insulated from political pressures to a great extent.
➢ As a general rule, technocrats managed the economy and secured policy
coherence prudently and pragmatically. (e.g., Eastern Seaboard Development
Plan)• The Thai government strove to accomplish structural transformation (late1970s-1980s).
➢ External security vs. economic development➢ Structural transformation in industrial strategies➢ Structural transformation in macroeconomic management• The Thai government strategically and selectively utilized donor assistancepossessing graduation strategy.
➢ The Thai government requested assistance from the World Bank informulating development administration (late 1950s), with the expectation of
successive World Bank assistance for the development of infrastructure.
➢ The Thai government utilized foreign assistance in order to send promisingtechnocrats abroad to study and ultimately bring knowledge and technology
back home so that the innovations may be incorporated into the Thai system.
(e.g., introduction of the budget management system in the 1950s)➢ The Thai government saw that it held bargaining power over donors by:- objectively scrutinizing technical assistance (TA) needs and making
independent judgments for most suitable TA requirements (thus the
crucial role of the Department of Technical and Economic Cooperation(DTEC) therein);- bearing the cost of counterpart funds for grants and TA; and- collecting as many different perspectives as possible by listening to theopinions of various donors.

147

Table 7-3

Malaysia: Key Factors Affecting Development Administration

Quality of• Prime Minister Rahman (Late 1950s-1970s) emphasized the importance ofleadershipsocioeconomic development, especially in rural areas, and exercised theleadership strong enough to carry it out.

• Prime Minister Razak (1970s) showed acute determination and political will
to reunite the country following a national crisis and took part in sharing thenational vision by adopting the New Economic Policy (NEP). He also played aleading role in augmenting administrative machinery for implementation of the
NEP.

• Prime

Minister

Mahathir(1980s)exercisedstrongleadershipinstrengthening public-private partnerships through creating formal and informal
coordination mechanisms between the two sectors.
Alliances between• Technocrats worked to enhance administrative capacity and human resource

the leadership anddevelopment in order to realize the Prime Minister’s vision and policy

technocrats

objectives.

Fear of domestic
crises• The Malaysian government utilized existing development machinery as a tool
to realize the country’s overriding objective: to promote national unity by
eradicating poverty and restructuring society.

Utilization of aid• The Malaysian government strategically and selectively utilized donor

as an integral part

assistance possessing its graduation policy.

of development➢ The Malaysian government utilized the World Bank and the UK assistancemanagement

within the formulation of development administration (1950s-1960s). The
government institutionalized foreign knowledge tailored to the local
context.

➢ The Malaysian government utilized assistance from the US, the UK and theWorld Bank for sending highly competent young technocrats abroad tostudy as part of a long-term human resource development plan.

➢ The Malaysian government created the National Institute of Public
Administration (INTAN) in 1972 to train government officers for humanresource development as an integral part of its graduation strategy.
-

1970s: utilized aid and procured foreign experts as instructors-

1980s: utilized domestic experts as instructors(cf. Since 1981, INTAN has been providing TA to other development
countries for human resource development through the MalaysianTechnical Cooperation Program (MTCP))

148

Table 7-4
Quality ofleadership

Alliances between
the leadership andtechnocrats

Political
interference in
executive branchaffairs
Utilization of aid
as an integral partof development
management

The Philippines: Key Factors Affecting Development Administration• President Marcos (prior to 1986) created the central development
administration system manifested in a centralized planning body, the National
Economic Development Authority (NEDA), to maintain his dictatorship.
• President Aquino (after 1986) reorganized the development administration
system, including the NEDA, after democracy was resumed following theturning point of 1986. The NEDA became an independent planning agency while
Aquino promoted interagency coordination through the NEDA committees.
• President Ramos (1990s) strengthened and institutionalized the development
administration system (the NEDA functions) and ODA management.
• After the turning point in 1986, technocrats working under the Aquino
administration strove to streamline administrative structures and the functions
carried out therein in order to efficiently execute development policy. They
worked to secure policy coherence and facilitate coordination through capacity
development programs for planning and public expenditure management.
Interference
in executive branch affairs took place by the legislative branch,•especially during the budgeting process, which undermined technocrats and theirefforts (oft-cited as ‘dual track development administration’), and thus creating
allocative distortions.
• The Philippine government utilizes foreign assistance actively but has had mixed
experiences in aid management.
➢ Two different systems exist between locally funded projects and ODA
projects, with ODA standards being more rigorous. As a result, the additional
system for ODA would increase the administrative burden placed on thegovernment and may ultimately lead to economic inefficiency as a whole.

149

Appendices• Figure A-1• Figure A-2• Figure A-3• Figure A-4• Figure A-5• Table A-1

Selected Fiscal Indicators (Percentage of GDP)
Mobilization of Official Development FinanceBudget Cycle in Thailand
Budget Cycle in Malaysia
Budget Cycle in the Philippines
Estimates of per Capita GDP and Ratios of Public to Private Sector
Salaries in Selected Developing Countries

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

120.0%

Thailand (consolidated central government)
100.0%

20.0%

80.0%

10.0%

60.0%

0.0%

40.0%

–10.0%

20.0%–20.0%

0.0%

19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00

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)
100.0%

20.0%

80.0%

10.0%

60.0%

0.0%

40.0%

–10.0%

20.0%–20.0%

0.0%

19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00

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%

Philippines (consolidated central government)
100.0%

20.0%

80.0%

10.0%

60.0%

0.0%

40.0%

–10.0%

20.0%–20.0%

0.0%

19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00

30.0%

Domestic Debt (right axis)

Foreign Debt (right axis)

Total Revenue and Grants

Current Expenditure

Capital ExpenditureOver-all Deficit/Surplus

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

152

Figure A-2 Mobilization of Official Development Finance

Thailand$ million
3,500.00

3,000.00

WB & ADBODA Loans
ODA Grants

2,500.00

2,000.00

1,500.00

Loans

1,000.00

500.00Grants
00

98

20

96

Thailand

19

94

19

92

19

88

90

19

19

86

19

84

19

82

19

80

19

78

19

76

19

74

19

72

19

70

19

68

19

66

19

64

19

62

19

19

19

60

0.00

Year

WB & ADBODA Loans
ODA Grants

100%

80%

60%

Loans

40%

20%
Grants

1 WB
2 US
3 Japan
4 ADB
5 Germany

1 WB
2 Japan
3 ADB
4 Germany
5 UNHCR

1 Japan
2 WB
3 ADB
4 Germany
5 France

1 Japan
2 WB
3 ADB
4 Germany
5 France

Top 5
donors

19

96

Note:

The amount of aid (including WB and ADB) is calculated on a gross disbursement base.

Source:OECD/DAC, Geographical Distribution of Financial Flows to Aid Recipients 2000/2004.

153

20

1 Japan
2 WB
3 ADB
4 Germany
5 Denmark

98

Year

19

94
19

92
19

90
19

88
19

86

84

19

82

1 Japan
2 WB
3 ADB
4 IMF
5 Germany

19

19

80
19

78
19

76
19

74
19

72
19

70
19

68
19

66

1 US
2 WB
3 Japan
4 Germany
5 Australia

00

1 US
2 WB
3 Germany
4 Japan
5 Austria

19

64
19

62
19

19

60

0%

Malaysia$ million
3,500.00

3,000.00

WB & ADBODA Loans
ODA Grants

2,500.00

2,000.00

1,500.00

1,000.00

500.00Loans
Grants
00

98

20

96

Malaysia

19

94

19

92

19

90

19

88

19

86

19

84

19

82

19

80

19

78

19

76

19

74

19

72

19

70

19

68

19

66

19

64

19

62

19

19

19

60

0.00

Year

WB & ADBODA Loans
ODA Grants

100%

80%
Loans
60%

40%

Grants20%

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 UK

1 Japan
2 WB
3 ADB
4 Australia
5 UK

Top 5
donors

19

96

Note:

The amount of aid (including WB and ADB) is calculated on a gross disbursement base.

Source:OECD/DAC, Geographical Distribution of Financial Flows to Aid Recipients 2000/2004.

154

20

1 Japan
2 WB
3 ADB
4 Denmark5 Germany

98

Year

19

94
19

92
19

90
19

88

86

19

84

1 Japan
2 WB
3 ADB
4 Australia
5 ArabCountries

19

19

82
19

80
19

78
19

76
19

74
19

72
19

70
19

68
19

66

1 WB
2 UK
3 US
4 Japan
5 Australia

00

1 UK
2 US
3 WB
4 Canada
5 Australia

19

64
19

62
19

19

60

0%

Philippines$ million
3,500.00

3,000.00

WB & ADBODA Loans
ODA Grants

2,500.00

2,000.00

1,500.00

Loans

1,000.00

500.00Grants
00

98

20

96

Philippines

19

94

19

92

19

88

90

19

19

86

19

84

19

82

19

80

19

78

19

76

19

74

19

72

19

70

19

68

19

66

19

64

19

62

19

19

19

60

0.00
Year

WB & ADBODA Loans
ODA Grants

100%

80%
Loans

60%

40%

20%
Grants1 Japan
2 US
3 WB
4 ADB
5 UNDP

1 WB
2 Japan
3 US
4 ADB
5 IMF

1 Japan
2 WB
3 US
4 ADB
5 Germany

1 Japan
2 WB
3 US
4 ADB
5 AsDFTop 5
donors

19

96

Note:

The amount of aid (including WB and ADB) is calculated on a gross disbursement base.

Source:OECD/DAC, Geographical Distribution of Financial Flows to Aid Recipients 2000/2004.

155

20

1 Japan
2 WB
3 ADB
4 US
5 Germany

98

Year

19

94
19

92
19

90
19

88
19

86

84

1 WB
2 Japan
3 ADB
4 US
5 Germany

19

82

19

19

80
19

78
19

76
19

74
19

72
19

70
19

68
19

66

1 Japan
2 US
3 WB
4 Germany
5 UNDP00

1 US
2 Japan
3 WB
4 Canada
5 Germany

19

64
19

62
19

19

60

0%

Figure A-3 Budget Cycle in Thailand 123
Government Agencies

The Bureau of the Budget

Parliament, Cabinet

November - December:
MOF, BOB, NESDB, BOT
meet to set the limit or ceilingfor government expenditures
Departments set own
policies and plans as
annual budget guideline

Departments prepare
expenditure budget

January:
departments send thedetails of expenditure
requests and revenue
estimates

January:
Call Circular(announcement of budget
guidelines) for new fiscal
year estimates

January - March:
Budget Hearings

March:
BOB sets the budget
ceiling and overall
expenditure details

March - April:
The Cabinet approves
the budget ceiling andoverall expendituredetails

April - May:BOB revises details of
the draft budget andestimates revenues, andprepares the budget bill

May - June:
Budget bill printed andsubmitted to the Cabinet

Budget execution by
agencies in the new year

End of December:
Minister of Financeissues warrants fordevelopment andoperating expenditures

June:
Cabinet approves thebudget bill

June - September:
Parliament debates andapproves the budget
for the new year

Source: Based on the information provided by the Bureau of the Budget to the GRIPS team during the January
2006mission).
123

In Thailand, the fiscal year covers the period of October-September.

156

Figure A-4 Budget Cycle in Malaysia 124
Government Agencies

Federal Treasury

Agencies prepare andsubmit estimates
for the new year

January:
Call circular for new fiscal
year estimates

Parliament, Cabinet

March:
Submissions received, andindividual studies made byconcerned ministry

Jointly carried out with
EPU and ICU andconcerned agencies

April:
Preliminary Hearings(Budget Dialogue)

May – July:
Budget Hearings

August:Preparation of estimates bypurpose/program/activity/project in themanner required by Parliament
October:
Agencies informallynotified of revised
allocations by
program/activity/project

November:
Agencies makeadjustments toallocations of program
activities/projects andsubmit the revised
allocations to treasury,
EPU and ICU
Budget execution by
agencies in the new year

September:Approval of estimates by
Minister of Finance

September:Approval of estimates by
CabinetOctober:
Budget document printed
and submitted to
Parliament
October-December:
Parliament debates andapproves the budget for
the new year
End of December:
Minister of Financeissues warrants fordevelopment andoperating expenditures

Source: “The control and management of government expenditure: Issues and Experience in Asian Countries”, United
Nations Development Papers No.13, 1993.
124
In Malaysia, the fiscal year runs from January-December. The process of preliminary hearings, called the “Budget Dialogue”, includes consultation with the private sector.

157

Figure A-5 Budget Cycle in the Philippines 125
Government Agencies

January - April:
Agency regional offices
submit their budget
proposals to Agency
Central Offices (ACOs)
and RDC

Department of Budget andManagement

December:
DBCC (DBM, CB, DOF,
NEDA) proposes budget
preparation guidelines

President, Cabinet
Congress

December:President approves the
DBCC proposals as
endorsed by the Cabinet

January - February
DBM issues the Budget
Call

May:
ACOs submit theirbudget proposals to DBM

January - April:
RDCs endorse regional
projects to NEDAMay:
NEDA submits proposed
national infrastructure
program to DBM

May - June:
Budget Hearings by DBM

June:
DBM sets budget ceilings

June:
Budget Deliberation by
DBCC

June - July:
The Cabinet approves thebudget ceiling and overall
expenditure details

July:
The President approves
the budget billBudget execution by
agencies in the new year

End of December:
DBM issues warrants fordevelopment andoperating expenditures

July:
Congress debates andapproves new year budget

Source: Based on the information provided by DBM to the GRIPS team during the March 2006 mission and informationon the DBM website.

125

In the Philippines, the fiscal year covers the period from January-December.

158

Table A-1

Estimates of per Capita GDP and Ratios of Public to Private Sector Salaries
in Selected Developing Countries
Mid-levelb(%)

Senior level (%)
Per capita GDPa

Country

A

B

A

B

Entry-level (%)

14,929114b

114

115[3]

115

107

7,190

69.3

69.3

57.1

57.7

58.7

Taiwan, China

7,954

65.2

60.3

63.5

65.8

60

Malaysia

5,900

40

33.3

34.3

50

n.a.

Thailand

4,610

47.1

46

37.2

34.9

78.9

2,320

27.7

24.3

25

32.5

62.5

6,190

70.36

63.2

n.a.

n.a.

n.a.

8,510

b

63.53

76.88

77.92

n.a.

42.38

53.4

b

53.4

n.a.

37.1

b

37.1

n.a.

b

28.57

n.a.

High-performing Asian economices (HPAEs)
Singapore
South Koreac

Other Asia
Philippines
Latin America
Chile
Trinidad and Tobago
Venezuela
UruguayArgentina
Note:
Sources:

n.a.
a.
b.
c.

6,740
6,000
4,680

63.53

29.54

n.a.

n.a.
24.11

b

24.11

28.57

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 (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
are from a survey of companies with 500 or more employees.

159

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