Managing the Development
Process and Aid
Study Concept and Diverse Models ofMacroeconomic Coordination in East Asia

GRIPS Development Forum
Izumi Ohno
November 8, 2006

Outline of Presentation1.

About the GRIPS study

2.

Country contexts: Thailand, Malaysia andthe Philippines

3.

Overview of macroeconomic coordinationof central economic agencies (CEAs) inthree East Asian countries

4.

Synthesis--Focus of the analysis, basic premise11. GRIPS Study: Focus of the Analysis<Issues> Coordination mechanisms of central
economic agencies (CEAs)
Role of Development Plan (DP) in policy and resource
planning, alignment functions; Budget and public investment planning; Aid management
 Key factors affecting CEA effectiveness: therole of leadership, technocrats, etc.

Coordination Mechanisms of CEA
Policy & resource planning,alignment functions

Key actors affecting
CEA functions

VisionPolitical will

LeaderDevelopment plans
Priority policies
Macroeconomic mgt.
Utilize

AidPublicInvestment
selection

CEA Technocrats
DonorsBudgetPrivate &non-govt.
stakeholders

Resource
allocation
Private &non-govt
activities

Ministries
Implementation, Service delivery etc.

Other stateorgans

Localgovt.

2

GRIPS Study: Focus of the Analysis<Countries> Thailand and Malaysia (late 50s-80s)
Building institutional basis for developmental CEAs
Mobilizing resources and organizing for development;
achieving structural transformation (esp. 70s-80s)
 New emerging donors The Philippines (esp. late 80s-)
 Mixed experiences under the Marcos era;
 Now, renewed effort for CEA building after democracy
restoration in 1986 (“turning point”)

GRIPS Study: Basic Premise Emphasis on country perspectives
Real experiences, rather than idealprescriptions
 No standardized, donor-driven approach toinstitution building Critical role of CEAs in managing thedevelopment process East Asian views of ownership3

GRIPS Study: Basic Premise<Critical Role of CEAs>
 Economic cases for central administration(Bardhan 1997)
 Policy coordination in the presence of scaleeconomies Inter-jurisdictional externalities, with spillover
effects across localities Support to local administration-- Complementary to decentralized administration-- Providing the enabling environment for private sector
development

GRIPS Study： Basic Premise

Developmental” role of CEAs (Johnson,Haggard, Evans, Wade, etc.)
 Agent of managing the transformative,development process (Leftwich 1995)
 Strategic core centers:-- Aligning policy planning and resource mobilization
with attaining strategic priorities-- Coordinating different interests of various
stakeholders (domestically and externally; verticallyand horizontally)

4

GRIPS Study: Basic Premise<East Asian Views of Ownership > Managing donors and aid, as integral part ofthe development process Willingness to graduate from aid, supported
by an “exit plan”
 Managing policy ideas, with selectively
adopting foreign knowledge(Shimomura and I. Ohno 2005)-Thailand and Malaysia (esp. 70s-80s): demonstrating
East Asian “ownership”.
-The Philippines (esp. late 80s-) : currently making
effort to establish it.

Development Management and Aid
RecipientCountries
DonorsDevelopment vision

Identification of aid needs

Development strategy & plan

Formulation of aid strategy

Donor (aid) Management
Aid relationship as part ofthe entire development process

Implementation (publicinvestment, service delivery)
Aid money Internal budget
Development effectiveness &sustainability
Achievement of strategic goals

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

52. Country Contexts<Socio-Economic Indicators>
GNP
per capita ($)

Annual growthrate (%)
per capita
GNP avr.
1965-90

Poverty ratio(%)
1980-90
avr.

1976

1990

South Korea

670

5400

7.1

16

Malaysia

860

2300

4.0

27

Thailand

380

1420

4.4

30

The Philippines

410

730

1.3

58

Sources: World Development Report (1976, 92, 93) and Human Development Report (1992)

Country Contexts: Macroeconomicand Aid Management (Î see Handouts)
Thailand Strong fiscal discipline; prudent debt

Malaysia

 Fiscal activism to support large

The Philippines Problems of allocative efficiency; heavymanagement Active, but selective use of aid; changes
in aid mix and graduation
development expenditures; overallbalanced economic management
 Selective use of aid; changes in aid mix
and graduation
debt burden constraining development
expenditures
 Active use of aid continuing; selectivity?

63. Overview of CEA Macroeconomic
Coordination Mechanisms<Points>
 What are the role and functions of CEAs in
three East Asian countries?
 How have macroeconomic coordination
mechanisms worked?, What are key actors?
 What is the role of development plans (DPs)in policy and resource alignment (i.e.,budget, public investment selection, aid)?
 What are implications for building effective
CEAs?

Overview of Macroeconomic Coordination
Mechanisms
ThailandMalaysia(esp.70s-80s)(esp.70s-80s)

Role of CEAs inStrategic coredevelopment mgt. centers

Strategic core
 Dual trackcenters

Centralized, but

Centralized, underRole of DPs

Guiding policyGuiding policy &Enforcement ofmacro-guidelines

ComprehensiveComprehensivealignment with
development
priorities, underannual fiscal
scrutiny(incl. ODA, SOEs)(late 80s-now)Strategic core

Features ofmacroeconomic
coordination

responsibility
shared amongfour CEAs
Subtle check &balance

The Philippines

super-ministry(EPU)
Multi-layered,rule-based
coordination

centers?

(theexecutive vs. thelegislature)Insufficient,inter-agency
coordination

Limited policy &resource alignment resourcewith developmentalignment withpriorities
DPs
DPs as action planto achieve LT vision(incl. ODA, SOEs)

Limited, withexemptions73-1. Thailand: CEA Functions andKey Actors
Centralized power in the four economic
agencies (“gang of four”)


Leadership: empowering technocrats to plan
and administer economic policies

NESDB (National Economic & Social Development Board):
PM’s Office
BOB (Bureau of the Budget): PM’s Office
FPO (Fiscal Policy Office) + PDMO (1999-): MOF
Bank of Thailand: central bank

Technocratic insulation from political interventions

Role of CEA technocratsStrong inter-agency coordination; shared responsibility
Enforcing legal limits for fiscal deficits and external borrowing(But, sector-level coordination not necessarily strong)

Thailand: macroeconomic coordination mechanism
Prudent macroeconomic management as a wholeVision DP alignment Figure
NESDBBOB•Planning•Public investment•Development budget•Budgeting(investment &recurrent)

FPO
DTEC/TICA•Technical assistance•Fiscal policy

PrimeMinister

Delegate
authority toplan andadminister
policyCentralBank
PDMO(1999-)•Monetary policy•Public debt management(including foreign loans)8Thailand: Role of DP in Policy andResource Alignment
 Indicative DPs, without budget implications
 Development priorities clearly indicated in DPs


ODA utilization strategy included (esp. 60-70s).

 Flexibility in medium-term planning, while

scrutinizing all projects in the annual budget &debt approval decisions
BOB mobile units providing vertical link to line agencies,
through the annual budget process.
 National Debt Policy Committee; National Committee onState Enterprises.
 Consultation with the private sector (from the70s, strengthened in the 80s)

3-2. Malaysia: CEA Functions andKey Actors
Centralized power in Prime Minister s Dept.
(EPU as super-ministry)






EPU (Economic Planning Unit): PM’s Dept.
ICU (Implementation Coordination Unit): PM’s Dept.
MOF (Ministry of Finance) and Central Bank

Strong political leadership, providing longterm visions and direction for changes
Role of CEA technocratsTechnical arms to realize PM’s visions (esp. New Economic
Policy or Bumiputra policy in the 70-80s)
DPs and budgets as rolling plans to achieve long-term visions

9

Malaysia: macroeconomic coordination mechanism

Balanced macroeconomicmanagement
 DP alignment
Figure•Budgeting (investment& recurrent)•Fiscal policy•Public debt management(including foreign loans)

EPU

Prime
MinisterVision
Technicalsupport arm
to realize
PM’s vision•Planning•Public investment•Development budget•Development assistance

MOFCentralBank•Monetary policy

ICU•Project monitoring

Malaysia: Role of DP in Policy andResource Alignment Directive DPs, with budget implications
 Development priorities and resource allocation

clearly indicated in DPs

Enforcing budget and sector ceilings for the plan period, while
adjusting at mid-term review
 ODA utilization strategy included in DPs (from the 60s andlater expanded as int l cooperation strategy) Multi-layered, inter-agency coordination forplanning and implementation to ensure
coherency

National Planning Committee, National Action Committee (asapexes); top-down and bottom up coordination
 Role of the “planning cells” technocrats -- macro-sector links
 Consultation with the private sector: e.g., annual

budget dialogue (from the 80s)

10

3-3. The Philippines: CEA Functions
and Key Actors
Dual track system: executive channel vs.
congressional interventions
President-led NEDA Board (leadership?)

NEDA (National Economic & Development Authority)
DBM (Dept. of Budget Management)
DOF (Dept. of Finance)
Central bankCabinet-level, inter-agency coordination bodies(incl. Development Budget CoordinationCommittee)

Effort to synchronize DP, Public Investment Plan (PIP), andannual budget; MTEF introduced in 2003.
Effort to strengthen supervision of GOCCs (Govt. Owned andControlled Corporation), esp. on budget and debt approval.

The Philippines: macroeconomic coordination mechanism
DualtrackLegislature DP alignment

FigureIntervention(especially during budget process)

Executive branchPresident

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

Vision?

DOF•Public debt
management(including
foreign loans)

DBM•Budgeting(investment& recurrent)

NEDACentralBank•Monetary policy•Planning•Public investment•Development budget•Development assistance

Other relevant
Departments

11

The Philippines: Role of DP andMacroeconomic Coordination Features
 Limited role of DPs in policy planning andresource alignmentNo budget ceilings for DP and PIPStrategy for ODA utilization and private sector collaborationunclear (until recent DP) Weak enforcement of macroeconomic guidelines
 Large GOCCs exempted from ceiling of Foreign Borrowing Act
 Vigorous appraisal and monitoring procedures, applied only for
ODA and BOT projects
 Congressionally initiated projects ( pork barrel funds) outside
the regular budget process Congressional interventions in the annual budget

process, undermining the Executive efforts ofDPs-PIP-budget synchronization

4. Synthesis
 Importance of strengthening CEAs as strategic

core centers of development management Diverse models of macroeconomic coordinationin three East Asian countries
Institutional variation for CEA design and coordination
mechanisms
 Need to take account of the local context when building
effective CEAs
ÆDonors should be mindful of promoting alignment of theirassistance, especially in the countries with weak strategic
core functions.

12Synthesis
 The Philippines: Building

formal institutions is not sufficient
to ensure their effective operations.
 Importance of the political environment – its
interplay with leadership, technocrats, and CEA
operations.
 Role of aid? – enclave, or an entry point for thebroader institutional reforms?
 Thailand and Malaysia:
 Despite differences, they share common

functional principles to ensure CEA
effectiveness.

Synthesis: Thailand and Malaysia<Differences> Leadership style and operating principles ofCEAs
 Degree of DPs binding medium-term resource
allocation and project selection<Similarities – “functional” principles> The content of DPs is strategic enough toserve as the core document for policyalignment Comprehensive enforcement of macroeconomic guidelines13Synthesis: Thailand and Malaysia
 Good inter-agency coordination to ensure

policy and resource alignment withdevelopment priorities -- within CEAs, plus
between CEAs and line agencies
 Commitment and capacity to use ODA, asintegral part of the development planning,budget and investment planning processes Strong alliance between political leadershipand CEA technocrats around shared visions

The END

14