ANNEX II - Country Visits: Selected Summary Reports

Introduction

This annex contains summaries of eight out of fourteen country visit reports pre-pared by the evaluation team: two from Africa (Ethiopia and Mozambique), one from Asia (Viet Nam), two from Central America (El Salvador and Nicaragua), one from the Middle East (Lebanon) and two from South America (Argentina and Peru).

The thirteen country visits were performed by the team members in order to get a first-hand understanding of co-financing arrangements in different settings. Except for Colombia, team members visited these countries and met with UNDP officials, government officials, representatives of the donors, and many others associated with UNDP programme/project development. The preceding chapters have drawn substantially on these country visits as the basis for analyses, conclusions and recommendations. These reports were supplemented by numerous discussions with UNDP officials in New York which brought to light other country experience and by the questionnaires that were sent to most of the UNDP countries. Also, during the trips and visits to UNDP headquarters, the team members had the opportunity to talk with UNDP staff who are serving or had served in other countries not covered by the country visits.

The country visit reports are presented as the team members prepared them, except for minor editing and changes in the formats. The team members followed a common outline of topics to cover but were free to vary the coverage as the circumstances suggested. The reports have been reviewed by the respective UNDP country offices and their comments, as appropriate, have been taken into account in revisions of the texts.18

One caution: these reports present the situation at the time of the visits by the team members in August and September 1995. The countries and their programmes are all continuing to evolve; thus the data and observations need to be viewed as relevant at the time of these visits, but they may not reflect recent developments. However, we believe the reader will find these reports instructive regarding UNDP's experience with co-financing arrangements and useful in assessing future opportunities.

Africa
Ethiopia
Context

In 1991, with the end of twenty years of socialist tyranny, Ethiopia began a transition to a constitutional, democratically elected government. In 1995 a new Government was elected with a President and Premier installed in August. This Government is now forming a programme for national development and governmental restructuring. A major feature of this is the formation of ten regional governments with the decentralization of authority to regional governing bodies as in a federal system. This restructuring intro-duces an enormous challenge to national governance burdened by the devastating effects of civil war, ethnic competition, high rates of population growth, severe environmental degradation and the results of periodic droughts and famine. In many respects, the country has lost a generation of development with the loss of professional capacities and weakened institutions that were emerging twenty years ago. Capacity-building at the national and regional levels is a major task.

The UNDP country office has undertaken two major initiatives since 1991. The first was the development of major national programmes to mobilize and coordinate donor resources. The second was more directly related to co-financing and raising revenue for UNDP.

Introducing the Programme Approach and Resource Mobilization

In 1992 UNDP involved the transition Government in developing a new national programme following the programme approach. This programme totals some $12 billion of which UNDP's IPF would cover about $86 million. The donor community was expected to provide about $6 billion and the balance would come from domestic resources.

The programme was formed into six broad themes. Each one of these programme themes, as seen from the funding levels envisioned, rep-resents a very comprehensive and ambitious programme cutting across many development interests and ministries. Depending on how one classifies a subprogramme, there are perhaps 20-30 distinct programmes within the six themes; many of these subprogrammes are more consistent with the concept of a programme approach than the more comprehensive thematic groupings. Massive documentation has been prepared for each of these areas; programme support documents have been approved by UNDP headquarters for all except the Management of Economic and Technical Change (METC) Programme (see table 14).

Table 14 Resource Requirements for National Programmes-Ethiopia

($000)

Programme

Total Budget

Donor Funds

UNDP/IPF

Domestic Resources

Food production, food security, nutrition

3 112 700

1 200 000

28 000

1 92 700

Resource- population sustainability balance

3 385 651

2 313 048

17 455

1 072 603

Capacity-building and development of human resources

930 156

461 284

14 182

468 892

Disaster preparedness and mitigation

2 734 268

1 622 649

14 138

1 116 619

Management of economic and technical change (METC)

1 664 313

133 145

9 818

1 531 168

Economic recovery and reconstruction

243 000

182 250

4 750

60 750

Totals

12 070 088

5 912 376

88 343

6 162 732

Each of these programme areas involves a programme management unit in the Government with the responsibility for coordinating resources and activities; resource mobilization has been the responsibility of the Ministry of External Economic Cooperation. The time frame for the overall programme was set at five years which, given the scale and complexity of each of the programmes, is unrealistic. At the outset, the donors found these programmes too complex, confusing (with duplication among the activities in each programme), lacking priorities, and lacking clarity on the specific tasks calling for their participation. Also, the Government had not fully endorsed the programme beyond the work of the UNDP liaison office within the Ministry of External Economic Cooperation. It was seen, at first, by the donor community as a UNDP programme and not a government programme. The $12 billion programme was not presented to the 1993 Consultative Group as a guide for donor pledges. The donors and the World Bank expressed their preference for a more traditional sector-oriented programme plan.

The UNDP/Government-proposed $12 billion na-tional plan did not serve initially as a useful frame-work for mobilizing resources. The main problems with these national programmes stemmed from:

The lack of donor response has also been attributed to the donors' own independent programming and desire for visibility. Although there is a convergence of donor interest on Ethiopia's main social and economic development problems, the donors have tended to follow separate tracks in developing and implementing their programmes. They have not waited for the comprehensive plans of UNDP/Government but rather moved ahead independently as the urgency of the situation and the home office demands dictated. All of the donors have been developing their own programmes since 1991, many of which are in the same areas as those outlined in the six areas of the UNDP plan. There was little donor participation in the formulation of the six national programmes from the outset, building on understandings of areas of common interest; however, briefings on the completed plans have been held for donors. There are many opportunities for complementary activity, provided there is a system for coordinating the resources and activities and ensuring donor visibility. At the Government's request, the donors have recently begun to use the national programmes as a basis for their assistance.

To complicate the situation, the Ministry of External Economic Cooperation is (as of September 1995) now being merged with the Ministry of Economic Planning.19 Staffing responsibilities and organizational roles are being worked out. During the earlier period, donor coordination was handled by separate offices for UNDP, IFI relations, and bilateral donor groups. UNDP's programme development exercise and the proposals for donor funding were not recognized by the other units, which chose to proceed on separate tracks with programme proposals from donors.

Aid coordination in Ethiopia, with its many donors, has been characterized as highly proliferated. The numerous macroeconomic, sector, programme, and special donor groupings were cited as taking up an excessive amount of the donor representatives' time. The World Bank has provided the primary leadership with monthly information meetings. The European Union has formed its own coordination arrangements and there are a number of other sector and programme coordination operations. The donors are feeling overwhelmed with the number of meetings they are invited to attend. Databases on aid are being developed by the European Union (EU), UNDP and the World Bank. Curiously, in this situation, UNDP and its support for coordination have had a low profile and have been reportedly "the least active". The Government provided some coordination earlier but does not now take an active leadership role. As a consequence, there is a major task ahead to rationalize the coordination work in Ethiopia which is important for promoting co-financing arrangements.20

More recently, sector strategies have been developed and have helped to streamline the programmes. Also, a summary of the voluminous documentation has been prepared. These steps have assisted the donors in identifying and pursuing areas that interest them.

Also, the national programme support units related to the six programme themes developed by UNDP are in place and beginning to function. Useful technical cooperation activity has been initiated over the past year and a half. These developments suggest that, as the Government settles down and begins to focus on its development programme requirements, the earlier work with UNDP can be rationalized and priorities set. Efforts at mobilizing donor resources can then proceed more effectively.

Co-financing Experience

There are thirteen UNDP co-financing arrangements in operation, including one under negotiation. Of these, eight are co-financing through UN-administered funds and entities, such as UNCDF, GEF, UNIFEM and UNSO. There is only one active co-financing arrangement with cost-sharing with Australia for the Alemaya Agricultural University. The Australian contribution is $459,000 (see table 15). There are no co-financing arrangements with IFI institutions. A cost-sharing arrangement was set up at the request of the embassies for the election commission to which several of the donors contributed; it was funded with $250,000 from IPF and a total of $1 million from 10 different donors. There is one management service agreement (MSA) in process with Italy for a $20 million rural development programme; agreements are nearing completion. This will be a major activity for UNOPS.

Table 15 Current Co-financing-Ethiopia ($)

Type

UNDP

Co-financing

Fee

Cost-sharing/bilateral (Agric. univ. staffing, elections)

2 373 372

458 941

19 000

Trust funds (emergency relief)

576 257

4 010 650

 

UN-adm. agencies

2 467 683

9 983 203

 

Management service agreements (Italy)

 

20 549 988

1 785 482
(9%)

Cost-sharing/bilateral under negotiation

4 750 000

2 300 000

69 000
(3%)

Finally, there is a special programme for emergency prevention and relief administered by the Emergency Operations Unit for Ethiopia. It is based within UNDP, reporting to the Resident Representative, but it is not part of the UNDP programme. This unit has been supported by a number of bilateral donors for some time and generates its own resources separate from UNDP's operations. In time there may be a need to rationalize its long-term relationships with UNDP's programme and with the Government's Relief and Rehabilitation Commission.

One major omission from table 15 is the UNDP parallel financing arrangements. This is perhaps understandable given the lack of clarity on what constitutes parallel financing in a formal sense for UNDP's accounting purposes. One possibility is the UNDP-funded ICAO programme for the supervision of construction at the airport; a major World Bank loan will cover the construction costs. Is this parallel financing that comes under the heading of UNDP co-financing? The country office has pointed out the need for a clear definition of what constitutes parallel financing. There are examples other than those cited in this report that reflect programme complementarity although there are no specific agreements with donors.

Finally, there are no instances of government cash counterpart contributions (GCCC) or government cost-sharing. This is unlikely to occur in the Ethiopian setting since the Ethiopian Government is strongly of the view that it should manage its own resources. In this context, it is firm in its adherence to the principle of national execution with some resistance to the substantial involvement of external technical cooperation. However, as the country office points out, while not cost-sharing or GCCC, the Ethiopian Government covers the costs of the National Programme Coordinators and Secretariats.

In sum, the actual amount of co-financing from non-UN sources is quite modest. The initiation of the MSA with the Italian Government for rural development will cause the total co-financing to jump substantially to well over $20 million. Similarly, negotiations are under way with the Norwegian Government for a $2.3 million cost-sharing contribution in support of the National Programme on Economic Recovery and Reconstruction combined with UNDP's IPF of $4.8 million for the capacity-building dimensions of that programme.

Rationale and UNDP's Contributions, Risks and Costs

The rationales for these co-financing arrangements are project-specific. The special case for the cost-sharing for the election commission reflects the request of the donor community to establish a multilateral arrangement under UN auspices for supporting observers and other provisions for the recent elections for the new Government. According to comments from other donors, the administration of these funds by UNDP was satisfactory; however, complications arose because of the Government's displeasure at having the donor community and UNDP carry out such a function. This complicated the performance of the activities under the cost-sharing arrangement but was not a consequence of UNDP's own administrative capacity. Given the Government's view, it seems unlikely that this arrangement will be repeated in the future.

The MSA agreement with Italy reflects the Government's currently limited capacity on the ground to administer the procurement requirements for such a large grant. The activities will be supervised by an Italian and Ethiopian Government project committee. However, this MSA may be the last of its kind since the Italian Government appears to have selected Ethiopia as a test for a new management approach for its aid programme. This would involve the forming of a field management office with administrative and technical personnel. Moreover, interest in repeating this type of arrangement may be dampened by the cumbersome and remote procedures for planning and negotiating the MSA.

The UNDP country office stated that requests by bilateral donors constituted the most important reason for UNDP's entering into these co-financing modalities. UNDP's contribution has mainly been providing efficient management of co-financing resources; but since there have been few opportunities and little experience with co-financing, other benefits are more limited and yet to become apparent as UNDP becomes more involved in other co-financing activities. UNDP has not played a part in the design of the Italian Government-supported MSA. It has been actively engaged with the Norwegian Government in the planning for the capacity-building activities under the economic recovery and reconstruction programme. In sum, as reported by the UNDP country office, its "presence constitutes for several donors an opportunity to avoid setting up non-cost-effective structures to manage the resources".

UNDP's involvement in co-financing to date has resulted in minimal costs and risks to the agency although the election commission trust fund may have caused some tension with the Government. There are some additional workload requirements in managing these activities, but these are currently covered by the fees; hiring competent local staff for this additional workload does not appear to be a significant problem at present. There is some concern about shortfalls in funding, delays in repayment, lack of autonomy in selecting experts/consultants, and cumbersome UNDP procedures.

Future Prospects for Co-financing

The prospects for UNDP's entering into co-financing arrangements in the future will largely be a consequence of several factors:

(a) the completion of the restructuring and assignments of personnel within the Ethiopian Government for the management and coordination of external assistance in conjunction with the Government's decisions on its development priorities;

(b) the extent to which the Government rationalizes and officially endorses the national plan that UNDP had prepared with the earlier Government and promotes it as a basis for generating other donor participation;

(c) the evolution in the performance of the several programme management units and the effectiveness of the leadership of these units, with UNDP support defining practical, focused activities that can attract donor financing; also UNDP support for monitoring and evaluation (not now provided for) could be an important function for each of the programmes as well as for contributing donors;

(d) to the extent to which parallel financing can be structured as a resource mobilization and co-financing process, several donors are interested. Most of the donors have their own local programme management arrangements and desire to maintain an independent identity and operational responsibility for their programmes; this position may moderate in time but for the present will limit the opportunities for cost-sharing and other direct financing. NEX, while a firm government position, is a concern for some donors for reasons of accountability;

(e) the ability of the UNDP country office leadership to gain UNDP's acceptance by the Government as a partner (as distinct from being simply another donor) and its ability to improve its image within the donor community as an effective and efficient development organization. The use of the programme approach will need to be rationalized; the scale, complexity and range of activities that have been included have more of the character of national development plans. These will need to be focused on clearly definable programmes of closely associated and mutually supporting activities and programme objectives. However, with a refocusing of the programme approach on more concrete plans, particularly building on UNDP's interest in capacity-building, this problem may be overcome.

The UNDP country office is developing a re-source mobilization strategy to be worked out with the Government. This strategy may provide some structure and practical concepts for generating non-core funding, provided it becomes a Government strategy they carry out.

The Special Case of Parallel Financing

The role of parallel financing within the framework of co-financing with UNDP has not been well articulated by UNDP generally and therefore is something of an anomaly in the co-financing structure. Since the funding for parallel financing does not flow through UNDP accounts as it does for cost-sharing, trust funds, MSAs and UN-administered agencies, it is not recorded on UNDP books and there is no opportunity to charge a fee. However, there appear to be a number of current and prospective opportunities for parallel financing of a genuine type. Parallel financing as defined by UNDP guidance is described as "an arrangement in which at least two parties make separate but related contributions to a project. Following a joint programming exercise, the donors finance and execute their specific activities but in continuous coordination". In this definition, "joint programming exercise" and "continuing coordination" are key. However, these criteria may not be sufficient to permit UNDP to justify parallel financing in its accomplishments in resource mobilization.

One parallel financing arrangement in Ethiopia relates to the construction at the airport. UNDP is funding ICAO's supervision of the construction work ($387,000) in conjunction with an IDA credit of $120 million. Another example is the plan being prepared for capacity-building for the recovery fund. The World Bank has provided the primary leadership for the development of this fund with minimal UNDP engagement at the outset and is providing some $120 million in loan funds. Other donors will be providing additional resources. UNDP is developing a cost-sharing arrangement with Norway to provide substantial support for capacity-building at both the national and regional operations for this fund. Is it appropriate to count the World Bank loan and other donor contributions to this fund as parallel financing? This may be stretching the definition; certainly the Norwegian participation meets the definition of cost-sharing.

A second and more direct example of parallel financing is the programme for the management and direction of economic and technical change, which is one of the six thematic programmes prepared by UNDP. Some phases of this programme are already under way and total disbursement for 1994 amounted to some $33 million. Of this amount UNDP has provided $2.5 million; other donors, $10.3 million; and the Government, the balance. Information from the UNDP country office suggests that UNDP has been a catalyst in bringing about these programmes and in generating the donor resources. The programme is involved in capacity-building for macro-economic planning and analysis, participatory development of regional administration, private-sector development, public-sector reform and institutional restructuring, aid coordination, and domestic resource mobilization. The funds have been expended largely for training, workshops and equipment. For the full term of the programme, the total costs will be in the range of $133 million of which UNDP will be providing $10 million; the donors, $77 million; and the Government, $26 million. An important part of this programme is the activity for strengthening participatory regional development as part of the Government's decision to establish self-governing regions.

UNDP's apparent key role in the development of this programme with the Government and continuing close cooperation with the Ministry for Regional Planning suggests it could represent a significant co-financing arrangement that meets the test of joint planning and continuous coordination-a conclusion that requires further assessment. Donor representatives have been involved in the development of the programme and its administration. What is missing in comparison with other co-financing arrangements is the fact that funds do not flow through UNDP accounts; this would likely be unacceptable to the Ethiopian Government and is not required. However, it prevents UNDP from collecting a fee for its participation which might then make it a more clear-cut co-financing arrangement as seen by UNDP headquarters in its resource mobilization plans.

One idea, which may not be feasible, would be for UNDP to see if it could charge a modest fee for its administrative responsibilities with regard to contributions to a trust fund. The funds would be placed in the trust fund with the understanding that UNDP would provide a service to the donors through a coordinated performance monitoring and reporting mechanism. This would facilitate the work of providing information that shows how the donors' contributions are being used and preserve the identity of their participation.

The timing of this trip and the still-evolving characteristics of the overall UNDP/Government programme have not permitted an analysis of the other thematic programmes to determine what other co-financing opportunities may be possible. It seems reasonable to expect that significant additional parallel financing and possibly some cost-sharing will evolve as each of the programmes takes shape. A key to whether or not this happens is the UNDP country office's ability to establish itself as a valued, influential and lead player in the development community.

Mozambique
Context

It has been approximately one year since the successful elections were completed for the present Government of Mozambique. The first democratically elected President and Assemblies took office in December 1994; the Assemblies began their work in March and a national budget was adopted in April. Since the signing of the Peace Accord in October 1992, the donors and international organizations have been involved in the exceptionally focused and intense process of the first national elections. The organization for the elections and their conduct have been an extraordinary achievement in which the people of Mozambique and their leaders, the donors and the international organizations were all intently focused on a major event. Some 86 per cent of 6.4 million people who were registered voted in the presidential and legislative elections held in October 1994. At this time, the major flow of resources in the form of co-financing has been concentrated on carrying out the elections.

In addition, major accomplishments have been made in carrying out other provisions of the Peace Accords funded by UNDP-administered trust funds. The UNDP country office reports that:

"96,000 soldiers have been demobilized; the new army was formed; reintegration of demobilized soldiers (and their dependents) is being assisted by donor-funded initiatives; over 1.6 million returnees (out of an estimated total of 1.7 million) and more than 3 million internally displaced people (out of an estimated total of 3.7 million) have been, or are being, resettled; after a slow start, de-mining is progressing."

Massive rehabilitation assistance-over $600 million-has been provided to support these programmes.

In this setting, traditional long-term development programmes have not been a major concern. However, a number of development activities are being planned and carried out in agriculture, health, education, environment, etc. Specific programmes are yet to be fully structured, funded and put into operation. Thus, this past year and the immediate months ahead are essentially a period of transition as the Government gets itself organized and begins to lay out in some detail the strategies for its major development programmes and the development of decentralized government services. The broad lines of a national plan have been set forth in a policy framework paper, an economic and social plan and other planning documents, but specific programme plans are required for the sectors and provinces. It is a time for the reorientation of activities and as the concentration of resources and the focus on the elections begin to fade, the attention of donors and Government is becoming more diffuse as they shift to more traditional development projects.

As a consequence, the setting for co-financing is becoming less focused than was the case during the earlier period. UNDP played a very significant role relating to the implementation of the Peace Accords in providing the coordinating mechanisms for the election process, the demobilization programme, the de-mining programme and other similar governance-type activities. From reports from the donors, UNDP carried out this responsibility exceptionally well and has created for itself an image of a competent, capable organization that could be entrusted with the administration of funds provided by the donor community. Apart from the election process and related activities, UNDP has taken over the residual operation of the UNOHAC rehabilitation and resettlement programme with a balance of some $32 million to be expended.

UNDP's fourth country programme-$46 million-was originally planned in three broad areas covering a wide range of activities (co-financing adds another estimated $13 million):

  • poverty alleviation and post-war rehabilitation;
  • economic and financial management;
  • environment and natural resources management.

The projects in these areas are providing, in most instances, the basis for the long-term development initiatives ahead. To this group have been added the activities of the Peace Accords noted above.

Experience with Co-financing

The total amount of co-financing for the fifth programme cycle, including the UNDP IPF funds associated with cost-sharing projects, is approximately $70 million. Altogether over $30 million have been disbursed for the elections. Of that amount, approximately $6 million were administered through cost-sharing and $24 million through a trust fund involving eleven bilateral donors with $210,000 of seed money from UNDP ($700,000 had been programmed). Additional funds have been provided by six other donors in the form of parallel financing for the elections (amounts not available).

Concurrent with the election process have been the programmes for mine-clearing the country and demobilizing, reintegrating and training the soldiers (totalling $29 million). Both of these programmes have continued to receive major resources from the donor community. Additional "aid-to-democracy" programmes are being planned associated with the development of the parliament, the media, the police force, a judiciary system, and the decentralized administration. Also concurrently, there are balances remaining in the UN Department of Humanitarian Affairs Trust Fund now administered by UNDP for the resettlement of the refugees and displaced persons. This work continues but is winding down.

Apart from the major Peace Accord programmes, there are a number of smaller initiatives with co-financing relating to health, education, environment, social action, and university development that have been undertaken and are now providing the basis for longer-term development activities in those areas. These programmes have mobilized about $4.5 million in trust funds and $3 million in cost-sharing, with additional contributions being negotiated. These cost-sharing activities are receiving about $5.9 million from UNDP IPF funds.

As is evident from the above, cost-sharing and trust funds are the dominant modalities employed. While parallel financing is not shown in the data, the field visit revealed a number of parallel financing situations and greater potential for traditional sector programmes. There have been no management service agreements and there have been some questions about their acceptance in Mozambique. However, the Italian Government has just announced plans to contribute $7 million through an MSA for local development activities. A small amount from the Japanese via the World Bank was transferred in a cost-sharing arrangement to UNDP for the preparation of the National Environment Action Plan. There has been no GCCC and no government cost-sharing, which also appears to be unlikely in the future. Also no UNDP headquarters-administered trust fund activities have been reported. While parallel financing with the World Bank is envisioned, the use of UNDP-administered cost-sharing and trust funds for World Bank projects is not.

Rationale

The rationale for co-financing arrangements throughout the peace process has been based on the donor community's desire for a neutral organization to coordinate the programming and fund administration for the elections. The donors preferred the advantages of dealing with the sensitive issues of demobilization and de-mining through a single UNDP-led programme. This situation reflected a major consensus among all those involved in the critical tasks set forth in the Peace Accords. The UNDP country office staff report that the Government's limited capacities followed by the opportunity to enhance UNDP's role and influence in the country and the donor's specific request for UNDP administration in the governance area were also, in that order, aspects of the rationale for the co-financing for these activities. It was pointed out in the questionnaires that the rationale was based on the following:

  • on the Government side, two major capacity constraints: a weak institutional base and the lack of skilled civil servants;
  • on the donor side, UNDP's accumulated experience in coordinating the largest and most representative high-level donor group, the "aid-for-democracy" group, as well as the "governance working group".

It was also pointed out that the election and soldier reintegration projects are areas where the Government does not have the capacity to implement these very sensitive issues. As a consequence, the donors requested UNDP's participation in order to guarantee a transparent process.

Mozambique is one of the poorest countries in the world with desperate requirements in all the traditional social and economic sectors of development. This situation has encouraged substantial assistance from the donor community. It is this situation, joined with the Government's limited capacity to manage programmes efficiently and its request that UNDP fill this role, that has attracted donor interest in co-financing arrangements. The opportunity for UNDP to enter into policy dialogues and build up its credibility is also an important motivating factor that is valued in these areas of development.

Contribution of UNDP

UNDP has been successful in adding value to programmes through the co-financing process, according to the UNDP Country Office staff. The contributions include neutrality in sensitive areas; efficient and effective management of resources; more effective coordination than would have been possible without the co-financing modality; and assurances of transparency, objectivity, integrity and accountability. The UNDP country office staff believe that "UNDP can play a major role in development activities in the country without imposing a burden on IPF funds and provide the donors with an assurance that funds are utilized correctly and meet the objectives".

On programmes for the environment, UNDP has had a relatively long history and been a key player in developing Mozambique's environmental programme leading to the formation of the new Ministry of Environment. This experience and association have facilitated the attraction of donor co-financing-about $431,000 to date via cost-sharing and trust funds.

Role of UNDP in the Project Cycle

The unanimous view of UNDP, the Government and bilateral donors in deciding on the co-financing modalities was that there was a "need for impartial and effective coordination of assistance to the democratization process in Mozambique". UNDP took the lead role, with the others contributing, in the design of the programmes for the democratization process, using IPF funds as seed money to formulate the projects and programme frameworks. Capacity-building and aid coordination were the primary UNDP development interests being served. Generally, UNDP experience with the co-financing modalities has been rated "exceptionally high" for cost-sharing with bilateral donors and parallel financing but less so for the trust funds. The "weak capacity of national authorities for national execution" appears to be the principal impediment to efficient administration. Other impediments cited relate to logistics, submission of accounts, and uneven dissemination of information at the grass-roots level.

In other sectors, the experience with co-financing arrangements has been "extremely positive". The one negative relates to the donor's interfering in a cost-sharing arrangement by trying to direct the use of its funds for home country products and services. National execution has grown sub-stantially "from 13% of resources in 1992 to 84% in 1994". However, UNDP must still remain very close to these arrangements and, at times, assume the execution responsibilities itself. TPRs and evaluations have been employed for moni-toring and evaluating programmes; the use of steering committees appears to provide an important evaluative and management service that engages all the key participants.

Benefits, Costs and Risks

The major benefit to the the UNDP country office from its involvement, through co-financing arrangements, in the peace process and related political programmes has been the establishment of UNDP as a highly creditable and effective operation for the coordination and implementation of important programmes. Also, according to the data provided, the UNDP Country Office has generated about $1.7 million of income for UNDP operations from the flat rate charge of 3 per cent to finance the administration of the co-financed programmes. This arrangement seems to have worked satisfactorily and to have offset the additional management burden associated with the administration of the programmes.

At the same time, there have been inevitable risks. The administration of donor-community funds was carried out in a highly visible political process with delicate political interests accompanied by severe administrative and logistical circumstances. While UNDP's neutral status was maintained, it was a high-risk situation in which to fulfil its responsibilities. UNDP's continuing lead role in the political arena of democracy and governance programmes such as the upcoming municipal elections indicates that it will be continuing with an on-going high-risk engagement. From the UNDP country office viewpoint, the benefits, costs and risks from managing the trust funds and cost-sharing were not significant although there was some additional burden on the staff and a premium on high-quality leadership. The UNDP country office has been reorganized to ease the burdens of managing co-financing modalities. Also, late donor cost-sharing payments and varying reporting formats among the donors present risks and burdens. The main operating risks that were cited relate to the importance of "proper bookkeeping and accounting of disbursed funds when national authorities are involved and UNDP must authorize disbursements owing to operational emergencies or tight schedules (as happened with the electoral process)". This was a concern also expressed by some donors, reflecting their fears of proceeding too quickly with national execution arrangements.

Donors and the Potential for Co-financing

Given the transitional setting and the gradual movement towards more sector-oriented, long- term development programmes, it is too early to have a firm picture of the opportunities for co-financing arrangements. From discussions with various members of the donor community, it is clear that there will be, and are already manifest, a number of co-financing possibilities. However, at the same time, the donors appear to be interested in looking at alternative arrangements for managing their programmes separate from UNDP co-financing modalities as well as pursuing their own management of their programmes. The situation is thus quite fluid and increasingly complex. However, some donors have expressed their concern about having large amounts of resources and no staff to manage them and therefore are looking for mechanisms that can administer their programmes and funding in areas that reflect their priorities. It is unlikely that co-financing in the future will achieve the high levels associated with the Peace Accord programmes.

The UNDP country office staff has pointed out that the future of co-financing is "difficult to predict because it depends also on the future levels of donor assistance to Mozambique, which is uncertain. However, there seems to be room for UNDP to continue to play a significant role in the coordination of support to such sensitive areas as democratic institution-building, good governance, future elections, de-mining and economic management."

In the main sectors such as health and education, there is optimism that the opportunities for co-financing will increase. The donors have discovered the benefits of these types of operations, particularly those donors that have limited field-office capacities for programme management. The keys to attracting donors are the quality of the project/programme, involvement in its preparation and implementation, flexibility in the financial arrangements and donor-contribution identity throughout the life of the programme. The UNDP country office staff have emphasized the importance of:

  • establishing a dialogue on the subject with all parties;
  • providing sound follow-up with regular reporting to the donors;
  • creating joint evaluation and monitoring mechanisms.

An Integrated Approach to Co-financing

One of the more interesting developments in UNDP programming for Mozambique is the concept of pooling arrangements for new programme initiatives. Pooling arrangements are essentially the joining of a programme approach and national execution with a flexible application of co-financing modalities. The term "pooling arrangement" reflects an approach that avoids some of the connotations of co-financing a UNDP programme. The pooling arrangement is being developed in the health sector for the purpose of financing the recruitment and assignment of a large number of medical and paramedical personnel to serve throughout Mozambique. Given that the Ministry of Health is comparatively well managed, it is able to develop, with UNDP/World Bank assistance and with Swiss Corporation leadership on coordination, a comprehensive budget for this technical support programme, with the donors being involved in its development and pooling of funds. A steering committee, made up of Government and donor representatives, has been formed to supervise the programme and oversee the work of the programme manage-ment unit. UNDP, with the World Bank and Ministry of Health, is providing key planning support; UNDP seed money has been provided for the initiation of this programme. The Swiss Government representative has been playing the role of lead donor for the health sector generally to facilitate the organization of coordination meetings. There is, at present, a pooling arrangement agreement to which some of the donors have given their preliminary commitments; the programme will undertake some trial recruitment and procedural arrangements before proceeding to full funding. Other donors have expressed an interest in participating. Some key features of the pooling arrangement appear to be:

  • a carefully worked out programme addressing a major and clearly defined problem (subsectoral) and objectives-essentially the programme approach;
  • a respected lead donor (although not the largest donor and not necessarily UNDP) to facilitate coordination;
  • a well-developed budget with a specific financing gap to which the donors can relate their contributions;
  • sound administrative arrangements and a steering committee of donors and government to participate in planning and overseeing the programme administration;
  • flexibility in the co-financing modalities employed to fit donor requirements;
  • skillful behind-the-scenes strategic and technical guidance by UNDP and World Bank staff.

Conclusions and suggestions from the UNDP Country Office

The UNDP country office staff conclude that the conditions that facilitate the mobilization of resources in UNDP-administered co-financing are:

(a) the Government and donor view of UNDP as a neutral and impartial player, especially in areas involving politically or economically sensitive reforms and where donors do not wish to intervene/assist bilaterally;

(b) proven capacity of UNDP to coordinate, mobilize, and manage assistance effectively, as in the case of the electoral process, reintegration support scheme, and de-mining programme.

Also, the fact that projects that emerged out of the need to establish political, social and economic stabilization helped to end a long-drawn-out war and initiate a democratization process is particularly appropriate for co-financing.

The guidance of UNDP country office staff to others stresses the importance of:

(a) the availability of a well-designed, comprehensive project or programme as a reference for donor assistance and coordination;

(b) the existence of a representative and operative donor forum led by UNDP, through which UNDP can play an advocacy, coordinating and resource-mobilization role;

(c) keeping a continuous, open, empathetic but impartial dialogue and relationship with government and other national entities. (None are easy to achieve.)

Finally, it is important to "ensure that UNDP's administrative and financial management policies are followed consistently. Regular updates on progress, including financial reports, are important and help to maintain transparency and credibility."

Comments from Government Representatives

The comments from the Government are limited. They generally reflect a positive view of UNDP's role, particularly as UNDP helps to mobilize and coordinate funds, provides direct support, and gives donor assurances on programme administration. The responses bring out government staff sensitivity about their leadership role, knowledge of what is called for in the programmes, and comparable treatment (compensation) for national workers. Problems mentioned related to inadequate flow of information between UNDP and the Government and slow reporting of CDR from UNDP headquarters.

Some Observations and Issues

In the course of conversations with UNDP and the donor community, a number of topics stood out as matters that should be addressed in the final report.

(a) Several key concepts and practices emerged from the discussions relating to co-financing in Mozambique. The first of these is the importance of developing a consensus among government agencies, private organizations, and donors on selected development programmes and their objectives, strategy structures, organization, activities, and budgets. Building this consensus is critical to getting potential participants on board. This is the lesson from the elections and related programmes although the task will be more difficult in the traditional areas of development. The second key concept is focus in the sense that UNDP and the donors need to ensure that, as they build their programme consensus, they are focused on priority development issues and avoid the fragmentation that can so easily occur in a situation where everything is needed. The third key concept is flexibility as the consensus is developed and focused on major development requirements. It is particularly important to maintain flexibility in how the programme will be funded and administered so that it can accommodate the various donor interests. The concept of the "pooling arrangement" is attractive since it provides for a common programme and fund but alternative co-financing modalities.The fourth key concept is time.The field office emphasized that it needs time and flexibility in the resources available to it to evolve new programme directions in collaboration with government agencies and other donors. Pressures to produce documents to meet fixed deadlines and elaborate detailed manual guidance will not lead to effective programming. UNDP headquarters needs to find a way to give the field office time for both pre-programming activity and programme development.

(b) It is particularly important that the country office have adequate delegated authority so that it can respond quickly, flexibly, and effectively to initiatives as they occur without going through an elaborate project preparation and approval procedures. This would suggest that some portion of the IPF should be maintained in an uncommitted manner in the field so that it can be programmed as situations develop. This is particularly useful for pre-programme development work, which is essentially a time for testing and organizing programmes and their co-financing before they are fully designed. This process is important in promoting co-financing by the other donors to ensure that there is a full range of participation in the process of developing programmes for long-term development.

(c) It is clearly important that, as one moves into the programme approach and responsibilities for the coordination and management of co-financing arrangements, the country office staff be at a level of experience and substantive expertise capable of handling programme strategies and multi-participant negotiations and be freed from an over-burden of the administrative tasks of project management.There is some concern that UNDP may be reducing its expertise in programme leadership as it cuts back on funds for administration.

(d) There is a concern expressed by the donor community about the consequences of national execution. They fear that too rapid a movement in this direction will endanger the sound administration of their funds. This is clearly a difficult situation since the mandate of both the Government and UNDP is to move in this direction. However, it would seem possible to carry out a capacity-building process-an unhurried step-by-step process-that can involve the shifting responsibilities as capacities are created.

(e) There is a continuing concern in the Government and donor community about the volume and costs of technical cooperation. UNDP has a responsibility in trying to work out how to rationalize the flow of resources for this purpose. Perhaps the approach that is being developed for the Ministry of Health is oneway, i.e., recruiting technical personnel that avoid the high-cost expertise from the industrial countries or long-term technical cooperation engagements while providing more support for the evolution of key programme units within the Mozambique Government. This concern has a direct bearing on the programme budgets that require co-financing.

(f) The "aid-for-democracy" movement which is being supported by the Embassies and other donors continues to be an important programme area in which UNDP can have a positive role. However, it is important that its involvement in this realm of politically sensitive operations be balanced with its active participation in the more traditional development sectors to avoid being caught in partisan conflicts and not being appreciated for its contribution to long-term development.

(g) Parallel financing has been cited by many donors as a preferred modality. The question remains as to what constitutes parallel rather than coincidental financing. While there are many examples, the issue of what parallel financing is within the UNDP context needs to be clarified. In any parallel financing arrangement, UNDP should be identified, genuinely, as the catalyst and coordinator in programming and financing arrangements.

(h) A further issue on co-financing that was raised during the discussion with donors is the assurance that the donors receive timely and complete reports on both the accounts and programme activity. Some donors raised concerns about the inadequacies of the reports and their timeliness to meet their home office requirements. Similarly, they expressed concerns that in situations where they co-finance activities, their participation be recognized not only at the beginning of the activities but that it should also be widely known throughout the implementation process. This is important for justifying their participation in co-financing arrangements to home offices. Where their participation becomes lost, as in cost-sharing, and is unknown to the Government and benefiting communities, it makes it more difficult to justify additional co-financing as distinct from contributions to core funds.

(i) The questions of co-financing, UNDP's role, and assistance for emergencies and recovery may need to be sorted out. Certainly, this is an area where co-financing opportunities can be substantial, yet UNDP's role in this work is not clear. In Mozambique, UNOHAC had the main responsibility for administering the massive funding through central trust funds.

While there has been a major accomplishment in applying these funds to relief and recovery operations, UNOHAC's failure to coordinate effectively and its heavy-handed methods were not appreciated by the local donor community. UNDP has picked up theresidual responsibility after UNOHAC's departure, but its mandate to do so may need to be clarified. It is an important area for co-financing arrangements.

Asia
Viet Nam
A Profile of UNDP Co-financing

With an IPF of roughly $70 million, the UNDP country office in Viet Nam has been able to attract around $8 million in co-financing for its fifth programming cycle programme; $4.7 million of this amount is in the form of parallel financing. At the time of this review, 18 projects recorded one or several sources of co-financing: third-party cost-sharing (9), parallel financing (11) and government cash counterpart contributions (11). In terms of cost-sharing of UNDP's fifth programming cycle projects, Australia ranks first with a total contribution of $1.0 million, followed by the Netherlands ($0.85 million) and Sweden ($0.4 million). A further $3.6 million of project cost-sharing is currently in the pipeline. The single biggest parallel funding initiative (about $2 million) involves technical cooperation from the International Monetary Fund for strengthening financial policy and institutions. The Government of Viet Nam has made a sizable local currency contribution (GCCC), valued at $0.9 million, to its programmes with UNDP.

Parallel financing is the dominant co-financing modality and is likely to grow in importance as the programme approach is applied more widely. New UNDP-sponsored programmes in the areas of HIV/AIDS, ethnic minorities and public administration reform show early signs of success in attracting other donors. Initial hopes that donors could be enticed to collaborate in a financially and operationally integrated programme with funds administered by UNDP have been largely disappointed as donors choose looser cooperation arrangements, preserving their separate identities. In terms of donor coordination and mobilization of aid resources for priority areas of concern, the programme approach in Viet Nam is yielding positive results.

The situation looks even less promising for the other co-financing modalities. While during the recent past of Viet Nam's isolation from the international community UNDP has been a privileged channel of donor contributions to Viet Nam, the situation has changed considerably over the past few years as major donors (Australia, France, Japan, Sweden) have established their own offices and programmes using development cooperation to strengthen bilateral relations. This interest in bilateralism is reciprocated by the Government (see also Government Views on Co-financing).

The Funding Experience

Australia. Until 1991, Australia used UNDP and the UN specialized agencies to implement projects in Viet Nam. Since then, bilateral aid has been resumed with a staff of four in the Australian Embassy. While bilateral aid is regularly disbursed under Australian leadership, some reciprocity is also expected if Australian funds are channelled through, and administered by, multilaterals (20-30 per cent of their global aid budget), including UNDP and the World Bank. Short of explicitly tying aid, Australia likes to have a say in the selection of inputs. Private-sector pressures on the Australian Government are strong and seek to subordinate development aid to national commercial interests. The projects selected for Australian co-financing are revelatory in this respect: Land Management System, Mineral Law and Sea Dyke Engineering Services. Australia reports resistance by the Viet Nam Government State Planning Commission to converting bilateral funds into multilateral ones.

Denmark. As a major contributor to UNDP's core budget, Denmark policy negates additional co-financing agreements with UNDP. The Danish cost-sharing contribution of $150,000 to UNDP's project in support of aid coordination therefore reflects the exceptional importance attached to aid coordination and to UNDP's role in that domain.

The Netherlands. The Netherlands concentrates its co-financing with UNDP in Viet Nam in the areas of economic transition and institutional development: $0.85 million have already been committed to projects; an additional cost-sharing contribution of $3 million to the UNDP-sponsored Public Administration Reform Programme is being considered. In order to be eligible for co-financing from the Netherlands, UNDP projects must fit one of that country's existing thematic budgets (children, environment, etc.).

Since cost-sharing in Viet Nam is less than 25 per cent of the total IPF, UNDP does not levy charges for field office administration (budget line 158). There are doubts as to whether such fees would be easily accepted by donors who argue that they are already paying for UNDP's administrative overhead as contributors to UNDP's core funding. Even normal agency overhead charges (AOS) are being opposed.

UNDP's Approach to Co-financing

The UNDP country office considers aid mobilization (i.e., helping the Government to mobilize development assistance) integral to its core mandate of supporting aid coordination and aid management.21 Aid coordination and aid management, in turn, are believed to be UNDP's principal raison d'être, fundamental to SHD in Viet Nam and critical to the survival of the organization as a whole. Owing to its effective mobilization of aid resources for the country in the past, the Government of Viet Nam has asked UNDP to be the lead organization in aid coordination and capacity-building, a role that is also widely recognized by donors. In this respect, the first donor conference for Viet Nam organized by UNDP in 1993 deserves special mention.

Despite a certain skepticism22 as to whether extensive focus on co-financing is at all healthy for UNDP, the country office has clearly adopted a much more active approach to attracting additional project-/programme-based resources. Re-cognizing that donors cannot be forced into collaboration, a measured constituency-building approach has been adopted with the quality of UNDP's developmental services as the main argument for winning over co-financing partners. By supporting the donor community through information and coordination services,23 UNDP expects to create a favourable environment for co-financing activities. The recently established electronic network "NetNam", which houses the UNDP-administered Aid Information Sharing Facility, is a noteworthy new initiative in that environment.

These general initiatives are complemented by specific research and communication efforts aimed at promoting UNDP as a co-financing partner. To this end, UNDP has recently published an information booklet, "Co-financing with UNDP in Viet Nam," that contains information on co-financing modalities and procedures to help its staff better pursue possible co-financing opportunities with other donors. Donor focal points have been designated among the programme staff to identify opportunities for co-financing. A donor database containing information on donor aid policies and programmes is being maintained to assist programme staff in their resource mobilization efforts. In cooperation with the State Planning Commission, UNDP has also prepared Viet Nam Donor Profiles, containing information on donors' aid policies and current and future programming orientations in the country. The office intends to continue the donor interviews started by the evaluation mission to determine the conditions and prospects for co-financing with individual donors.

Not all donors are equally likely to enter into co-financing arrangements with UNDP. Given the sizeable effort involved in enlisting co-financing partners, the country office approaches donors on a selective basis. On a wider scale, it has started publicizing programme strategies in its principal areas of involvement-social policies and development, environment and natural resources management, public institutions and legal reforms-with the simultaneous goal of achieving better coordination and getting donors interested in collaborating with UNDP in programmes and projects.

Next to its strong country presence, UNDP's primary comparative advantage is believed to lie in its neutrality or impartiality, which other bilaterals are not able to emulate. The latter support UNDP's role in increasing the country's capacities to manage development, including aid coordination and management, and prefer that UNDP lead sensitive initiatives, such as public administration reform and assistance to ethnic minorities. Neutrality has made UNDP a trusted partner of Government with better access and influence than other bilateral donors. On the other hand, corporate priorities not withstanding, UNDP is not en route to becoming the "preeminent poverty alleviation agency"24 in Viet Nam even though it is developing a special programme for poverty alleviation.

The programme approach and its corollary, parallel financing, are probable cornerstones of UNDP's future development cooperation in Viet Nam, yet the parallel financing mode does not get proper recognition within UNDP as a valuable modality for mobilizing resources for UNDP's programme goals. In addition to misguided corporate emphasis on financial control, the modality suffers from the absence of a clear definition. For the country office, programmatic ownership and the existence of a joint management and coordination mechanism are defining characteristics of parallel financing.

Compounding the less favourable external conditions for co-financing, UNDP's financial make-up does not facilitate country office efforts to obtain complementary donor funding: multiple, not always easily accessible and unpredictable internal funding sources limit the Resident Representative's ability to make firm commitments to potential co-financing partners.25 It is therefore not a surprise that the new TRAC for decreasing the country's resource entitlement (hence increasing the share of contingent funds which perpetuates this handicap) is greeted with apprehension. TRAC is also criticized for boosting the country office's transaction costs owing to the additional efforts required to secure those funds in a competitive process. Finally, plans to make the amount of cost-sharing mobilized one of the criteria for getting complementary financing under TRAC are expected to hurt Viet Nam.

For the country office, the term "resource mobilization" implies not only efforts to attract re-sources outside UNDP but also includes efforts to appropriate funds from the various special facilities administered by UNDP itself. Special approval, administration and reporting procedures associated with the separate facilities consume a significant amount of country office staff time. To inform itself, the Viet Nam country office has compiled a list of existing internal funding sources, which includes: subregional IPF, regional IPF, interregional IPF, technical support services (type I), technical support services (type II), savings on AOS, Global Environment Facility (GEF)26 , GEF regional, Capacity 21, Agenda 21; Management Development Programme (MDP), various topical SPR resources, subregional SPR, Resident Coordinator funds, Project Development Facility (PDF); UNCDF, UNIFEM, Danish and Norwegian Trust Funds for Services and Equipment; interest on cost-sharing, Development Support Services, ESCAP advisers and regional funds. In Viet Nam, some 40 per cent of the resources administered by the UNDP country office are non-core (over and above the country IPF entitlement).

Co-financing efforts are also hampered by current UNDP rules and regulations. The approval authority granted to resident representatives is presently set at $1 million, including cost-sharing, without headquarters approval. This causes delays and limits the resident representative's power to commit UNDP to co-financing collaboration with donors.27 Absence of proper information, inadequate training, and unclear co-financing rules and procedures further impede co-financing efforts. Limited familiarity with trust funds appears to have been one of the reasons why this modality has not been actively promoted as a means of project co-financing in spite of its obvious appeal to donors (separate accounting, distinct identity, etc.). Relevant information is not systematically made available to the country office: the existence of a master agreement on cost-sharing between UNDP and the Dutch is a case in point. Interest on cost-sharing and charges for field office administration are grey areas in which the country office needs authoritative guidance since rules, procedures and practices have taken on separate lives.

The 1988 UNDP co-financing guidelines no longer equip practitioners to do co-financing. The brochure "Co-financing with UNDP in Viet Nam" (May 1995) is an attempt by the country office to redress this shortcoming. Similarly, the UNDP corporate management information system is not presently able to manage co-financing data.28 To assure the proper management of its co-financing operations, the UNDP country office in Viet Nam has developed its own local system. Still, much of the relevant information that is available cannot be accommodated by headquarters' existing systems. In this connection, a comprehensive review of UNDP's corporate information tools, including Country Programme Management Plans, which fail to capture the operational reality in the country (now 40 per cent non-core) and have ceased to serve a useful function in the management dialogue between headquarters and the country offices is considered overdue. Headquarters has increasingly become a bottleneck for information-processing. As a result, the Viet Nam office resorts more and more to horizontal information-sharing with other offices in the region and beyond through electronic mail and the Internet, thus abandoning the traditional hub-and-spokes structure. UNDP's future information structure is anticipated to involve specialized information functions among the country offices.

Government Views on Co-financing

The Government of Viet Nam acknowledges the important role UNDP has played in the country's past development efforts. As one of the few resident donors and moreover the only multilateral one, UNDP was until recently a preferred channel of bilateral aid because (a) the latter did not know much about the needs, priorities and problems of Viet Nam, and (b) owing to the embargo, they were not allowed to assist the country directly.

While cost-sharing of UNDP projects was common, the State Planning Commission sees a clear trend towards more parallel financing. After long years of isolation, the Government wishes to intensify its bilateral contacts through bilateral development cooperation; commitment of bilateral funds for multilateral activities (e.g., in the rural employment programme) is discouraged. The Government also maintains a policy that no IFI loans-currently used primarily to address urgent infrastructure needs-be used for technical cooperation. UNDP is still considered one step ahead of other donors in recognizing the Government's critical needs and is well positioned to initiate appropriate projects and programmes and to prepare the ground for further assistance. The Government gives UNDP credit for both mobilizing resources for particular purposes (such as land management and public administration reform) and helping it to mobilize additional resources for the country.

The Government of Viet Nam sees the area of aid management and coordination, to assist the Government in developing a framework for promoting its collaboration with donors and in formulating programmes, as UNDP's proper competency on which it should concentrate. This specialization, along with quality products, is expected to help UNDP generate additional resources for itself since donors would have an intrinsic interest to contribute.

IFI and Bilateral Donor Perspectives on Co-financing

Australia. Australia sees certain practical difficulties in co-financing with UNDP. The latter's programming may not always be in tune with the planning cycles and funding windows of the bilateral donor. Also, UNDP requests are by nature more ad hoc, making it difficult to link them to the donor's own long-term programming. The donor representative indicated that Australia required a minimum of six months' advance notice. For the near future, however, there will not be much room for financial cooperation with UNDP since from 1997 onwards, a major portion of Australian funds will be tied to the large Mekong bridge construction project. While Australia is not against future cooperation, much will depend on the budgetary situation of its development cooperation programme.

In co-financing, UNDP has a handicap compared to organizations such as UNICEF whose programmes-child vaccination, for example-have a much higher publicity value. Still, good initiatives such as the UNDP-sponsored HIV/AIDS programme, for which Australia provided consultancy inputs during formulation, are likely to attract donor funding. Above all, UNDP is valued for its support of aid coordination in Viet Nam.

Denmark. Co-financing with UNDP has an obvious attraction for donors who are not represented locally, yet this comparative advantage disappears once donors set up shop in the country, as is the case with Denmark whose embassy in Viet Nam opened last year. This trend is apparent in the fisheries sector, for example, where bilateral programmes have succeeded the previous trust fund programme with UNDP. Still, UNDP continues to provide valuable services to the Danish development cooperation by providing information, advice and forums for thematic discussions with Government, e.g., in the area of aid coordination. UNDP's role may have to adjust, however, to the increasingly crowded and complex development cooperation environment by facilitating a more decentralized structure of aid coordination based on a system of sectoral lead donors.

Beyond its role in aid management and coordination, the Danes consider UNDP's neutrality a major asset, qualifying it to help the Government find decentralized solutions to governance, such as the Public Administration Reform Programme. On the other hand, UNDP's recent attempts to establish itself as a specialist in poverty alleviation or in providing administrative services to the donor community are seriously questioned. Despite the disappointing global operational experience of UNDP, the office in Viet Nam is seen by this donor as exemplary.

Japan. Japan's co-financing with UNDP is through global thematic trust funds on human resource development ($2.5 million) and women in development ($1 million) managed by UNDP headquarters. Access to those trust funds is facilitated if they are associated with Japanese bilateral cooperation projects, hence combined with parallel financing. In addition, those funds are meant to be used for Japan-related activities such as training in Japanese training institutions. In order to use those funds, a request needs to be addressed to the Japanese Embassy for endorsement of the project by its headquarters, which ultimately decides after annual in-country consultations (in September). In short, the chances for collaboration with the Japanese are slim and probably limited to parallel financing. The Japanese appear to have a policy that implies that their funds should not be mingled with UNDP funds.

Japan, the biggest aid provider to Viet Nam, has problems in disbursing loans and recognizes that more effective implementation systems are needed, but it is unlikely to consider UNDP's assistance in facilitating disbursements. On a global scale, Japan's multilateral aid is less than 10 per cent of its total aid. Commercial interests are very pronounced. Thus the fact that only 27 per cent of Japanese ODA loans go to Japanese contractors is deplored.

The Netherlands. Unlike most other bilaterals, the Dutch Government regularly works through the multilateral system. Co-financing with UNDP enables the donor's participation in high-profile interventions such as the public administration reform programme despite limited local administration capacities. With a view to leveraging their contribution into bilateral foreign relations capital, the Netherlands is interested in gaining visibility within UNDP projects. Press coverage and the prominent display of the donor's name on project-related documents are conducive to donor visibility. While representation on project committees would further increase visibility, a more active involvement in the execution of projects is deemed unnecessary and too time-consuming. On the other hand, the Dutch do want a say in the formulation of co-financed programmes and like to have somebody who is familiar with the system of Dutch development cooperation, although not necessarily Dutch, on the formulation team. Project payoffs, particularly through tied aid, are not expected.

In general, the Dutch believe that not all donors should be involved in everything and that too few synergies are exploited when it comes to development cooperation. Hence, there is need for more coordination in which UNDP could and does play a useful role, but UNDP is perceived to have expensive projects. The Dutch would like to see more cost-effectiveness in UNDP's interventions and more transparency in its non-project, behind-the-scenes activities.

International Financial Institutions. Most IFIs operating in Viet Nam (World Bank, Asian Development Bank (AsDB)) have their proper tech-nical cooperation funds (trust funds from donors) and hence less interest in cooperating with UNDP. A possible exception is IFAD, which cooperated with UNDP because it needed technical cooperation complementary to its capital development programme. Yet this cooperation can hardly qualify as parallel financing since UNDP has no say whatsoever in the implementation of the larger programme. The investment activities of both AsDB and the World Bank under loans that started disbursing as recently as 1994 mainly cover infrastructure needs and give UNDP few opportunities for co-financing.

Central America
El Salvador
Context

After twelve years of civil war, the early 1990s ushered in the ending of hostilities. The Government stabilized the economy, reactivated growth, and initiated a systematic attack on poverty. The Salvadoran economy had shown considerable growth potential since the mid-1980s, but it had not recovered the growth rate of the pre-civil war era. Moreover, the hostilities had damaged the infrastructure of the country considerably, weakened the Government's authority outside the capital, and caused misery, especially in the rural areas. Peace returned with the cessation of hostilities and the Government was faced with the challenge of changes in the global social and economic environment. Political plurality and alleviation of poverty through major economic reforms also captured the interest of the donor community.

Contributing to the re-establishment of peace in El Salvador has been one of the major aims of many bilateral donors and international organizations. Among the latter, the United Nations, as an impartial and transparent entity, commanded the respect of both the Government and rebel circles, so much so that in the peace agreement signed in Chapultepec, Mexico, on 27 April 1991, both sides also agreed on a national reconstruction plan and called upon UNDP to assist the authorities to formulate programmes and projects to realize the plan and also to act as a facilitator to mobilize all the technical cooperation from all donors.29 UNDP responded willingly to this call and continues to do so. The World Bank's structural adjustment loans, and IDB's, until then slow-moving project financing resources, and the technical and financial assistance of the bilateral donors found their way to El Salvador at a much faster pace with the return of peace.

The principal challenge El Salvador faces today is a lasting peace with democracy without which sustained development cannot take place. Hence, the Government's priorities are to complete the implementation of the peace agreement, strengthen democratic institutions, accelerate economic growth and competitiveness, invest in human capital, reduce poverty, improve natural resource and environmental management, and modernize the public sector. All these priorities coincide with the priority attention areas of UNDP as well as those of bilateral donors and IFIs.

Current Co-financing and Related Management Modalities: A Quantitative Analysis

Emphasis areas during the fifth programming cycle. Programmes and projects planned and carried out during the fifth programming cycle are concentrated in four thematic areas:

  • national reconstruction and strengthening democracy (16% of total resources);
  • eradication of poverty and employment creation (60% of total resources);
  • modernization of the public sector (23% of total resources);
  • environmental management and sustainable development (0.5% of total resources); and
  • others (0.5% of total resources).

The IPF of the fifth programming cycle is rather modest: less than $5 million. However, the UNDP country office has succeeded in mobilizing additional resources both within and outside the UN system. This is detailed below.

The UNDP country office was quite successful in mobilizing funds. The office's aggressive search for additional funds was coupled with and facilitated by the Chapultepec Agreement referred to in the introduction. The ratio of IPF to additional funds is 1:20. If other UN system resources are excluded (such as SPR, UNIFEM, UNV), the ratio changes to 1:13. In practically all projects, IPF has been used as seed money either to start up projects or to finance preparatory assistance to important projects that were subsequently financed by the donors (see table 16).

Table 16 IPF and Co-financing, 1992-1996-El Salvador

 

IPF

Other UN System Resources

Co-financing

Trust Funds

MSAs

Total

$(000)

4 948

2 378

65 556

9 921

21 123

103 926

(%)

4.76

2.29

63.08

9.55

20.32

100

Government of El Salvador as Cost-sharer. The quantitative significance of the Government's cost-sharing is not as great as that of other contributors, but it carries important conceptual connotations. At the early stage following the peace agreement, the Government had few priority projects: clearing the mines and establishing the Social Investment Fund. Using resources from its general budget, it took the initiative to engage UNDP to manage projects the priorities of which coincided with those embodied in the fifth programming cycle, i.e., the establishment of peace. The shortage of qualified technical staff in the Government was a contributing factor in engaging UNDP. For every dollar of IPF funds, the Government allocated $0.80.

Multilateral Donors. The World Bank and IDB are the two major multilateral donors. A third is the Central American Bank for Economic Integration (CABEI) whose cost-sharing with UNDP is minimal simply because its interest has been mostly in infrastructure investments. IDB's in-volvement in cost-sharing is not substantial; it represents about 10 per cent of total cost-sharing with IFIs. IDB contends that up to now, the Bank's emphasis did not fully coincide with UNDP's areas of focus. The Bank's authorities, however, are of the opinion that the projects cost-shared and managed by UNDP have always been satisfactory.

The World Bank, which assumed the major responsibility for contributing to El Salvador's reconstruction, opted to collaborate with UNDP basically for two reasons. One is that the World Bank has no representation in the country and it perceived the UNDP country office as a convenient and efficient international organization for monitoring and management. The second reason is not altogether apparent but is equally and perhaps more important than the first: at the preparatory stage of the Chapultepec Agreement, the UNDP country office had actively assisted the Government to formulate projects. In a sense, the country office has become a supporting partner of the Government. This close involvement brought the country office into the picture as the agreement was signed between the Government and the World Bank. The World Bank's modus operandi usually consists of giving the project execution to an entity on a competitive basis. Since UNDP cannot enter into competitive bidding, its involvement with the reconstruction process right from the start gave the UNDP country office an edge to be included as an integral component of the agreement between the Government and the World Bank.

Co-financing and Bilateral Donors. The UNDP country office has been exceedingly successful in El Salvador in bringing bilateral donors into its co-financing modality. For every dollar of IPF money, it has managed to attract $128.60. The bilateral donors have collaborated with UNDP quite willingly for a variety of reasons. Some UNDP projects (93/006 and 93/012, for example) were very sensitive politically. Rather than being directly involved in the settlement of ex-combatants of the civil war, USAID opted to work through a neutral and transparent UNDP. Canada, France, and the Nordic countries were quite interested in the consolidation of peace and human rights; once again, UNDP appeared to be the best vehicle for them. Moreover, with the exception of USAID, none of the bilateral donors maintain large offices in El Salvador that can adequately carry out the management and monitoring functions. The small size of most of the projects-less than $1 million-does not justify representation and office expenses in the country yet most of the bilateral donors were eager to contribute to the peace and reconstruction process in El Salvador. The most convenient and efficient way was for them to co-share projects with the UNDP country office.

Trust Funds. There are two trust funds in El Salvador; one includes eight different projects. Their common objective is to assist ex-combatants (mostly members of the FMLN guerilla organization)to relocate and be incorporated into the mainstream of economic activities. The fund is administered by the UNDP country office, which makes no pecuniary contribution to it. Its total budget is slightly over $6 million, and the contributors are France, Japan, the Netherlands, the Nordic countries, Switzerland and the United States. The second trust fund was also established to contribute to the peace process. It is, in fact, known as "Peace Keeping Activities". This fund was set up by Canada, Holland and the Nordic countries with no contribution from UNDP. Both funds have the common trait of lasting peace expectations, and their contributors desire to maintain a profile in the process of returning democracy to El Salvador while complying with the provisions of the Chapultepec Agreement.

Management Service Agreements (MSAs). At present there are five MSAs. Three amount to about $25 million, or 62.5 per cent of total MSA contracts. These three contracts are for generating Japanese counterpart funds. All MSAs are executed by UNOPS.

Other Co-financing Arrangements. GCCC does not finance any projects in El Salvador. Three relatively small projects refer to UNIFEM and are financed from IPF. One single parallel project is with IFAD for which no IPF funds have been earmarked as yet.

Current Experience with Co-financing Modalities

As mentioned previously, the co-financing modality came quite naturally after the Chapultepec Agreement. In more cases than not, the modality was opted for either by UNDP's proper initiative or jointly by the Government and UNDP. The bilateral and multilateral donors take the initiative to do so whenever they prefer UNDP's specific involvement. However, these initiatives, the reasons for which are explained in the previous section, have been more the exception than the rule.

The great majority of the projects are implemented through the national execution modality. Evaluations and monitoring (tripartite reviews, for example) are carried out according to the specifications of the project documents.

The country office does not charge a flat fee for all projects; rather it negotiates the fee with co-financers. During the fifth programming cycle, total fees charged amount to $3.1 million, excluding the fee for the MSA with Japan. Since the total IPF of $6.6 million has not been earmarked because of a number of projects still in the pipeline, it would be more meaningful to compare the fees with the country office's operational budget for the current cycle rather than with total IPF funds. At present, fees that correspond to completed and ongoing projects represent 98 per cent of the country office's operational budget for 1992-1996.

Perception of the Modality

Views of the Country Office According to the UNDP country office, the most important factor that influenced the adoption of the co-financing modality is the Country Office's efficient and effective management skills in project formulation, design, and monitoring. Moreover, UNDP has assisted and continues to assist the Government in conceptualizing and formulating projects that have high cost-sharing probabilities. The very limited experience within the Government in formulating and designing projects has made the UNDP country office almost a natural partner of the Government. Thus the UNDP country office adds a significant value in project conceptualization and formulation in addition to being an impartial and neutral agency, especially during the civil war years.

Moreover, UNDP followed its mandate, as specified in the Chapultepec Agreement, and managed and trained its office human resources well for its realization. The country office also marketed UNDP's comparative advantage and very quickly proved it to multilateral and bilateral donors. The bilateral donors especially quickly grasped that UNDP's norms and procedures projected a feeling of confidence. Although cost-sharing and national execution modalities were fairly new practices for the country office, the rapidity with which it adapted itself to them is admired by Government and donors alike.Given the particular circumstances of El Salvador, UNDP's main interest of sustainable human development had to be pushed to a secondary place. The fifth programming cycle appears to give primary importance to policy dialogue, capacity-building, and aid coordination.30

Views of the Government. From the start, the Government had a great deal of interest in, and high expectations from, UNDP. Especially during the years of civil strife, when some bilateral donors proceeded with extreme caution and IFIs were experiencing considerable difficulties in disbursing the loans, UNDP, with its limited budget, remained a neutral and dependable international agency. The often-repeated Chapultepec Agreement is a clear indication of this dependability. In more cases than not, the Government actively sought UNDP's help in identifying potential projects and their resources, formulating them, and negotiating with the donors. UNDP responded to these requests competently and in a timely manner.

Views of the Donors. The co-financing of projects with UNDP offers several advantages to multilateral donors. In addition to its neutrality and transparency, UNDP was an entity through which slow-moving loans-especially their technical cooperation components-could be speeded up. Another factor that is not to be neglected is that the laws of the country require both ex ante and ex post auditing of the accounts by the Court of Accounts (Corte de Cuentas). This bureaucratic set-up has the tendency to slow down the flow of funds considerably. Here UNDP constituted a viable, transparent, and dependable bypass of this anachronistic audit method and expedited assistance when assistance was needed most. A third advantage relates to fiscal laws. Imports of goods, equipment, etc., are subject to the value-added tax (VAT). Private as well as government entities pay the tax on their imports and subsequently claim a fiscal credit. The bureaucratic nightmare this causes is obvious. To channel such assistance through UNDP provided a relief since UNDP's imports are exempt from the VAT.

These considerations are also valid for bilateral donors. Moreover, in their case, cost-sharing with UNDP liberates them from the burden of management for a very reasonable fee, hence increases the cost-efficiency of their assistance. In addition, as mentioned earlier, many bilateral donors have no representation in the country. For them UNDP thus becomes a dependable and transparent agency.31

Future of Co-financing in El Salvador

It is rather difficult to predict the trajectory of co-financing arrangements in the near future. There are indications that the funds, especially bilateral funds, may not increase at all since the country is over the post-bellicose crisis. Peace appears to be durable, and normalization of public affairs is manifest. Also, the public sector's capacity to formulate and manage projects is being built fairly rapidly. On the other hand, as long as rules and regulations pertaining to VAT and "Corte de Cuentas" continue as they are, UNDP may very well remain a convenient vehicle. Moreover, IDB has in the pipeline an increase in its assistance for social development. Should this materialize, co-financing such projects with UNDP appears to be the Bank's preference. Hence, co-financing may continue at least at its present level.

Conclusions

To systematize the information and data elucidated in the previous paragraphs and draw operationally useful conclusions that would help in understanding the inner dynamics of co-financing, one needs to construct a logical frame of reference. An attempt is made here to construct such a frame in a simple taxonomic fashion. Co-financing is affected by a number of push factors and pull factors. Some are of an operational nature, others are a matter of perception. Some are internal and others are external.

Major external, operational push factors can be summarized as:

  • slow disbursement of funds, mainly in the
  • case of multilateral donors, i.e., supply exceeding demand;
  • not having representation in the country (this applies to the World Bank as well as to a number of bilateral donors); and
  • political considerations and convenience, for a number of bilateral donors, in contributing to the peace process.

Internal, operational pull factors that contributed to co-financing in El Salvador appear to be:

  • the difficulty experienced by multilateral, and sometimes by bilateral, assistance generated by government regulations relating to VAT and audit requirements; and
  • UNDP's active involvement in the "Acuerdo de Paz", its technical ability to assist the Government, and its persuasive capacity to convince the donors during the critical period when the country's demand for projects exceeded the supply of funds.

In the mobilization of resources, perceptions are just as important as operational considerations.

Internal perceptions of pull factors can be summarized as:

  • the Government's trust in UNDP as a neutral and transparent international agency capable of designing and formulating projects;
  • the sharing of the same opinion by the guerilla forces who signed the peace agreement; and
  • UNDP's appearance in a civil war-torn country as the only entity with an institutional memory of technical cooperation.

External perceptions of push factors seem to have two major components:

  • the timidity at the end of the hostilities to entrust the management of funds to the Government; and
  • the perception of UNDP as a very competent organization in conceptualizing, formulating, and, whenever feasible, managing technical cooperation projects.

No doubt the taxonomy presented above is somewhat artificial. Equally obvious is the fact that some of these factors are mutually reinforcing. Nevertheless, it is likely to be helpful in understanding the success of the UNDP country office in El Salvador in mobilizing funds during the crucial period in El Salvador's history.

Lessons learned

Part of the success of the UNDP country office can and must be attributed to historical circumstances, but only in part. The success is also due to the country office's willingness to get involved in the peace process and to act catalytically among various donors. Reorienting its staff to help the Government identify projects and asserting its presence from the conception of the projects to the final signature of the agreements between the donors and the Government are not negligible endeavours. These can be duplicated in other countries as well.

The mobilization of funds is not free of problems and costs. When the projects desired by the Government do not coincide with UNDP's main concern, i.e., SHD, frictions will arise. When the Government feels it "owns" the funds and tends to refuse to comply with UNDP's financial and substantive procedures, further frictions will surface. These frictions are likely to appear in any country as they have appeared time and again in El Salvador. The country office in El Salvador, however, has not recoiled and did not wait for the crises to solve themselves. Instead of shying away from the problems, it used technical and diplomatic tact to resolve them. This has been underscored by all parties concerned in the consultant's interviews. This is a very important message for country offices in other countries.

Nicaragua
Context
The February 1990 elections brought drastic changes in Nicaragua's economic, social, and political profile. After ten years of a com-mand-economy regime, the new Government, installed in April 1990, began to implement a return to a pluralistic democracy and to an economy engulfed in the interplay among market forces, privatization, rationalization, and streamlining the public sector. The international donor community extended its help to the new Government. The IFIs, whose dealings with the previous Government had been reduced to a minimum because of the country's low credit rating, began to extend large loans after having resolved the issue of the arrears.

Bilateral donors, such as Sweden, had not ceased to extend economic cooperation to Nicaragua even during the previous regime; and UNDP, as a neutral multilateral assistance agency, had continued to provide technical cooperation. The international donor community as a whole has shown great interest in assisting Nicaragua in its transition process from a command to a market economy. Several bilateral donors and IFIs have undertaken a number of projects that they financed and managed directly in addition to those co-financed through UNDP. The total external assistance to Nicaragua has been very substantial.32

The new Government inherited a weak, politicized, and overblown public sector. The public sector's built-in capacity was, and to a certain extent continues to be, weak, including its management of external assistance. To strengthen government capacity in the medium term and to assist the Government directly in the short term became a primary objective for both UNDP and the donors. Since many donors had curtailed their operations, UNDP was the only transparent and neutral agency with continuous presence and with full understanding of the dynamics of the previous and present regime. Many donors and aid agencies began to reactivate their operations and to utilize UNDP's existing facilities and to benefit from its understanding of the country's realities. Thus UNDP became, in the early stages of transition, a very important fund-mobilizing factor.

Current Co-financing and Related Modalities

Emphasis Areas in the Fifth Programming Cycle. Nicaragua's period of transition from a command to a market economy gave rise to a number of economic and social community issues. The very unusual circumstances of the transition made SHD priorities secondary. The fifth country programme concentrated on four priority areas in supporting and assisting the new Government that desperately needed the assistance not only of UNDP but also of all donor/lending agencies:

  • consolidation of law and order, and socio-economic rehabilitation;
  • economic stabilization and structural adjustment;
  • revival of the productive sectors; and
  • social development and eradication of poverty.

Some IFIs-the World Bank and the Inter-American Development Bank (IDB)-were quite willing to extend credits and loans provided the Government could manage its structural adjustment and stabilization programme for which its human resources fell short of the requirements. Most bilateral donors that had curtailed or stopped their assistance during the previous regime were eager to assist the new Government quickly. UNDP became a ready-made co-sharer during the implementation of the fifth programming cycle.

Partners of UNDP Co-financing. During the transition period, which almost coincided with the fifth programming cycle, there was an abundance of funds and eagerness to disburse on the part of multilateral and bilateral donors. The unusual circumstances increased the IPF substantially. Table 17 compares total resources available during the fourth and the fifth programming cycles.

Government of Nicaragua as Cost-sharer. The Government of Nicaragua has co-financed several projects with UNDP. In all cases the source of government funds is not the general budget. Plagued with a chronic deficit situation, the Government has no proper means of co-financing projects. Government co-financed projects are financed by the donors who use the Government as a conduit. External or counterpart funds made available to the Government for project financing are supplemented with core UNDP funds (IPF). In general $3.90 have been mobilized for each UNDP $1.00. Government cost-sharing is relatively low. The ratio is $1.00 (UNDP) to $1.60 (Government).

Table 17 Mobilization of Funds during the Fourth and Fifth Programming Cycles-Nicaragua ($000)

Source

Fourth Programming Cycle

Fifth Programming Cycle

Change (%)

IPF

10 885

19 089

75.0

Cost-sharing

2 507

26 489

957.0

MSA

6 222

23 424

277.0

Trust funds

8 098

889

-89.0

The reasons for this type of cost-sharing are:

  • a drastic reconfiguration of the civil service did not allow the Government to execute some projects directly without collaborating with UNDP;
  • some of these projects were of a preparatory nature to precede the financing of much larger projects by the donors. Quick and reliable results were needed and the Government concluded that they should be designed and executed by UNDP; and
  • some projects were politically sensitive, such as privatization, and UNDP's neutral and transparent image in the country gave further cre-dibility to such projects.

Multilateral Donors. IDB was the major multilateral donor to enter into co-financing arrangements with UNDP. The World Bank's Economic Recovery Credit and its technical cooperation component were directly channelled to the Government. IDB's loan/assistance, which was 2.5 times larger than that of the World Bank, was also channelled directly to the Government. Only a few projects that were deemed most urgent became UNDP projects. These totalled a little over $9 million. Both the IFIs and the Government chose execution by UNDP, which made no financial contribution. In Nicaragua, the IFIs essentially prefer to execute their own technical cooperation projects. CABEI has remained on the side-lines, but it did express the desire to cost-share some of its projects with UNDP in the near future.

Bilateral Donors. With bilateral organizations, for every $1 of core funds, $2 have been mobilized, with Sweden being the major donor coun-try. Thirty to fifty per cent of its assistance to Nicaragua is operationalized through UNDP. There are five fundamental reasons for the choice by the Swedish International Development Cooperation Agency (SIDA) of the cost-sharing modality:

  • Language is a barrier to effective technical cooperation (Nicaragua is practically the only Spanish-speaking country receiving Swedish assistance) while all of UNDP's staff are completely bilingual.
  • UNDP has the capacity to formulate, implement, and monitor SIDA-financed projects while the Government does not although national execution is SIDA's guiding principle.
  • Wherever SIDA perceives a project to be politically sensitive, it chooses UNDP, as a neutral collaboration agency, as the preferred vehicle for project execution.
  • UNDP has always been capable of understanding the country's needs better than any other agency, of conceptualizing and formulating and/or assisting the Government in the formulation of projects.
  • The UNDP country office has been actively seeking co-financing from bilateral donors and demonstrating clearly and convincingly its management capabilities.

Other bilateral donors are of secondary importance compared to Sweden. Their reasons to cost-share projects with UNDP are not dissimilar to those of Sweden. Many have only a small nucleus of staff to manage their technical cooperation. It becomes cost efficient for them to rely on UNDP, which they perceive as efficient and preferable to the Government, whose house, in their eyes, is still not in order.

Trust Funds. One single trust fund that is in operation in Nicaragua has been set up by Sweden to deal with the thorny issue of property rights. The trust operates with slightly less than $1 million. The Sandinista regime had expropriated considerable land and property of nationals and foreigners. The present Government's desire to redress the situation has been frustrated for a variety of reasons, the lack of cadastral information being a major one. To fortify the efforts directed to this end, the Swedish Government, in addition to several projects co-financed with Holland and Canada, chose the trust fund modality mainly for political reasons. Although it cannot be classified as parallel financing, USAID also carries out a project directed to the solution of property issues.

Management Service Agreements (MSAs). The Japanese assistance generating counterpart funds is managed through the MSA. To date, this has totalled $23.5 million. The executing agency is UNOPS. The involvement of the UNDP country office is minimal.

Others. There are thirteen projects financed through Special Programme Resources (SPR) funds totalling $2.2 million. Only two share costs with IPF funds. Of the other important projects with the UN system, all but two are with UNICEF. One is the community development project, with UNDP's contribution from IPF of $1.8 million.

Programme Experience with the Co-financing Modalities

The co-financing modality began during the fourth programming cycle when the country office managed to mobilize funds after the change of government. By the fifth programming cycle, many factors were in place to facilitate the mobilization of funds. Perhaps the most important was UNDP's continuous presence in the country during the Sandinista years when the majority of bilateral donors had halted their assistance. The financial crisis and rampant inflation also curtailed substantially, if not fully, the operations of the IFIs. UNDP remained practically the only organization with the institutional memory of technical cooperation without tarnishing its image of neutrality and transparency. While many bilateral and multilateral assistance/loan agencies were restarting their operations, UNDP appeared to be the only international agency that had the facilities and also fully understood the dynamics of the fundamental change. The country office was technically ready to accept the challenge of the co-financing responsibilities. The new Government was inexperienced and lacked the capacity to manage technical cooperation; it needed an entity to assist it in formulating and designing projects for which there was an abundance of funds. Moreover, trivial as it may appear, the Minister in charge of external cooperation was an ex-staff member of UNDP and chief technical adviser (CTA) of many UNDP-/UNIDO- implemented projects. Hence, he was very familiar with UNDP's operational modalities. It did not take long to forge an alliance between UNDP and the new Government.

Thus, UNDP appeared to be the most dynamic nucleus not only in pinpointing the exact nature of the projects but also in initiating co-financing alternatives for many key projects which could, as a result, be implemented without delay. UNDP had the blessing of the Government and the confidence of the donors.

The important question is whether UNDP's efforts were a key factor in mobilizing resources, i.e., whether these resources would have been channelled to Nicaragua in any case even with-out the intermediation of UNDP. It would be erroneous to give a definite positive or negative answer, simply because both the World Bank and IDB and many bilateral donors committed resources to assist Nicaragua once the regime changed. (The decision to commit these resources was made at the Paris Consultative Group meeting in May 1991.) However, all donors agree that without UNDP's active role in seeking funds together with and/or on behalf of the Government of Nicaragua, the flow of funds might have been slower and the amounts less.

It is especially important that the General Assembly adopted resolution 48/161 of 20 December 1993 to support the initiative of a number of countries that formed the group known as "Grupo Apoyo a Nicaragua". The UNDP country office became the first partner and technical secretariat of the Group33 and the representative of the Secretary-General of the UN. The membership bestowed further moral force on UNDP to mobilize and channel external resources to Nicaragua.

Co-financing also proved to be a good source of income for the country office budget. The total fees (excluding MSA fees) charged to the project amount to $975,335. This represents 40 per cent of the operational cost of the office budgeted by headquarters.

Perception of the Modality

Views of the UNDP Country Office. Owing to the country's unusual circumstances, the UNDP country office sees its primary function as a cre-dible major player in the development of the country and its transition to a market economy. UNDP is interested in leading an upstream dialogue with the Government and with the donor community to guarantee the accountability and transparency of procedures. Projects related to SHD themes are not neglected but are not currently in the forefront either.

As perceived by UNDP, the office's comparative advantage and value added, in descending order, are:

  • credibility;
  • ability to design solid projects, including SHD development themes;
  • efficiency and objectivity; and
  • accountability.

UNDP's interest in the cost-sharing modality concentrates primarily on policy dialogue and capacity-building, and on SHD and aid coordination secondarily. The UNDP country office takes a leading role in designing projects for UNDP proper as well as for the Government and plays a contributing role with the donors. The implementation of the co-financing modality occurs mostly through NEX. This seems to be satisfactory both for UNDP and for donors but causes additional work for the office, which heavily taxes the staff's capacity and expertise. Particularly troublesome is the area of procurement.34

View of the Government. The Government seems to have placed its full trust in UNDP and is very appreciative of its past and present activities. The Government wishes to maintain close cooperation with UNDP in future technical cooperation, since despite the colossal efforts that have been undertaken, the public sector's capacity-building level is not on a par with what is required for the management of technical cooperation.35

View of the Donors. Many donors welcome co-financing through UNDP since it liber-

ates them from an administrative burden and saves expenses; thereby the amount of funds to be channelled to the country is raised. Moreover, the objectives pursued by UNDP correspond almost totally with their own. The UNDP country office's services and the procedures it follows are found to be generally acceptable; only IDB takes exception regarding financial procedures. All donors agree that UNDP shows uncontested superiority in neutrality and transparency.

Some donors, however, point out that co-financing is currently a palliative solution because of the Government's inability to manage the projects fully and add that its prolongation may weaken the Government's efforts to build its own capacity.36

The Future of Co-financing in Nicaragua

It is hard to imagine that co-financing will continue in the future at the same pace that it did in the past. UNDP's own assistance to the Ministry of External Cooperation should fortify, in not too long a time, the Government's capacity to manage projects. The donors also appear to be "tired" of assistance since the country's transition to a market economy is progressing well, albeit slowly. On the other hand both IDB and CABEI have "social" projects in the pipeline and they wish to collaborate with UNDP via the co-financing modality since neither institution has the same experience as UNDP in implementing these types of projects.

Conclusions

The success of co-financing in Nicaragua is undeniable, especially in the fifth programming cycle. This needs to be viewed-as was done in the case of El Salvador-within a general conceptual framework involving, once again, pull and push factors that affect the flow of funds.

The external, operational push factors can be summarized as:

  • donor-community interest in assisting Nicaragua to move as fast as possible from a command to a market economy;
  • slow-moving IFI loans and the need (and mandate) to speed them up; and
  • political expediency to join forces with UNDP on politically sensitive issues of rights and privatization.

The internal, operational pull factors are (though not necessarily in ranking order):

  • difficulties in dealing directly with the Government due to its lack of capacity;
  • UNDP's/country office's technical capacity to manage projects;
  • UNDP's long-time presence in the country with dependable institutional memory; and
  • well-targeted efforts by the UNDP country office to identify possible cost-sharing opportunities, actively seeking them, and assisting (sometimes leading) in their conceptualization and formulation as technical cooperation projects.

Within the internal perceptions of pull factors, a single one stands out: UNDP is perceived by the Government and donors as the only dependable and capable institution to manage projects at a low administrative cost.

Within the external perceptions of push factors, two are exceptionally significant:

  • the donors' timidity to risk the administration of a technical cooperation project by a government that has yet to assert itself; and
  • The perception of UNDP as the only dependable organization in the country whose operational rules are understood, if not shared, by all donors.

Undoubtedly, both pull and push factors mutually reinforce each other and may appear to be two sides of the same coin, but the above taxonomy has the advantage of pinpointing those factors that are significant in determining the co-financing operations.

Lessons learned
The UNDP country office has had extraordinary success in Nicaragua in mobilizing funds and formulating projects through the co-financing modality. This is partly due to the unusual circumstances of the period in Nicaragua's history, as has been elucidated in this summary. It is also partly due to the long experience the Resident Representative has had in the country and his managerial and entrepreneurial ability. A third factor is the country office's well-trained staff who have responded quickly and efficiently to the Government's needs at crucial moments. A fourth element has been the assertiveness of the country office-despite the limited IPF-in finding a way to become an equal partner with the donor community and to respond to their needs with minimum bureaucracy, sometimes even interpreting with imagination the rules and regulations of headquarters as emergencies warranted.

Middle East
Lebanon
A Profile of Co-financing

Until 1991, the civil war in Lebanon had brought UNDP's country programme to a virtual standstill. IPF entitlements accrued during this period have been carried over and increased available fifth programming cycle resources for UNDP to a sizeable $18 million, elevating UNDP to one of the more important providers of technical cooperation in the country. Yet this relative wealth of resources is only temporary since resources are expected to fall back to a much more modest level in the next programming period-hence, the imperative for mobilizing additional resources for UNDP's future programmes.

As of October 1995, excluding parallel financing, UNDP was able to raise some $8.5 million in cost-sharing, mainly from the Government: $4.6 million from the Government's own budgetary resources and a little over $2.1 million from a World Bank loan for the Fiscal Policy and Administration project. Another $6 million of government project cost-sharing is anticipated. In comparison bilateral cost-sharing was relatively small ($0.6 million) and limited to only two donors (Canada and France).37 The remainder came primarily from other sources, the bulk of this (or $0.9 million) in the form of a contribution from the Hariri Foundation, a Lebanese private charity, channelled through UNESCO to the Rehabilitation of Town Planning and Cultural Heritage project. Extra-budgetary revenues amounting to some $150,000 from the UN Beirut Business Centre project also entered UNDP's accounts.

In addition, UNDP could arguably claim that its fiscal and administrative reform projects have mobilized parallel/follow-on financing in the form of two World Bank loan programmes totalling $40 million.38

The Funding Experience

The Government of Lebanon used $2 million of its own funds to cost-share a UNDP/ICAO civil aviation project. Unlike an earlier project in this sector in which UNDP provided the lion's share of the funding, the new initiative received only a modest $0.2 million contribution, reflecting UNDP's corporate reorientation towards SHD programming. Yet the government would like the UNDP/ICAO arrangement to continue: with ICAO setting air safety standards worldwide, accessing ICAO's pertinent expertise seems only logical to the local authorities. The argument in favor of ICAO is reinforced by the fact that the rates for its expertise compare favourably with prices in the private sector or fees charged by other national civil aviation authorities. While, in principle, the Government could contract directly with ICAO through a trust fund arrangement, it prefers to involve UNDP because of its stronger management capacity but also because there is a cost involved in switching to a different arrangement. The Government estimates that, all things considered, paying UNDP's three per cent administration charge is cost-effective.

Various co-financing modalities are applied in a nationally executed UNDP project with the Ministry of Finance. The Fiscal Policy and Administration project, which started in 1992 with a total budget of $0.68 million, trained Ministry staff and helped to finance several catalytic studies as well as the preparation of a more comprehensive reform programme to be funded through a World Bank loan. While the new project was delayed, the ongoing UNDP project took over some of the immediate reform activities with an additional $0.6 million from UNDP's IPF and government cost-sharing of some $2.1 million financed from the World Bank loan.

The arrangement seems to have worked satisfactorily for all participants. There was, however, some friction as to UNDP's practice of charging administration fees which the Government strongly resisted, at least initially. A 2.5 per cent fee was finally agreed on with the implicit understanding that the money would be employed to add extra-budgetary posts in the UNDP country office to support and speed up the implementation of other UNDP/government projects. Compliance with regulations of both UNDP and the World Bank, notably in procurement, made the project unnecessarily burdensome to government staff. This could have been avoided if the respective funding agencies had recognized each other's procedures and agreed on whose procedures should be applied.

The UNDP project will also be administering disbursement of some $19 million under the recently approved loan. In addition to the World Bank loan and the Government's own budgetary resources, the project also benefits from an in-kind contribution by the IMF, which staffs the project coordinator position. Canada is pitching in with another $3.8 million in parallel financing under a separate, albeit closely coordinated, project. Canada had initially planned a much smaller assistance project, but in view of the parallel UNDP activity, it agreed to the larger package. France, Japan and the United States have also expressed interest in participating in the reform programme.

Parallel/follow-on financing is probably the most important co-financing modality even though it is not officially recorded. A second important case involving this modality is the UNDP-sponsored project establishing a technical cooperation unit within the State Ministry of Administrative Reform. The unit's task is to mobilize and manage technical cooperation resources. The unit's creation is credited with preparing the ground for a $20 million World Bank loan. While UNDP itself did not mobilize the resources, its project has been critical in sourcing the money. Again, the UNDP project management team is supervising loan disbursement.

Potentially the most significant co-financing initiative has been launched under the Baalbek-Hermel Rural Integrated Area Development project aimed at eradicating poppy crops. At its outset the project involved $1.2 million in government cost-sharing and $3 million in parallel financing by the United Nations International Drug Control Programme (UNDCP) in addition to a $1.2 million IPF contribution. The first-phase project, setting up the basic mechanisms for the large-scale development effort, attracted a lot of donor interest, but the money (including $1.4 million from the European Union, $0.6 million from Germany and $0.4 million from France) went to UNDCP since it offered more flexibility than UNDP in regard to the use of donor funds, notably for procurement of goods and services from their home countries. Similarly, given the limitations on the use of the IPF, the credit component of the project had to be implemented with UNDCP funding through a management service agreement with UNOPS.

The project is now entering its full-scale implementation phase as a nationally executed programme. An ambitious resource mobilization campaign launched at an international donor conference in June 1995 in Paris is meant to raise $32 million in funding two years into the programme and $52 million five years into it. It has met with considerable donor interest (e.g., European Union, France, Germany, Japan). A task force in the Ministry of Agriculture is now trying to turn the pledges into concrete commitments. As of September 1995, only France ($2.5 million) and Japan had confirmed their pledges. The Government of Lebanon is willing to contribute $4 million in cost-sharing ($9 million altogether), while UNDCP (from third-party contributions yet to be identified) and UNDP plan on providing $1.2 million each. The new programme is anticipated to involve a mixture of different co-financing modalities. The share of programme resources that will be administered under the UNDP component will depend, among other things, on whether third-party or Government cost-sharing can be used for credit activities. If confirmed, the UNDCP component could be integrated with the UNDP portion. Uncertainty as to the actual amount entering UNDP's accounts poses a more fundamental problem: while the UNDP country office is expected to provide extensive support to the nationally executed programme, it may not earn the necessary extra-budgetary resources to do this in a satisfactory fashion.

There are two instances of bilateral cost-sharing with UNDP and one further case of bilateral parallel financing with UNDP. One is a $0.5 million cost-sharing contribution to the Institutional Development project by Canada, which itself does not have adequate in-country execution capacities. UNDP also managed to obtain a cost-sharing contribution of $90,000 from France for its Tourism Development project. Yet significant efforts were required to mobilize the resources that seem out of proportion to the actual amount involved.39 Finally, in the field of higher education, a $1 million UNDP project, including $0.5 million from the Government (with some grant and loan money from the World Bank), is matched by Italian tied-aid parallel trust fund financing.

While outside the domain of co-financing proper, the UN Beirut Business Centre is generating income for the UNDP country office through recruitment and procurement but also transportation, logistics, photocopying and conference services provided by a special administrative setup attached to the country office. As of September 1995, UNDP had earned some $165,000 from users, including $18,000 in fees. The economics underlying the business centre concept warrant further scrutiny.

The varied co-financing experience of UNDP in Lebanon also includes co-financing with NGOs. Under the Rehabilitation of Town Planning and Cultural Heritage project (IPF contribution of $0.8 million and government cost-sharing of $0.35 million), contributions from two local NGOs, $20,000 from AIST (to be used for particular activities under the project) and $1 million from the Hariri Foundation found their way into UNDP's accounts as a UNESCO cost-sharing contribution. UNESCO rules seem to be much more flexible than UNDP's in this respect. The planned extension of the project might seem an even more immediate form of co-financing with the private sector since cash-strapped UNESCO is keen on accepting a large contribution, to be specified, from Solidere, the biggest construction company involved in rebuilding Beirut. However, the arrangement holds a potential conflict of interest since Solidere's reconstruction agenda may not be entirely compatible with UNESCO's preservation goals, while the project is financially dependent on the company's donation.

For the UNDP country office, project administration fees of between two and three per cent have generated sizeable extra-budgetary resources of around $250,000. While the Government, as the principal cost-sharer, initially resisted this practice, it ultimately agreed, on the understanding that the money would be used to hire additional staff and reinforce the country office's programme and support capacities.

UNDP Approach to Co-financing

The country office sees its primary task as mobilizing resources for the country, but its eyes are also on assuring the financial future of UNDP's country programme on which UNDP's credibility as a development player depends at least in part. As core resources for the next programming period are likely to drop to somewhere around $3 million, non-core financing, including that from UNDP funding sources40, assumes increasing importance. Despite the considerable effort and time spent to attract additional funding, the UNDP country office clearly sees advantages in diversifying its resource base, but it is also aware of some of the pitfalls of co-financing, notably in terms of human resources. While co-financing is able to generate extra-budgetary resources, it does so in a stop-and-go manner that adversely affects the country office's ability to recruit and train additional personnel for the long haul. Overall, UNDP aims not to maximize cost-sharing but rather to maximize contributions to the particular development objectives it supports.

The prospects for co-financing clearly depend on how UNDP is perceived by donors and the Government in terms of its capacity to operationalize programmes effectively. UNDP is keenly aware of the fact that its leverage is frequently underestimated. By consolidating its programme and marketing itself more as a service provider, notably at the upstream policy level, UNDP is trying to improve its standing. A public relations campaign in connection with the 50th anniver-sary of the UN should help to polish UNDP's reputation. Still, as far as streamlining its programmes is concerned, the country office does not feel it would be appropriate to narrow its programme focus in Lebanon, a country coming out of civil war, to poverty alleviation only, as recent messages from UNDP headquarters seem to suggest.

Instead, UNDP sees itself mainly in the role of the central coordinator and backbone of UN system assistance to the country. As such, it believes that, with the exception of a number of small specialized agencies such as ICAO, ITU, and WIPO, which enjoy a good reputation, the UN system agencies need to sharpen their talents if they want to continue to play a useful development role. UNDP is also the UN's local infrastructure for preparing and following up global conferences, etc. Capitalizing on its special role, UNDP has been serving the Government as an adviser, bringing in new perspectives. On a more procedural level, UNDP has been instrumental in bringing Lebanese abroad back to work in their country as experts and consultants.

While coordination and management support is UNDP's bread and butter in the Lebanese development context, the country office gets little support from headquarters in these core areas. Instead, it is overburdened by a flood of new thinking from the centre. There is a feeling that there is a lack of appreciation of how much time and effort it actually takes to get things done in the country. On the other hand, useful operational-level guidance, information and support 41 from headquarters with regard to co-financing (and other UNDP funding sources) is in short supply. The dearth of information is one of the reasons why trust funds have not been promoted in Lebanon. The cost of doing business with UNDP non-IPF resources (Capacity 21, MDP, LIFE) is considered unnecessarily high owing to multiple administration, accounting and reporting requirements. For similar reasons, the country office is apprehensive of the new TRAC system: there may be better ways to achieve better programme quality than increased competition for funds.

The country office is uncertain as to what constitutes parallel financing and what does not. While there seems to be agreement that assistance activities that just happen to complement each other are not parallel financing (e.g., an IFAD dairy project running parallel to a UNDP project in the same area), a positive identification is more difficult. The key is the nature of the connection that exists between two initiatives. For UNDP "the challenge is to be involved in the design of the project for which parallel financing is being considered in order to ensure complementarity and to avoid duplication". Two World Bank loan projects whose formulation was initiated by UNDP and whose implementation will be managed by UNDP project teams would appear to qualify. So would some other contributions that are linked with UNDP initiatives under a common coordination framework. While Lebanon could thus claim almost $40 million42 in parallel financing, none of this is officially recorded as co-financing.

Parallel financing gives UNDP development programmes greater leverage and enhances the organization's credibility in the development community. The administrative reform programme that was developed under UNDP's leadership has certainly been beneficial in this respect. Among the negative aspects of parallel financing, UNDP notes a reduced capacity to control a programme. More important, perhaps, UNDP is not compensated for its work on parallel financed programmes. The country office would like to find a financially more satisfactory arrangement.

In view of the weak results and difficulties in mobilizing third-party cost-sharing from resident donors so far, the UNDP country office is hopeful that donors that are not represented locally, notably the Dutch and the Scandinavians, offer better opportunities. As to the conditions for a satisfactory co-financing relationship, UNDP recognizes the need to accommodate the donors' concern about having their contribution recognized (visibility), to associate them as much as necessary in the supervision and control of projects, and to meet their particular reporting requirements.

According to UNDP, the Government's relative active cost-sharing is the result of some of the following factors:

(a) individual ministries commit money to projects with UNDP to avoid having unspent balances revert to treasury at year end;

(b) cost-sharing in dollars functions as a store of value in an inflationary, weak-currency environment;

(c) Government project execution is hampered by heavy recruitment and procurement regulations;

(d) UNDP administrative handling of cost-sharing affords greater transparency and protection against misuse of funds;

(e) activities are better coordinated through joint implementation under cost-shared projects.

Government Views 43

The Government has no unified position with regard to co-financing. While some ministries see UNDP cost-sharing as a flexible way to spend money, significantly, UNDP's main counterpart, the Council for Development and Reconstruction (CDR), is not entirely in favour of co-financing with UNDP and has been discouraging line ministries and donors alike from doing so. In many ways, CDR is a super ministry cum public enterprise, combining responsibilities for planning, financing and overseeing the implementation and coordination of the reconstruction and development of Lebanon with responsibilities for implementing projects, including those with bi- and multilateral donors.

CDR mainly resents that UNDP's programme does not fit into the overall coordination frame-work defined by the Public Investment Programme and that UNDP imposes its own cooperation agenda (global SHD objectives) whereas CDR's declared goal is to have nothing outside its integrated programme. Also, for the Government, UNDP's smallish grant projects often entail more work owing to its bureaucratic requirements than, for example, big World Bank loans. On the other hand, the grant nature of UNDP funding is the organization's main advantage in the eyes of CDR, which would like to use the funds more flexibly for pre-feasibility and feasibility-type activities. On a different level, co-financing with UNDP appears to be affected by the organization's image as a too inflexible, centralized, inefficient, unfocused and insufficiently transparent international bureaucracy.

IFIs and Bilateral Donors

The mission did not have the opportunity to interview donors.

South America
Argentina
Context

Massive non-core financing-initially as cost-sharing from Government sources but increasingly derived from IFI loans under cost-sharing or MSA arrangements-started in 1984 under the newly elected Alfonsín government. The Government was faced with the imperative to restructure government, define new functions and restaff the civil service with new professionals who could not, at that time, be recruited under the existing manning tables and government salaries. UNDP projects, on the other hand, made it possible to develop the Government's institutional capacity by securing the services of qualified experts, most of them Argentine nationals.

At one point in the fourth programming cycle, 722 consultants were serving with UNDP contracts under one MSA alone (project on the strengthening of the public sector). As the position of the Government changed, partly for fear of creating durable dependencies and a two-track civil service, many of the UNDP-recruited national experts were gradually integrated into regular government service while others moved to important political positions. There also occurred a shift from MSA to cost-sharing arrangements, except for major subcontracts or equipment purchases. At present, budget legislation prohibits the hiring of consultants for the federal government under cost-sharing projects unless at least 50 per cent of the funding comes from external sources. This affects the use of the Government's own funds (either by cost-sharing or in MSAs) for the hiring of national consultants. If the aggregate level of cost-sharing has continued to grow, it is owing to the new roles played by the UNDP programme (discussed below).

Relationship of Cost-sharing to Core IPF

For 1995, aggregate cost-sharing is expected to amount to 99 per cent of the Argentina pro-gramme budget or approximately $95 million, compared with $28 million in 1992. Of the 1995 cost-sharing, over $60 million are derived from IFI loans ($45 million from IDB and $25 million from the World Bank). Cost-sharing from government budget resources has experienced a substantial drop from the previous year. Third-party cost-sharing has been minimal and no core IPF resources remained for 1995.

Based on the commitments for 1996 and 1997, it is expected that the level of IFI-derived cost-sharing will remain constant for the remainder of the decade; on the other hand, cost-sharing from the Government's own budget, at the central level, is likely to drop. This may be offset or reversed by the expected growth of provincial or municipal government projects. The experience with a small agricultural project with European Union cost-sharing does not indicate that this modality will play a more significant role in the Argentina programme than it does in Brazil.

While the Ministry of Economics sets the overall amount that may be used for cost-sharing in UNDP projects, the actual programme commitments must be negotiated on a project-by-project basis. This gives UNDP a basis for planning the cost-sharing levels of its annual programmes.

Other Forms of Co-financing

While management service agreements (MSAs) have played a major role in Argentina, the present government tendency is to limit their use to major equipment purchases and subcontracts, leaving other components (e.g., the contracting of individual experts and continued monitoring and supervision) for UNDP cost-sharing arrangements. For example, in a large public-sector reform project with funding from a World Bank loan, major equipment purchases are entrusted to UNOPS under an MSA while the other inputs are provided through cost-sharing in a UNDP project. A related IDB follow-up project involving informatics equipment purchases will be handled by MSAs. The Government seems to feel that the quality of UNOPS backstopping has not always been up to par, threatening to affect the image of UNDP as a whole, and that the overhead fees charged under MSA arrangements are very high. On the other hand, it recognizes that the presence of two UNOPS staff in the Argentina country office has helped and that the quality of the individual UNOPS project manager's backstopping for a particular project in New York can also be of critical importance. On balance, however, MSAs are not likely to represent an area of major future growth.

Trust funds and UNDP-administered funds play no major role in the Argentina programme nor is GCCC today a significant source of programme or country office funding. No instances of parallel financing are reported. However, it is certain that UNDP projects have had a major multiplier effect-in terms of counterpart or follow-up activities-not reflected in UNDP programme or project budgets.

Choice of the Co-financing Modality

The UNDP country office plays a more substantive role in the decision to draw on cost-sharing from the budget resources of particular ministries or agencies than in cases where the cost-sharing is derived from IFI loans. Although the UNDP country office entertains good working relations with the World Bank and IDB field representations, it is rarely consulted by the IFIs and their Ministry of Economics counterparts in the identification, formulation and negotiation of loan projects even when they include a technical cooperation component likely to be entrusted to the UNDP programme cost-sharing.

The Argentina country programme contains several phased or umbrella projects which have served as "incubators" for follow-up through cost-sharing arrangements. Examples are the public sector reform project with World Bank cost-sharing, and a major project on the reconversion of the productive sector, which derived from a successful experience in Chile, followed in 1991 by an Argentine preparatory study project carried out with Government cost-sharing. This resulted in a very large 1993 project with cost-sharing drawn from an IDB loan; it is expected to continue through 1997 as the largest project in the Argentina country programme of UNDP.

Importance of Core-IPF Funding

In the early years of the present cycle, the mod-est core IPF resources allocated to Argentina played a role as lead or seed money in developing the country programme. At present, core IPF resources are exhausted, and UNDP has to operate with 100 per cent cost-sharing. Both the Government and IFIs emphasize the importance of the innovative, preparatory and resource-mobilization functions that are made possible even by modest core IPF funding. These core IPF inputs, like the presence of a vital country office, reinforce the credibility of UNDP as well as the legitimacy and impact of its advocacy roles.

Use of Fees

In Argentina, the negotiated cost-sharing charge in nationally executed projects (line 158) lies in the 1 to 3.5 per cent range, depending on annual delivery levels. When the project is executed with full country office support, 4 per cent applies. Eighty (80) per cent of these fees remain with the country office, primarily to add national staff, while twenty per cent are passed on to UNDP headquarters. While occasional questions about these charges have been raised, it is gen-erally recognized that they correspond to real services furnished by UNDP and that to a large extent, the existence of a vital country office depends upon them.

Rationale and Added Value

The rationale for cost-sharing, i.e., the added value expected from the participation of UNDP in the country's development, is described by Government and IFI field staff in terms of the following principal advantages:

  • transparency and objectivity;
  • global access to expertise, experience, technological know-how and equipment;
  • the capacity to sustain a policy dialogue at the country level, and the capacity to formulate and manage (i.e., to guide, supervise, monitor and audit) complex programmes and, in that connection, also to train national counterparts; and
  • help in legitimizing change and in bridging situ-ations of political discontinuity.

Cost-sharing allows the UNDP participation to be backed by a sufficient level of resources and thus to have a significant impact. For IFIs, cost-sharing in UNDP projects is expected to improve loan performance, especially in the social sector, where delivery is traditionally slow.

Based on the experience of the assistance already provided to federal institutions, the Government requested that UNDP assistance be provided to the provinces and municipalities in the identification, formulation and negotiation of external loan or technical cooperation projects through cost-sharing arrangements, which the present UNDP programme already includes.

Concern had been expressed in Argentina over the use of cost-sharing-especially cost-sharing from central government budget resources-for the hiring of large numbers of national consultants to perform government jobs. At present the situation seems to be under control since both the Government and the country office are aware of the danger of creating durable dependencies or a "parallel civil service". The number of national consultants recruited for government functions under UNDP projects has been sharply reduced. Mechanisms have been established by the central government to contract consultants under more competitive terms. UNDP procedures, and in particular the Project Management Manual prepared by the country office, have served as a guide. Increasingly, nationals serving under UNDP contracts are hired under normal government contracts. If previous use of cost-shared UNDP projects to build up the institutional capacity of the Government played an essential role in effecting structural reforms and institutional capacity-building, the need for it is now greatly reduced at the federal-although not necessarily at the provincial or municipal-level. It is evident that prudent programme development and management by Government and the UNDP country office can effectively prevent major abuses.

Advocacy and Sustainable Human Development

Cost-sharing clearly multiplies the means and opportunities for UNDP to influence policy in relation to SHD; in fact, most cost-shared pro-jects in the Argentina programme relate to SHD. SHD is given an upstream, macroeconomic definition, with emphasis on the tools of good and effective governance that enable society to formulate and implement its own policies-at the State, non-State, national and sub-national levels-needed to combat poverty, generate employment, strengthen the health and education sectors, and manage the environment in a sustainable manner. The large, IDB cost-shared project on the reconversion of the productive sector, which focuses at present on employment generation for the young, is a case in point.

UNDP Autonomy in Project Approval

It does not appear that the UNDP country office in Argentina accepts all projects for which cost-sharing is available. Some cases were mentioned where project proposals, including projects with a promise of major IFI-derived cost-sharing, were rejected unless certain substantive conditions were met. An example was a project on debt management, where the orientation proposed by the World Bank as a condition for cost-sharing seemed inappropriate both to the Ministry of Finance and to UNDP. The project was reoriented and finally adopted for UNCTAD execution with cost-sharing from the Governments' own budget resources.

Control over Implementation

Under present country office policy, cost-sharing proposals are not taken into consideration unless UNDP is given a substantive role in their management and can exercise effective control over them. In practice, there have been no problems with the parallel controls of IFIs (including no-objection provisions) where cost-sharing is derived from their loans. UNDP supervision and control at the field level are greatly facilitated by a very effective monitoring system using state-of-the-art informatics technology installed by the country office and the Project Management Manual for use in nationally (government) executed projects. Auditing of cost-shared projects must meet both UNDP and IFI requirements where cost-sharing is derived from IFI loans. Since UNDP auditing norms tend to be more rigorous than those of the World Bank or the IDB, this has posed no problems for the Argentina programme.

Cost-sharing, National Execution and the Use of National Consultants

National execution and the use of national consultants represent the norm in the Argentina country programme. The objective is capacity- building, both individual and institutional. As noted above, it is felt that abuses are best avoided at the field level in project formulation and management.

Cost-sharing and the Programme Approach

Access to cost-sharing and the implied multiplier effect calls for a programme approach in programme formulation, monitoring, and evaluation.

Payment of Cost-sharing

No major problems are reported at this time although some may have occurred in past periods of hyper- or very rapid inflation. Occasional delays in the processing of withdrawal requests or securing no-objection letters from IFIs depended as much upon the individual IFI task managers as upon the nature of the projects. Earlier in the programme cycle, when core IPF was available in the context of cost-shared projects, it was at times used as "front money" pending receipt of the cost-sharing payments. In no instances, however, were commitments made or expenditures authorized until the corresponding resources-core IPF and cost-sharing-were actually available.

Conclusions and Outlook
Conclusions and the outlook for co-financing are:

(a) Substantial levels of co-financing, principally in the form of cost-sharing, will continue to be needed if UNDP is to have an impact in Argentina. Transparency, objectivity, global outreach and capacity to sustain a policy dialogue and to design and manage complex projects are among the perceived values added by UNDP programme action supported by cost-sharing.

(b) The UNDP programme, reinforced by cost sharing, can have a significant policy impact in the areas of UNDP priority and in particular on the governance underpinning of sustainable human development, as seen in a broad, macroeconomic perspective.

(c) Mobilization and management of cost-sharing, and the prevention of abuses are primarily matters for field-level action. In that sense, the existence of viable country offices, endowed with sufficient autonomy and appropriately staffed, represents a major comparative advantage of UNDP. In turn, a viable country office depends to a large extent upon the fees charged in connection with cost-sharing projects.

(d) As is also true in Brazil, it would be desirable that the UNDP country office and its national counterparts be involved in the identification, ,formulation and negotiation of IFI loans with a technical cooperation component likely to be entrusted to UNDP. This might take the form of periodic pipeline consultations.

(e) It may be concluded that, among the critical factors that may condition the relevance and potential transferability of the successful Argentina country programme experience with substantial cost-sharing, the following are particularly important: political support in the host country; a clear vision of UNDP's role in a mature form of development-oriented technical cooperation, and the absorptive capacity of the host country; rigorous monitoring and control using state-of-the-art informatics technology; and a great degree of country office operational autonomy.

Peru
Context

The Peru country programme has had the most rapid growth of non-core IPF financing since 1992 and generated some very innovative applications of the cost-sharing modality containing important lessons for the development and management of co-financed UNDP programme action in other countries. The present UNDP role in Peru, its closeness to policy and access to very substantial levels of cost-sharing-from the Government's own budget, from the proceeds of IFI loans as well as from third-party (principally Japanese) grants channelled through one of the IFIs-began in the early 1980s when Peru was excluded from both World Bank and IDB lending. At that point, UNDP was the only international agency-with its own core IPF resources, with government cost-sharing and with some bilateral contributions-in a position to help the country with both its urgent institutional reforms and with the development of the productive and social sectors despite the critical state of the economy. It also helped to develop a portfolio of loan projects against the day, which came in 1991, when Peru would again qualify for IFI lending. This special partnership role has endured to the present and is best exemplified by two factors:

  • under Peruvian legislation, UNDP is given an organic role in the hiring of experts or consultants for government functions under international contracts for personnel; and
  • the Peruvian Government channels a portion of the proceeds of its privatization programme into SHD social-sector projects.

Volume of Cost-sharing

In 1995, cost-sharing amounted to over 95 per cent of the Peru programme budget or approximately $92.6 million, of which 66.7 per cent came from the Government's own budget, 28.9 per cent from the proceeds of IFI loans (24.3 per cent from IBRD and 4.6 per cent from IDB lending), and 3.33 per cent from third parties, mostly Japanese grants channelled through the World Bank; a relatively large emergency project is cost-shared by Germany, Holland, Spain and Switzerland, and a project on structural reforms had cost-sharing from both IDB and USAID.

Present indications-with cost-sharing commitments of $78.7 million for 1996 and $72.39 million for 1997, respectively-are that the level of cost-sharing is likely to remain constant or even grow in the foreseeable future. Unlike Argentina and Brazil, the country office believes that in Peru, this will be the case both for government cost-sharing and for cost-sharing derived from IFI loans.

Other Forms of Co-financing

Management service agreements play a relatively important role in Peru, especially for Japanese non-project grant aid and in three IDB projects with a large equipment component. As in Argentina, and despite the problems and delays experienced in the past with UNOPS delivery, the Government considers that MSA arrangements are suitable especially for major equipment purchases and subcontracts. This is helped by the presence of a permanent UNOPS staff unit in Peru. The use of UNOPS as a purchasing agent remains optional in Peru except under the Japan-funded MSA procurement projects.

As in Argentina and Brazil, trust funds and UNDP-administered funds do not play a significant role.

No cases of parallel financing by external donors are reported, but as in Argentina and Brazil, both the country office and the Government believe that the UNDP programme has had, and continues to have, a very significant multiplier effect, mobilizing national counterpart and follow-up resources which do not appear in any UNDP budget. As a rough figure, it is estimated that in the current cycle, UNDP projects have helped to mobilize $1.5 billion, without counting the proceeds of the privatization scheme which have gone into public spending in areas covered by the Peru country programme.

Choice of the Co-financing Modality

As the IFIs know, the UNDP country office enjoys a very close relation of trust and partnership with the Peruvian Government. As a partner, it is involved more directly than other country offices in the policy dialogue on development, including strategy, role and modalities of external cooperation. Apart from the fact that the UNDP programme is deliberately used in a preinvestment mode to prepare important loan or technical cooperation projects, the UNDP country office is generally consulted at the stage when loan projects with a technical cooperation component suitable for UNDP cost-sharing arrangements are identified, formulated and negotiated.

Role of Core IPF Funding

Since the days when Peru did not qualify for IFI lending, core IPF funds have frequently been used along with government cost-sharing for seed or risk money for preparatory activities or for starting projects which later acquired very substantial cost-sharing either from government or from IFI sources. Examples include a large IDB cost-shared project for the development of legislative capacity, Peru's privatization programme (itself subdivided into many specific projects), and important agricultural projects.

Use of Fees

The UNDP (line 158) charge for cost-shared projects ranges from 3 to 3.5 per cent. In one case-a public sector management fund which serves as an umbrella for the recruitment of national consultants (see below)-the fee has been lowered to 2.5 per cent. There appear to be no major objections to these charges by government, IFIs or other sources of cost-sharing. It is recognized that this income-80 per cent of which remain with the country office as in other countries-corresponds to services rendered in the field and that it is essential to ensure the operation of the country office and staffing commensurate with its partnership role in the country's development.

Rationale and Added Value

The basic motivation and the added value that the Government and IFIs expect to derive from UNDP cooperation made possible by cost-sharing are similar to those noted in Argentina and Brazil: transparency; objectivity; global access to expertise, experience, technological know-how and equipment; the capacity to sustain a policy dialogue at the country level and the capacity to design and manage (i.e., to guide, supervise, monitor and audit) complex programmes and to legitimize change; and the improvement of IFI loan performance, especially in the social and governance sectors.

The specific function and comparative advantages of UNDP action are illustrated by the different approaches taken by external support for the reform of the judiciary. A large World Bank project-which remains in the bank's pipeline for the end of the decade-started with an ambitious restructuring design but ran into strong resistance from the judges. A smaller IDB loan, based on a limited number of pilot projects, focuses on court management. Besides these IFI projects, a UNDP preparatory assistance project, started with government cost-sharing and a small input of core IPF funds and drawing to a large extent on the experience of Colombia, has adopted a broader institutional reform perspective, although with an important share of the project resources initially assigned to computerized management. While it is evident that the three initiatives are complementary, it will be important to synchronize them; it is expected that the UNDP project will play a lead role in this.

As regards the potential problems posed by the use of UNDP projects with government or IFI cost-sharing for hiring national experts assigned to government functions, a special effort has been made to avoid abuses that might result in long-term dependencies and a two-track civil service. All such contracting must be made under a large, government cost-shared umbrella project (Public Sector Management Fund). It is supervised by an interministerial committee of which UNDP is a member by law. Contracts are awarded for a maximum of six months, renewable only with committee approval. Salaries are limited to a middle range ($2,000 to $4,000/month), and double employment and cumulative salaries are prohibited.

SHD Advocacy

As in Argentina and Brazil, cost-sharing adds scope and impact to the advocacy role of the Peru country programme. UNDP has a clear SHD orientation, with emphasis on upstream institutional reforms and programmes designed to deal with SHD priorities such as the war against chronic rural poverty, sustainable environmental management, employment generation, health and education, and gender equality and human rights.

In this perspective, the Peru country programme contains a unique provision in that-by law-a set per centage of the proceeds of the country's ambitious privatization scheme, itself the object of the UNDP programme, is earmarked for UNDP action in the social area, dealing in particular with the social costs of the privatization process. This has enabled UNDP to fund a major social rehabilitation programme while other social-sector projects are in the country office pipeline.

UNDP Autonomy in Project Approval

As part of the country office's policy dialogue with the Government and of the role it plays in Peru in the identification and formulation of IFI loans with potential for cost-sharing, the UNDP country office can exert considerable influence over the content of the cost-shared projects. Differences of view tend to be resolved before the formal approval stage. In any case, there is no evidence to indicate that UNDP has approved projects that do not have a genuine development objective or in which UNDP would play no substantive role.

Control over Implementation

No major problems are reported in implementation control. The country office has devised and is operating an effective monitoring system involving state-of-the-art informatics technology. As in Argentina and Brazil, counterpart staff are being trained in monitoring, control and auditing; where cost-sharing from IFI loans is concerned, both UNDP and IFI auditing requirements are met.

Cost-sharing, National Execution and the Use of National Consultants

National execution is the norm in Peru and has posed no problems in connection with cost-sharing. Potential abuses are avoided under the Public Sector Management Fund and programme management at the field level (see above).

Cost-sharing and the Programme Approach

Cost-sharing and the participation of the country office in the policy dialogue on national development permit a programme approach both in programme formulation and in management, especially where monitoring and evaluation are concerned.

Payment of Cost-sharing

No problems or major delays in the payment of cost-sharing are reported. Whenever necessary and possible, UNDP core funding may be used as front money, on a project-by-project basis, pending payment of cost-sharing from the government budget or from IFI loans.

Conclusions and outlook

The conclusions that can be drawn from the experience of Peru with regard to the mobilization of non-core IPF funds for the country programme are generally consistent with those suggested for Argentina and Brazil.

(a) The fact that the UNDP country office has built up a capital of credibility and trust during the years when Peru did not qualify for most other external sources of technical and financial cooperation has given it an unusually high level of access both to the Government and to IFIs and allows it to play an active role in the national policy dialogue on development and the use of outside support.

(b) Peru has devised an imaginative and effective method of control, involving both the Government and the UNDP country office, to prevent the abuse of cost-sharing in hiring staff for government functions. Equally imaginative is the automatic channelling of a quota of the proceeds of the country's privatization to UNDP project action in the social sector, confirming the priority attached by UNDP to SHD.

(c) Like Argentina and Brazil, Peru (and the Peru country programme) subscribes to the concept of SHD, broadly designed to include upstream action ensuring that the country's SHD objectives (the eradication of poverty, employment, sustainable environmental management, gender equality, human rights) be defined and met by an improved system of governance and by a vital, market-driven economy.

(d) The outlook for the future availability of non-core financing, particularly in the form of government or IFI loan-derived cost-sharing, is quite promising. Even though the country's institutional capacity has been strengthened, UNDP continues to be seen as a partner both in the development dialogue and in important areas of development.

(e) As regards the transposability of the successful Peruvian experience, there is no doubt that the critical variables include the confidence (and political support) of the Government; the good working relations with IFIs; the capacity of the country office to manage and monitor through an effective, state-of-the-art informatics system; and generally, the continued existence and quality of the country office.

18 The reports for Central America were prepared by Fuat M. Andic (El Salvador, Nicaragua, Panama). The reports for South America were prepared by Peider Könz (Argentina, Brazil, Colombia, Peru). The Colombia report is based on direct conversations with the Resident Representative and others but did not include a country visit. The reports for Africa were prepared by Duduzile Q. Chandiwana (Zimbabwe) and W. Haven North (Ethiopia and Mozambique). The report for Botswana is a joint effort of Ms. Chandiwana and Mr. North, who visited the country together. Ralf Maurer prepared the reports for Asia and the Middle East (Indonesia, Lebanon, and Viet Nam).

19 Because of this situation, it was not possible to meet with a government representative. Also the World Bank Resident Representative was not available.

20 The UNDP country office has reported that it has become more active in donor coordination. It is a permanent member of a core group of five who meet with the Minister for Economic Development and Planning monthly to discuss development issues. It also coordinates the donor group on IGADD and a sub-group on regionalization. In addition, it attends the monthly donor coordination meetings led by the World Bank and sub-groups on the social sector, agriculture and transport. The 1993 Development Cooperation Report has proved useful, soon to be followed by the 1994 report.

21 Aid coordination and aid management fall into the broader area of development management.

22 Given the fact that a good portion of UNDP's core activities in aid coordination and management is not directly linked to project disbursements, a financing strategy focusing too much on project-based co-financing would be misplaced. Likewise, certain co-financing practices under NEX (especially in the LAC region) are problematic in terms of their development rationale.

23 Given its lead role in aid coordination, UNDP sees its responsibility as ensuring that international donor funds are well utilized.

24 Ultimately, in a country where virtually everybody is poor, any development efforts can claim to alleviate poverty.

25 Statistical data show that cost-sharing with non-core funds is very limited.

26 GEF procedures stand out as particularly cumbersome.

27 While the UNDP country office in Viet Nam believes it is time to lift the limitations, some in UNDP contend that complete decentralization of decision-making authority is already a fact of life: Latin America is cited as an example where clever use is made of existing "bureaucratic flexibilities" by separating larger projects into several smaller ones that fall within the Resident Representative's authority.

28 Headquarters' systems are focused mainly on IPF, providing virtually no support for monitoring co-financing operations (government and third-party cost-sharing, GCCC). Parallel financing is not captured at all.

29 "Dada la fuerte cantidad de recursos adicionales que se necesitarán para la implementación del mencionado Plan, ambas Partes hacen un llamado a la communidad internacional para que brinden el mayor apoyo posible a las gestiones de recaudación. Para el efecto, se creará un Fondo de Reconstrucción Nacional, el cual será apoyado por el Programa de las Naciones Unidas para el Desarrollo (PNUD).

"El papel del PNUD incluirá asesorar al Gobierno en todo lo atingente a movilizar apoyo externo, contribuir a la preparación de proyectos y programas susceptibles de recibir dicho apoyo, agilizar los trámites ante organismos oficiales de carácter bilateral y multilateral, movilizar asistencia técnica y colaborar con el Gobierno en compatibilizar el Plan con las actividades de los organismos no gubernamentales dedicadas a actividades de desarrollo a nivel local y regional." See Acuerdos de El Salvador: En El Camino de la Paz. San Salvador, Naciones Unidas, 1993, p. 89.

30 The analysis of this section is based on the responses to the questionnaire and interviews with the staff of the country office.

31 These considerations are based on interviews since the Government and donors did not fill out the questionnaire.

32 Total grants and loans from multilateral and bilateral donors amounted to $3.1 billion between 1990 and 1994. Source: Ministerio de Cooperación Externa.

33 The Group is composed of Canada, Spain, Mexico, Benelux, and Sweden.

34 These emerge from responses to the questionnaire and from interviews.

35 These comments are based on interviews only since the Government had not responded to the questionnaire while the consultant was in the field.

36 Based on responses from Canada, Japan, and Sweden and interviews with the bilateral donor community and IDB.

37 In March 1996, government cost-sharing is reported to have risen to $10.6 million while third-party cost-sharing now amounts to a little over $1.2 million.

38 According to more recent figures, parallel financing/follow-on is now well in excess of $100 million (March 1996).

39 In another case involving AGFUND, UNDP had to spend a disproportionate amount of time in obtaining the relatively small sum of $50,000 that had been promised.

40 The UNDP country office considers anything over and above its IPF as co-financing. In this respect, the country office feels that its efforts should be aimed at generating resources from outside the organization and should not be directed at tapping UNDP internal sources.

41 Some of the systems developed by headquarters for country office administration are excessively complicated. A case in point is the AOS budget system, which requires not only recalculation of AOS each time a budget line changes but, based on the current formula, also an adjustment in the field office administration charges. Furthermore, the software supplied for administration of the system is insufficiently flexible since it does not allow additional funding sources to be added. Multiple complaints by the country office have earned no reply from headquarters.

42 According to more recent figures, parallel/follow-on financing is now well in excess of $100 million (March 1996).

43 UNDP believes that the view ascribed to its counterpart in this section misrepresents CDR's true attitude relative to co-financing with UNDP. Since the opinion is based on a single interview with CDR, it needs to be taken with a grain of salt.