Harmonization and Alignment: The Double-edge Swords of Budget Support and Decentralized Aid Administration

O Winckler Andersen, O Therkildsen
2007

Summary

What are the impacts of the harmonisation and alignment of aid on transaction costs and local ownership? How can we analyse the extent to which various policy instruments lead to improvements in harmonisation and alignment? This working paper from the Danish Institute for International Studies (DIIS) argues that the ‘partnership’ perspective which underpins much of the thinking about harmonisation and alignment does not provide an adequate analytical framework to answer these questions. Instead a more realistic ‘political economy’ perspective is proposed.

The ‘partnership’ perspective assumes that donors and recipients share the same preferences with respect to the use of aid; and that they have sufficient incentives for cooperation and adequate information about each other to work towards the fulfillment of these preferences. Yet, progress on implementation of the Paris Declaration, for example through increased budget support and decentralised aid administration, has been mixed. Indeed, such measures may, in some cases, lead to increased and unintended transaction costs and reduced local ownership.

Thus, a ‘feel good rhetoric’ and unrealistic assumptions characterise the ‘partnership’ perspective. This leads to over-optimistic assessments of the real impacts of harmonisation and alignment efforts on transaction costs and local ownership. A ‘political economy’ perspective assumes that donors and recipients have divergent preferences, often weak or negative incentives for co-operation and incomplete information about each other. This reflects the real-world situation better.

A number of additional specific points are made:

  • There is an urgent need to address the conceptual and empirical issues raised by the Paris Declaration.
  • Transaction costs are difficult to define and quantify. The concept of transaction costs could be made more operational by distinguishing between different kinds of transaction costs and in particular between direct and indirect transaction costs.
  • Moreover, harmonisation and alignment may sometimes result in a reallocation of transaction costs between actors on the recipient side. This increases demand on the capacity of recipient organisations, and does not necessarily lead to a reduction in recipient transaction costs.
  • Most donors wish to participate actively in donor co-ordination and to maintain an individual donor profile. This may lead to permanently high transaction costs.
  • The ownership concept is difficult to operationalise and relevant information is difficult to obtain. Empirical analyses of the impact of harmonisation and alignment initiatives on local ownership are therefore complex to carry out.
  • The level of local ownership often depends on the level of ownership of Poverty Reduction Strategy Papers (PRSPs). The tendency of donors to try to influence recipient policies can undermine the domestic political process.
  • Budget support may result in high transaction costs because donors regard it as more risky and less visible than project and sector programme aid. It also requires better co-ordination and increases demand for dialogue, consultation, negotiation and information.
  • Decentralised aid administration may contribute to weaken local political ownership because enhanced local presence of donors opens up for various strategic alliances among them. This can lead to a reduction of ownership and may put more pressure on recipients for ‘policy dialogue’ with donors.
  • Without adequate capacity, recipient countries cannot carry out ownership responsibilities in a meaningful way.

Source

Winckler, O., and Therkildsen, O., 2007, 'Harmonization and Alignment: The Double-edge swords of Budget Support and Decentralized Aid Administration', DIIS Working Paper No. 4, Danish Institute for International Studies, Copenhagen