Luận án effective aid coordination in lao PDR policy implication for power sector development

MINISTRY OF EDUCATION
LAO NATIONALUNIVERSITY

MINISTRY OF EDUCATION AND TRAINING
NATIONAL ECONOMICS UNIVERSITY

Khammany INTHIRATH

EFFECTIVE AID COORDINATION IN LAO PDR:
POLICY IMPLICATIONS FOR POWER SECTOR DEVELOPMENT

Specialty : Investment Economics (Development Economics)
Code
: 62.31.05.01
Supervisor: Assoc.Prof.Dr. Nguyen Thanh Ha

A dissertation submitted to the National Economics University in
fulfillment of requirements for the Degree of
Doctor of Philosophy in Economics

Vientiane, 2013

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DECLARATION

I hereby declare that this dissertation is my own work and effort. The dissertation
has not been submitted anywhere for any award. All the sources of information used
have been well acknowledged.

Date:

Signature:

Khammany INTHIRATH

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ACKNOWLEDGMENT
I would like to sincerely thank many people whom provided much support into
producing this thesis and paving the way for the research topic to be one of the
significant findings. I wish to express my profound gratitude to my supervisor
Associate Professor Dr. NGUYEN Thanh Ha, National Economics University
(Vietnam), for his great support and guidance throughout my study. His
encouragement and constant attention contributed significantly to the outcome of
this research.
I am grateful to my sponsors such as the Ministry of Energy and Mining and
the National University of Laos in enabling me to achieve a higher education at
National Economics University, Vietnam.
Many thanks to all interviewees whom shared knowledge and ideas. My
sincere thanks out to the Lao Government officers from the Government Office,

Ministry of Energy and Mines, H.E Mr. Soulivong DARAVONG, Minister of
Energy and Mines, etc and many other officers whom were involved in my research.
The European Commission Lao PDR Office international staff, the World Bank
residential office and United Nations Development Programme staff who are
involved in the aid effectiveness agenda in Laos and friends from development
communities were all of assistance in this reseach.
Last but not least, many thanks are due to my wife and my family who
provided me endless love with support and strength through out of my life.

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TABLE OF CONTENTS
DECLARATION...................................................................................................... ii
ACKNOWLEDGMENT......................................................................................... iii
TABLE OF CONTENTS........................................................................................ iv
ABBREVIATION ................................................................................................... vi
ABSTRACT .................................................................Error! Bookmark not defined.
RATIONALE........................................................................................................... xi
CHAPTER 1. LITERATURE REVIEW ................................................................1
CHAPTER 2. THEORETICAL FRAMEWORK ON ODA COORDINATION
EFFECTIVENESS ....................................................................................................6
2.1. Development Theory..........................................................................................6
2.2. Development Aid ................................................................................................7
2.2.1. Donor Motives ..................................................................................................7
2.2.2. Defining Official Development Assistance (ODA) ..........................................9

2.3. Aid coordination and its effectiveness ............................................................10
2.4. Dimensions of Development Assistance Coordination .................................13
2.5. Sector Wide Approach and Programme Based Approach ..........................14
2.6. Principles of Effective Aid Coordination .......................................................15
CHAPTER 3. KEY LESSONS LEARNT FOR LAO PDR ................................16
3.1. Lesson from Vietnam ......................................................................................16
3.2. Lesson from Timor L’Este..............................................................................20
3.3. Comparative Lessons.......................................................................................23
CHAPTER 4. HOW ODA COORDINATION IMPLEMENTED IN LAO......26
4.1. Millennium Development Goals (MDGs)......................................................26
4.2. Paris Declaration..............................................................................................28
4.3. Vientiane Declaration and Country Action Plan (CAP) .............................28
4.4. The Round Table Meeting/Process (RTM/RTP)..........................................30

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4.5. Sector Working Groups (SWGs) ...................................................................31
4.6. Critiques............................................................................................................34
4.7. Current ODA in Lao P.D.R. ...........................................................................39
4.8. Effort of Government of Lao PDR.................................................................44
4.9. Coordination in Practice .................................................................................45
4.10. Sectorial Working Groups (SWGs) .............................................................46
4.11. Evolution of Current Coordination System................................................47
4.12. OECD DAC Survey .......................................................................................49
4.13. International Development Agencies...........................................................51

CHAPTER 5. POLICY IMPLICATIONS FOR POWER SECTOR
DEVELOPMENT ...................................................................................................55
5.3. Power Sector Policy..........................................................................................74
5.4. Power Sector Strategy towards 2025..............................................................74
5.5. Recommendations ............................................................................................78
5.6. Regional Coordination Effort.........................................................................80
CONCLUSION........................................................................................................82
REFERENCES ........................................................................................................84

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ABBREVIATION
ADB

Asian Development Bank

AI

Avian Influenza

AIDS

Acquired Immune Deficiency Syndrome

AP

Action Plan

CAP

Country Action Plan

CAW

Country Analytic Work

CDF

Capacity Development Framework

CPI

Committee for Planning and Investment

DAC

Development Assistance Committee

DIC

Department of International Cooperation (MoFA)

DP

Development Partner

DSA

Daily Subsistence Allowance

EC

European Commission

FAO

Food and Agriculture Organization

FY

Fiscal Year

FW

Framework

GoL

Government of Lao PDR

HCS

Hanoi Core Statement

HIV

Human Immunodeficiency Virus

INTOSAI

International Organization of Supreme Audit Institution

Lao NCAW

Lao National Commission for the Advancement ofWomen

LWU

Lao Women’s Union

MAF

Ministry of Agriculture and Forestry

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MCTPC

Ministry of Construction, Transport, Post and Communications

MDG

Millennium Development Goals

MoE

Ministry of Education

MoF

Ministry of Finance

MoFA

Ministry of Foreign Affairs

MoH

Ministry of Health

MoU

Memorandum of Understanding

MTEF

Medium Term Expenditure Framework

NGO

Non-Government Organization

NSEDP

National Socio-Economic Development Plan

ODA

Official Development Assistance

OECD

Organization for Economic Cooperation and Development

PACSA

Public Administration and Civil Service Authority

PBA

Program Based Approach

PEMSP

Public Expenditure Management Strengthening Program

PFM

Public Financial Management

PGAE

Partnership Group on Aid Effectiveness

PIP

Public Investment Program

PIU

Project Implementation Unit

PMU

Project Management Unit

PrMO

Procurement Monitoring Office

RTIM

Round Table Information/Implementation Meeting

RTM

Round Table Meeting

SIDA

Swedish International Development Agency

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STEA

Science, Technology and Environment Association

SWG

Sector Working Group

TC

Technical Cooperation

TSA

Treasury Single Account

UNCT

United Nations Country Team

UNDP

United Nations Development Program

UNFPA

United National Population Fund

UXO

Unexploded Ordinance

VD

Vientiane Declaration (on Aid Effectiveness)

WB

World Bank

WHO

World Health Organization

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ABSTRACT
Lao PDR has a lengthy history, abundant and natural-resource-rich country
with plenty of minerals, rivers and creeks which are seen to be hidden strengths for
the development of power, particularly hydropower, thermal, wind power, and solar
energy.
Total energy demand of the Lao People's Democratic Republic was 2.4
million tons of oil equivalent (Mtoe) in 2010, with an annual increment of 3 to 4% in
parallel.with stable economic growth. Therefore, it is estimated that total energy
demand in 2025 will be 6.4 million tons, approximately 2.6 times current demand. In
terms of sector-wise demand, the industrial sector accounts for about 31%, the
transportation sector for about 29%, the residential sector for about 29%, the
commercial sector for about 10%, and the agricultural sector for about 1%. Among
these, the industrial sector and the transportation sector, in particular, show higher
annual increases of l5% and 8%, respectively. These are sectors where remarkable
growth of demand is expected.
Currently, the major energy supply sources are firewood/charcoal (about
47%), petroleum (about l9%), and hydropower (about 19%). However, in view of a
sharp rise in energy consumption in the transportation and the industrial sectors, it is
thought that the petroleum contribution of overall energy sources will be about 60%
in 2025. In addition, the share of electricity is expected to grow substantially as the
electrification rate increases from the current level of abofi 70% to 90% in 2020, and
electricity consumption will increase sharply due to increasing use of home
appliances.
The Government of Lao PDR is expected to establish institutions to secure
energy efficiently by making reliable energy demand forecasts and formulating an
appropriate energy policy and supply pian.
The purpose of this research is to find what is “effective aid coordination”
particularly drawing from the case study of Lao PDR and lessons from successful cases

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and what possible recommendations for power sector development are. The study
explore extensive literature in aid effectiveness, with an in-depth interview with the
managers, leaders, practitioners etc. Information synthesis is used in to analyze the
data. It is proposed that a solution to the problem of poor delivery of ODA is that the
Lao PDR governement, in general and power sector, in particular must improve its
ODA spending systems and incorporate aid budgets into the national budget and
development plans. It is vital to encourage the Government of Lao PDR to lead their
own development agenda and support development according to local priorities.
The results suggest that it is not just a matter of coordinating aid effectively,
but the aid industry needs the right capacity and people to be involved. Capacity
building is much needed within the recipient national offices as well as many of the
international donor agencies. This would allow the local government to take the
lead and prioritize the commitments signed in the Paris Declaration, the Vientiane
Declaration and the Millennium Development Goals.
It is recommended by many practitioners that the number of agencies working
in decision making processes in the aid effectiveness agenda in Lao PDR should be
limited to reduce transaction costs and promote clear communication within the
development community. However different environments such as Timor L’Este,
suggests that civil society should be involved more and that donor agencies should
not take the lead in aid delivery.
The key point to be learnt is that ODA needs to enhance its efficiency through
the best use of limited resources, aligning with national planning, programming,
monitoring and reporting processes, strategic documents, and priorities.

There

should be flexibility to establish and abolish donor coordination groups, avoiding
administrative overburden of public administration staff, while attempting to comply
with donor requirements, established systems and procedures for programming of
donor’s funds.

The effective use of existing national planning, monitoring

structures, equipped with national leadership and ownership in aid coordination
should be taken into account.

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RATIONALE
As a country condition of mountainously and rich of water resources, Lao
PDR is having 23,000 MW exploitable hydro power potential. With a quick
development of economic and government policy on attraction of the foreign
investment, those hydropower potential has been step to step developed for both
domestic consumption and export for country income generation. Continue of
economic growth is needed to alleviate poverty and achieve social development
goals but the policy options for achieving this are constrained by the small domestic
economy and limited trade opportunities. Therefore, hydropower projects are a
development opportunity for both local and central of Lao PDR in overall
development. The power policy of Lao government aim to establish a priority policy

of developing the country’s potential energy resources to provide a low cost source
of energy that can meet export and domestic policy objectives and promotion of
sustainable development.
The country now has installed power generation capacity of over 3,000 MW,
of more than 13 hydro power projects or about 6,000 MW are under construction
and more than 6,000 MW are under various stages of development by 2025, it is
expected that export would be 80-85% of developed capacities. To transmit of those
power there are a strategy of domestic and international grid development where it
can be divided into domestic interconnection (connection of Northern to Southern
part of Lao PDR) and regional interconnection (connection of Lao PDR to
neighboring countries for power exporting). The Memorandum Of Understanding
(MOU) was signed for supply of power between Lao and Thailand are 7,000 MW
and 5,000 MW between Lao and Vietnam by 2020.
For Lao PDR, Official Development Assistance (ODA) is very important
mechanism to promote the potential of investment fund, technology, marketing,
management experiences, take part of job creation, increase of income level,
upgrade of country development level. Therefore, promotion and attraction of ODA

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and FDI is become one of priority policy of party and government of Lao PDR.
Promotion of the ODA into Lao for development of important sectors; potential
sectors are essential necessary for current situation, especially for development of
energy sectors because this sector is an major part of country socio-economic
development; it is a necessary of living condition of the people, generate income

from export of surplus power from domestic use to neighboring country, creation for
income from job opportunity for workers. Together with those, it is also a factor
contribute to promote other sector development as well.
Currently in the world, there are many type of energy; for Law PDR, with
geographic condition, we are having of river which is potential of hydropower
development. According to survey, Lao PDR is potentially of 23,000 MW of energy
can be developed, in there; 13,000 MW could be generate from development of
potential from Mekong river tributary and another 8,000 MW are from Mekong river
tributary and 2,000 MW is from the other type of energy potential. At the moment,
Lao is having 14 officially hydropower plants with generating of 2,558 MW, in their
Electricite Du Laos (EDL) is direct managed of 9 hydropower plants with 385 MW
installed capacity and there could generate of 1,700-1,800 million KWh. Now; every
provincial city; district are already electrified and more than 72% of households are
also electrified. EDL is also supply power to irrigation project for more than 24,000
projects which is further supply of water to production area of 200,000 hector and
supply of power to heavy and light industries of more than 30,000 Unit. In the past
five years, revenue of EDL business operation could reached 1,600-1,800 Billion
Kip; where increased 20-36%. From 1988-2007 Foreign Investment is approved of
1,800 projects with total fund of 9.2 Billion US Dollars, particularly in year 2006 is
a year that development of hydropower is highest with 13 projects and 1.7 Billion
US Dollars fund. In the past 20 years from 1988 to present implementation of
foreign investment policy in Lao PDR were approved from more than 9.2 Billion US
Dollars and in there total investment of energy sector are 4 Billion US Dollars
covered very high proportion compare to the other investment sectors. From 2007-

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2010 EDL are working with other foreign business investment partners of 5 projects
with total capital investment cost of 1.8 Billion US Dollars.
However, for promotion of the ODA are still having several limitation for
example: understanding of the ODA is still different, recent year Lao PRD is
announced for use of the Investment Promotion Law and many other legal
documents concerning ODA and how to use such aid effectively. In the same time
management, selection, approval and opening of the investment form, investment
form of the government into different sectors in particular for the join investment of
the government into energy sector is not yet having a proper package system, thus
this make a difficult to prepare a policy, policy and detail implementation, this
become a limitation of the research on ODA, therefore it make an investment
environment is complicated, legal system, policy is not yet in a one full set system.
There are many policies concern with ODA are regularly adjusted, not clear and thus
this impact to business operation. Further to that policy system on the ODA, foreign
direct investment, etc. between government, ministries and local authority is still not
harmonized and break through, This make difficulty to donors and investors. Those
limitations are making investment climate and environment are liquidity.
Official Development Assistance (ODA) has a long history, yet its
effectiveness and efficiency has always been a concern of both the donor and the
recipients. In order to enhance the efficiency and effectiveness of ODA, the Paris
Declaration has been identified as the key development frame work in leading the
aid effectiveness agenda. It is a contract between members from various developed
and developing countries in an effort to reduce poverty. This dissertation draws
attention on the aid effectiveness agenda and the search for better ways to use such
aid most effectively.
Effective Aid Coordination, as the topic suggests, is all about how to bring
development communities together as one and propose that poverty reduction work
should be incorporated into one master plan. When development institutions work

independently, projects are duplicated and already limited resources are wasted.
With aid coordination, the local government can monitor and outline the priorities

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needed for Lao PDR and allow interested parties to contribute to the government
plan. However the aid coordination system in Laos is not working well at present.
Examples from case studies drawn from Vietnam and Timor L’Este may provide
some useful lessons.
The author has been working in the energy sector for a long time. Through
out the working live, from being a provincial staff on electricity supply
management, to being the Director of Electricity Du Laos State Enterprises, and
currently the Deputy Minister of the Ministry of Energy and Mines, I have seen
and dealt with several aid programs through out the country. The author also has
an extensive network in the ODA administrators and the receipient organizations.
Therefore, the inspiration for this topic was driven by personal experiences. During
my work life, I was overwhelm by the enormous amount of ODA in flows in to Laos.
Observing the aid industry I can see the benefits that aid does for the local people, at
both the central government and provincial government levels, as well as for
expatriates working in development agencies, donors, NGOs and particularly the poor
whom ideally are beneficiaries, which is the prettier side of aid.
The down side of aid is “the operation of aid.” Within the UN agencies
themselves, aid money is not entirely spent for its best use. There are duplications of
projects within the UN system, as well as the entire aid industry. Some projects
adversely affected the beneficiaries more than benefited them. The capacity of

development experts locally and internationally are not always competent to deliver.
The local government is often puzzled but takes aid with open arms.
Since the Millennium Development Goals (MDGs) were set for the year
2015, Laos has signed up to commit to meeting the deadline. There is however, very
little optimism regarding meeting the commitment to aid coordination in Laos. If
only aid could be coordinated and allocated correctly the output of aid could yield
favorable outcome.
Research Aims and Objectives
The aim of this dissertation is to investigate a working model of aid
coordination for Lao PDR with a focus of the country’s ODA status. This will
provide a better understanding of how the aid environment system operates within

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the country. In addition to Lao PDR, lessons from Timor L’Este and Vietnam will
be discussed to briefly outline what these countries are doing with regards to
harmonizing ODA and what best practices could be suggested for Lao PDR. It is
assumed that coordination is the key approach for aid effectiveness.

The

dissertation objectives are:
1. To evaluate the current working model for aid coordination efforts in Lao
PDR. With this model it can be analyzed whether the current existing approach is
effective or not.

2. To find alternatives for aid coordination for Lao PDR for improvement.
3. To recommend possible policies and solutions to promote effective use
of external aid in the field of power sector development.
Research Questions
1. What is the aid effectiveness agenda in Lao PDR? Which institutions are
involved?
2. What are the local efforts from international agencies and donor
communities for aid effectiveness efforts in Laos?
3. Does the local development community support the local government in
aid coordination?
4.

What lessons Lao PDR could learn from successful cases of ODA

harmonization and coordination?
5.

What are the alternatives for Laos to improve aid coordination and

harmonization in order to promote power sector development?
Research Methodology
To achieve the above objectives this dissertation follows three steps of
research:
Collecting data. (i) Primary data were collected from different aspects
regarding power sector. The samples from each view were taken from different
sides of the sector. The author had deep personal interviews with different
managers, leaders, practitioners of related institutions/ organizations within the
Ministry of Energy and Mines, MPI, international offices, etc.
(ii) Secondary data were obtained from different sources (Office of the

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government of Lao PDR, international sources, etc) but mostly from research work
done by international offices from which I myself had been involved to some
extent. Some relevant literature were also reviewed.
Data and information analysis. Data and information obtained are used to
analyze current situation of ODA use in Lao PDR.
Recommendations.

Possible

policies

and

solutions

regarding

the

development of the power sector of Lao PDR in years to come will be outlined in
the last chapter based on previous analysis.

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CHAPTER 1. LITERATURE REVIEW
Official Development Assistance (ODA) has a long history, yet its
effectiveness and efficiency has always been a concern of both the donor and the
recipients. In order to enhance the efficiency and effectiveness of ODA, the Paris
Declaration has been identified as the key development frame work in leading the
aid effectiveness agenda. It is a contract between members from various developed
and developing countries in an effort to reduce poverty. This thesis draws attention
the aid effectiveness agenda and the search for better ways to work in the
development field, including governments and development professionals.
1.1. According to A. McCarty and A.Julian [1], (Bilateral) ODA to Lao
PDR originated in the early 1960s, and multilateral ODA was first recorded in the
late 1970s. Since then, total ODA has shown a strong increasing trend up to the
present, although there has been some fluctuation year on year, with bilateral donors
traditionally contributing the larger proportion of ODA. Total ODA in 2007 stood at
US$ 280 million, which is approximately 7% of GDP - a large percentage relative
to other aid recipients. Japan, France, and Sweden are Lao PDR’s largest bilateral
donors, contributing respectively 40.1%, 16.8% and 11.8% of total bilateral aid
between 2005 and 2007.
Lao PDR is classified as an LDC and is, therefore, covered by the 2001 DAC
Recommendation to untie aid. Between 2005 and 2007 DAC donor countries
formally untied over 70% of their ODA commitments to Lao PDR (CRS).
Meanwhile, for the same period, 22% of bilateral ODA remained unreported with
regard to tying status. The process of untying aid has improved over the last decade,
despite the hesitation of some donors to move to non-project based aid modalities,

such as budget support and pooled funding, which are often associated with
untying. Lao PDR receives largely grant aid as an instrument (98% of DAC ODA in
2007) and project based aid modalities. Several donors also provide project based or
free-standing technical co-operation, in many cases alongside grant funding for
projects, which is often tied. For example, grants which involved no free-standing
technical cooperation (FTC) reported a 96.8% untied share, whereas grants which

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had a whole FTC component reported an untied share of just 27.8% (CRS, 200507). The three largest DAC donors to Lao PDR; Japan, France and Sweden, all
reported a high proportion of their ODA as untied for 2007: 68.9%, 62.3% and
98.5% respectively. Lao PDR also receives substantial aid from non-DAC donors
that is considered to be largely tied and not necessarily conforming to OECD
definitions of ODA.
The aim of the econometric analysis is to determine whether ODA, the tying
status and the instruments by which aid is provided (loans and grants) have any
significant impact on aggregate donor export flows to the recipient, in this case to
Lao PDR. Overall, the results show that aggregate ODA, and grants in particular,
have significant trade distorting effects through the increase in donor-recipient
exports. This empirical evidence suggests that aid flows could be informally or de
facto tied, when analysis of data from a cross section of donors to Lao PDR is
performed. However, as outlined in the econometrics investigations this analysis
has some caveats.
1.2. Soudalie Silaphet [81] conducted a study to find out solution to the
problem of poor delivery of ODA is that the development industry must improve its

ODA spending systems and incorporate aid budgets into the national budget and
development plans. It is vital to encourage national governments to lead their own
development agenda and support development according to local priorities. He
found that it is not just a matter of coordinating aid effectively, but the aid industry
needs the right capacity and people to be involved. Capacity building is much
needed within the recipient national offices as well as many of the international
donor agencies. This would allow the local government to take the lead and
prioritise the commitments signed in the Paris Declaration, the Vientiane
Declaration and the Millennium Development Goals.
He also recommended that the number of agencies It is recommended by
many practitioners that the number of agencies working in decision making
processes in the aid effectiveness agenda in Laos should be limited to reduce
transaction costs and promote clear communication within the development
community. However different environments such as Timor L’Este, suggests that

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civil society should be involved more and that donor agencies should not take the
lead in aid delivery.
1.3. According to OECD [61], Lao PDR, in 2006, had a gross national
income (GNI) per capita of USD 2050 (in purchasing power parity terms). Lao PDR
is a low-income country with high poverty rates. The most recent poverty survey,
conducted in 2002, estimated that 27% of the population lived below the dollar-perday international poverty line, with 74% living below the two-dollars-per-day line.
The country is on track to meet three of the eight Millennium Development Goals
(MDGs): MDG 2 on universal primary education; MDG 4 on reducing child mortality;

and MDG 5 on improving maternal health. In 2006, total net official development
assistance (ODA) amounted to USD 364 million, with the Asian Development Fund
(ADF), Japan and the World Bank were the top three donors for 2005-06. Lao PDR
was not included in the 2006 Baseline Survey for the Paris Declaration. Thus, the
country’s 2010 targets will be based on the results of the 2008 Survey.
Sixteen donors responded to the 2008 Survey, with their aid constituting
75% of total ODA provided by members of the OECD Development Assistance
Committee (OECD-DAC). Aid accounts for some 12% of GNI in Lao PDR; thus, it
is vital that government and donors work together to enhance aid effectiveness.
In order for aid to be effective, it must be aligned with national development
strategies, institutions and procedures. The Paris Declaration envisions donors
basing their support fully on country partner aims and objectives. Indicators will
examine several dimensions of aid to assess the degree to which partner countries
and donors achieve alignment. The data for Lao PDR suggest that there is
substantial room for progress for most indicators, especially with regards to
improving the reliability and use of country systems, for which the baseline is very
low. Although reforms are being made, there is a lack of financial and human
capacity to implement and reinforce these reforms, which calls for long-term
commitment from donors. The limited use of these systems also contributes to low
levels of aid reliability which further lowers aid effectiveness.
Capacity constraints significantly undermine the ability of partner countries
to capture, co-ordinate and utilise aid flows more effectively. Under the Paris

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Declaration, donors committed to providing technical co-operation in a manner that
is co-ordinated with partner country strategies and programmes. This approach aims
to strengthen capacities while also responding to the needs of partner countries.
Likewise, there is greater recognition that successful capacity building is
endogenous – e.g. is led by the partner country.
To this end, the partner country defines clear objectives to ensure that
existing capacities are used effectively and that external support is harmonised
within this framework. Some indicator focuses on the extent to which donor
technical co-operation – an important input into capacity development – is moving
towards this country-led model. It measures the degree of alignment between donor
technical co-operation and the partner country’s capacity development needs and
strategies. The Paris Declaration 2010 target is that 50% of technical co-operation
flows are implemented through co-ordinated programmes that are consistent with
national development strategies. Data for 2007 shows that 54% of technical cooperation to Lao PDR was co-ordinated with country programmes. This is
encouraging. The remaining gap may be the result of the NSEDP’s overall lack of
an articulated strategy for dealing with capacity bottlenecks. The Vientiane
Declaration has given attention to this issue and has formulated capacity
development frameworks for the NSEDP’s priority sectors. Co-ordination of
technical co-operation is now taking place in the education sector and is an
important component of the PFMSP.
The Paris Declaration 2010 target is that 50% of technical co-operation be coordinated with country programmes. The data suggest that Lao PDR has already
exceeded this target although further progress can be made. A governmentcommissioned report on the impact of technical co-operation was recently conducted:
the lessons learned from this report will provide a platform for further improvement.
On aggregate, 38% of scheduled disbursements in 2007 were accurately
recorded by the government, although only 65% of scheduled aid was actually
disbursed. For the average donor, the ratio was an even less encouraging 24%.
These gaps can result from several factors: inconsistencies and gaps in the legal and
institutional framework for managing ODA; weak co-ordination between donors

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and the government in preparing realistic disbursement plans; and donors and
government using different PFM and procurement systems. The government is
taking steps to improve the predictability of aid by establishing a comprehensive
ODA database and by working with donors to develop ways to improve overall
project and financial management.
1.4. According to Travis Harvey [84], the government of Lao PDR and donor
counterparts have a good understanding of the steps required for success and
ownership of the process. DG’s experiences have taught us to adopt a collaborative
approach in designing and implementing processes for aid management, and to
ensure they build on existing ones rather than seeking to replace them. Regular
introductory and refresher user training for key staff has proven critical, as has the
identification of advanced users who can play a role in supporting others in the
future. During this mission the team conducted group training for desk officers and
one-on-one training for senior government officers.
Connectivity between government offices and the AMP server has been an
issue over the past few months because the government data center was being
moved into a new building. During this time DG hosted the system off-site to
maintain access for users. This issue was resolved during the mission by reestablishing a stable hosting arrangement and fiber-optic connection to the Ministry.
Development partners will access the system via the internet when they begin using
it later this year.
Broad stakeholder buy-in is key to success in AMP country programs. During
this mission the team held a workshop to sensitize other government agencies and
development partners to the program and the workplan. This will be especially
important in the lead up to the national Round Table Meeting (RTM) to be held in

October. The RTM will be a major opportunity to raise awareness of the program, and
DG will be there to support MPI in preparing and demonstrating the AMP system.

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CHAPTER 2. THEORETICAL FRAMEWORK ON ODA
COORDINATION EFFECTIVENESS
2.1. Development Theory
There are many arguments regarding development. Roger Riddell [68] notes
that foreign aid is often defined by its purpose; however, to understand the purpose,
of development aid, it is first necessary to understand what development is.
President Truman’s 1949 inauguration speech is often credited as the
commencement point of the modern-day development era [70]. President Truman
(1949) perceived development in economic terms but recognised that “their
[developing countries] poverty is a handicap and a threat both to them and to more
prosperous areas”; in essence, linking United States (US) development and stability
to the economic and democratic development of the wider world.
Development has a connection with poverty reduction. The early focus of
development concentrated on the reduction of poverty primarily through the
promotion of economic growth [21]. Development, in this sense, or otherwise
known as Modernisation Theory, was seen as developing countries following the
same growth path as pioneered by Western nations [41]. Proponents of this view,
for example Walt Rostow (1960) [98], understood development in a linear
economic fashion that was measured through such narrow indicators as Gross
Domestic Product (GDP). Des Gasper [26] notes that in its crudest form,

development equates to economic growth. However, this narrow understanding of
development raised criticisms from other academics. David Hulme and Andrew
Shepherd [96] noted that it understood “the poor as a single homogeneous group
whose primary problem is low monetary income and has led policymakers and their
advisors to search for ‘the policy’ that increases the income of ‘the poor’”. John
McKay [41] remarks that new theories on development emerged in the 1960s due to
the persistent failure of developing countries to actually develop. These theories
looked at wider development issues such as the structure of the international system
in dependency theory; or the expansion on this idea in World Systems theory; or
proponents of ‘wider development’ posit the expansion of liberty to the individual .

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Nevertheless, new theories developed over time, with two of them being
prominent today; Neo-Liberalism and Human Development. The former emerged in
the 1980s and can be seen as a resurgence of modernization theory. It proposes the
liberalization of international trade and sees development in economic terms that
occurs through market and private investment. It requires developing nations to
undergo structural adjustment programmes to configure their economies to the
western formats [41] [21] [35]. Conversely, Human Development posits that
“development can be seen... as a process of expanding the real freedoms that people
enjoy...focusing on human freedom” [76]. This approach emphasizes the
improvement in individual capabilities [68]. It considers other factors beyond the
economic progress such as the ability to attain education, health and security.
Moreover, security, in this sense, is the concern of the individual; human security. It

is measured by the Human Development Index from the United Nations (UN), with
the 1994 report being a turning point in linking development and (human) security.
Human security came to prominence in the mid 1990s, owning to it being
seen as an alternative to the narrow economic growth models of the International
Monetary Fund (IMF). It was developed along with many other security theories as
academics began to analyse security beyond the traditional state centric military
approach that was dominant, and rarely challenged, during the Cold War [66] [96].
One such theory, developed primarily by Barry Buzan and Ole Wæver at the
Copenhagen Peace Research Institute (COPRI), is securitization theory. This theory
has sought to ‘broaden’ and ‘deepen’ the security concept, however, the state
remaining as the primary object; a fundamental disparity from human security.

2.2. Development Aid
2.2.1. Donor Motives
Despite of aid had existed long ago, President Truman’s speech is considered
to be the commencement of the modern era in development and consequently,
development aid. Riddell [68] notes that the United Kingdom (UK) and France
both provided aid to their colonies in the 1920s and 1940s. Therefore, while
President Truman’s speech was not a revolution in designing a new concept, it did
shape the existing concept. It conveyed the idea more broadly to the developed

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world and beyond aid solely to colonial territories. The principal that underpins
foreign aid, according to Riddell [68], is “[t]hose who can should help those who

are in extreme need”. The underlying assumption of this principal is that it is the
donor’s responsibility to selflessly help. Initially, US aid cannot be seen in this
light. President Truman (1949) stated that the motives for US assistance lay in
helping poor people “realize their aspirations for a better life”. Additionally,
President Truman [84] linked the success of these developing countries to the
success and security of the US. Consequently, any aid that was provided went to
nations supporting US views [82]. As aid is rarely given solely for altruistic reasons
[9], when examining aid, it is essential to understand the motives of the donor as
they can often conflict with the altruistic principal Riddell proposes. Riddell [68]
outlines eight motives in donor decisions to give aid; (1) to help address emergency
needs; (2) to assist recipients achieve their development goals; (3) to show
solidarity; (4) to further the donor national political and strategic interests; (5) to
help promote donor-country commercial interests; (6) historical/colonial ties; (7) to
strengthen global public goods; (8) aid based on human rights decisions. While
simultaneously appeasing to many motives, most donors have strong tenets to a
few. The UK and France have traditionally been large sponsors to their former
colonies; in 2006, eight of their top ten recipients of aid were former colonies [62].
Scandinavian aid is focused towards reaching the poverty goals of their target
countries [20]. In this regard, Scandinavian aid is often rated highly for its
effectiveness by the Commitment to Development Index [16] while other countries
receive an unfavourable review; US, Italy and Japan. Aid from these countries is
often criticised for being highly tied , with a principal focus on developing donor
commercial interests and/or dependent on national, political and strategic interests
[75] [68] [65]. Unsurprisingly, these motives can be recognized in the donor’s
public discourse and delivery of aid. Taro Aso [8], the then Japanese Minister of
Foreign Affairs, stated that aid was given to enhance the Japanese national interests and
that the first use of the Japanese people’s money was to benefit the Japanese later on.
US aid is also explicit in stating that its purpose is to “furthering America's foreign
policy interests” [95]. This discourse is reflected in the delivery of their respective aid.

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Japanese aid is highly concentrated around East Asia and highly tied to Japanese
companies and interests [49]. During the 1980s and 1990s US aid was greatly linked to
the promotion of the Washington Consensus. With the exception of US special interest
in Egypt and Israel, Alberto Alesina and David Dollar [7] note that US aid in the 1990s
was focused on poverty, democracy promotion and encouraging economic openness. In
addition, over 70% of US aid has been tied to promoting US commercial interests to
the extent that this practice was formalised in US law in 2002 [68].

2.2.2. Defining Official Development Assistance (ODA)
Craig Burnside and David Dollar [14] stated that when aid is given with a
high regard for donor self-interest then it is often ineffective in achieving
development. Accordingly, in such incidents, aid can be seen as a foreign policy
tool of donors. Jean-Claude Berthelemy [9] concurs and in his study notes that all
donors, with the possible exception of Switzerland, are egoistic in the delivery of
their aid to differing degrees. Riddell [68] remarks that definitions of aid are driven
and shaped by those (invariably donors) who have an interest in particular types and
forms of aid. Therefore, any definition of aid is dependent on the motives of donors
and will have a self-interested edge to it. Consequently, in defining development
aid, this dissertation seeks to utilise the Organisation for Economic Co-operation
and Development (OECD) definition. The definition is not absolute, as it is
formulated by the members of the 30 developed countries in the Development
Assistance Committee (DAC) of the OECD and, therefore, donor driven. However,
it is widely cited, reached by consensus by the major donors and utilised by the UN.

OECD defines Overseas Development Assistance (ODA) as: “Grants or Loans to
countries and territories on Part I of the DAC List of Aid Recipients (developing
countries) which are: (a) undertaken by the official sector; (b) with promotion of
economic development and welfare as the main objective; (c) at concessional
financial terms [if a loan, having a Grant Element (q.v.) of at least 25 per cent]. In
addition to financial flows, Technical Co-operation (q.v.) is included in aid. Grants,
Loans and credits for military purposes are excluded ... Transfer payments to private
individuals (e.g. pensions, reparations or insurance payouts) are in general not
counted.”(OECD, No Date)

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