World Bank aid should not leak<\/p>\n
By Sri Pamoedjo Rahardjo<\/p>\n
JAKARTA (JP): Recent allegations from the World Bank report
\nsuggest that Indonesian officials have siphoned 20 percent of the
\ncountry's loan for their personal gain. Some experts even
\nestimate a higher figure. The accusation is a very serious one.
\nIs siphoning funds out of a multilateral agency such as the World
\nBank possible? Let us look at the structure of project costs and
\nsources of financing and illustrate where the leakage could
\npossibly have occurred.<\/p>\n
It should be understood that foreign assistance from a
\nmultilateral agency is a loan to the government. This means that
\nthe borrowing country is required to pay back the amortized loan,
\nincluding interest and other charges. Theoretically, the loan is
\nrequested by the government and granted by a funding agency to
\nsupport and as complementary funding for a government project. In
\npractice, government officials are technically advised by the
\nlending agency about what projects the agency is interested in
\nsupporting.<\/p>\n
The project cost is usually reflected by two sources of
\nfinancing: the Bank loan and the government development funds
\n(known as \"DIP\"). Irrespective of where the funds come from, the
\nproject costs are meant to support the activities identified in
\nthe project. In the implementation of these projects, government
\nadministrators are faced with an almost classic management issue,
\nfor example, difficulties in project fund disbursement due to
\nvarying and sometimes unsynchronized requirements in the DIP and
\nBank loan disbursements.<\/p>\n
The table (below) illustrates a range of sources for financing
\na project. The allocation of funds identified as coming from the
\nlending agency or from the government aims to provide sufficient
\nfunds for the project in its entirety.<\/p>\n
The lending agency advises whether it will support fully or
\npartially the respective project components. It will usually fund
\nactivities such as civil works, technical assistance, equipment,
\ndevelopment and transfer of technology. The lending agency's
\npolicy allows procurement of goods and services from its member
\ncountries through internationally accepted standards for
\nprocurement. On the other hand, the government could elect to
\nfund fully or partially such activities as local training, in-
\ncountry education, community-based participation, local
\nadministrative and recurrent costs, and the payment of taxes. The
\nprocurement of goods and services related to this expenditure is
\ngoverned by prevailing national procedures.<\/p>\n
Before the loan becomes effective, the government project
\nimplementation unit is supposed to prepare a detailed project
\nimplementation plan which unfortunately is not always completed
\nor completed effectively. The plan is intended to help integrate
\nwork activities within and across various agencies, and help
\ndisburse the funds properly and expediently. It is also meant to
\nbe the road map project administrators and the lending agency
\nofficers refer to for their respective planned activities.<\/p>\n
To implement an activity, the government project
\nadministrators would have to comply with internal procedures to
\nobtain administrative support within the government bureaucracy
\ndepending upon the size and cost of the activity. The approved
\nproject activity will subsequently be sent to the lending agency
\nto obtain a no objection letter as a basis for disbursement.<\/p>\n
For a project activity to be funded through the loan, it
\nrequires thorough reviews executed by all related offices and
\nofficers in the lending agency. The review includes a check for
\ncompliance with the loan agreement, lending agency's guidelines,
\nand would allocate sufficient time for competitive bidding or
\nother appropriate procurement procedures. Thus, theoretically the
\nsiphoning of loan funds is not possible since the technical
\ndecision on the use of the loan has gone through strict
\nprocedures for concurrence of the lending agency.<\/p>\n
For activities, which require government financing as
\ncounterpart funds, no special attention from the Bank officers is
\nexercised other than a reliance on the government administrators
\nto follow the prevailing government procedures. Therefore, if any
\nmisappropriation by government officials were to occur, it would
\nbe mainly from this counterpart budget and not from loan funds.
\nThe use of government financing is, in fact, the area for concern
\nsince aberrations from the project objectives can happen because
\ntop management can unilaterally decide to use the funds for other
\npurposes as long as, by implication, they are related to the
\nproject objectives.<\/p>\n
The illustrative cost structure suggests that leakage from the
\nBank financed components to government officials is theoretically
\nnil because the decision to disburse must go through the scrutiny
\nand concurrence of the lending agency.<\/p>\n
In practice, the lending agency favors the involvement of
\nreputable international firms or local firms that have
\ndemonstrated sound technical and fiscal capabilities. Wherever
\nthere is a scarcity of reputable local firms, twining with an
\nestablished international firm is encouraged by the government as
\nwell as the funding agency. There is a very thin line between the
\ngovernment's desire for transfer of technology and allocating
\nlocal awards to a well-connected group. If the favored group does
\nnot deliver, one could consider this as a form of fund leakage.<\/p>\n
Counterpart funds are usually set to help support supervisory
\nand administrative activities. Lack of understanding in local
\nbusiness practices by the lending agency can cause some
\nmisunderstanding. It is probably not in the institutional
\nculture of a lending institution to offer snacks, lunch,
\naccommodation, local transportation and sometimes honorarium
\nduring project meetings. Local field visits by government and
\nBank officials require funding by government counterpart funds or
\nexpenditures are passed on to local contractors who will find
\ncreative means to meet these extra expenses including gifts as
\ntokens of appreciation.<\/p>\n
Another possible area for concern is the use of counterpart
\nfunds for in-country education and training, preparation for
\noverseas training, and other related expenses. The classic issue
\nduring implementation is the difficulty of recruiting available
\nand eligible candidates within the time frame of the project. In
\norder to avoid further delays, the project implementation unit
\nrecruits candidates who oftentimes are not the intended project
\ntarget to avail themselves of the allocated funding. In effect,
\nthe project will not derive the direct benefits expected of the
\nproject component.<\/p>\n
Counterpart funds are set to provide funds to cover internal
\nexpenditure, such as taxes, local costs involved in procurements,
\nincentives or overtime fees for civil servants. While cases of
\ncorruption by individual government officials could occur, lack
\nof empathy about local cultural practices on the part of the
\nlending agency could also lead to a misunderstanding on the use
\nof funds to facilitate project implementation rather than to
\nincur a significant delay in the project. A practical project
\nadministrator may opt for the first option.<\/p>\n
While government counterpart funds are more prone to
\nexperience leakage, a parallel system of reviews and audits are
\nalready in place. Project activities are supposed to be reviewed
\nat various management levels and audited by state inspectors,
\ne.g., the respective ministry, the Supreme Audit Agency (BPK) and
\nthe Development and Finance Control Board (BPKP). When
\nendorsements are obtained from these respective agencies, it is
\nsupposed to mean that disbursements are in order because the
\nspecific project activity has met its objectives and has complied
\nwith the national accounting standard.<\/p>\n
The investigation for misuse of government funds is clearly
\nthe domain of state auditors and inspectors. What is even more
\nimportant in these times of scarce resources is that development
\nprojects should be implemented effectively and efficiently as
\nwell as completed on time. The majority of projects in Indonesia
\nare experiencing significant delays.<\/p>\n
The social cost resulting from these delays is incomparable to
\nthe financial loss. The average time elapsing until project
\ncompletion in Indonesia is between two to three years. There are
\ntwo practical consequences resulting from delays in project
\nimplementation and completion.<\/p>\n
First, Indonesia has to pay additional interest and commitment
\ncharges for the said loans which in effect is a reverse siphoning
\nof resources to the lending agency. Second, expected project
\nbenefits could already become obsolete or negated due to the time
\nlapsed.<\/p>\n
In conclusion, the alleged leakage due to the siphoning of
\ndevelopment loan funds is a serious matter and should be attended
\nto by the appropriate agencies. Lending agencies and the
\ngovernment alike need to synchronize, co-ordinate and improve
\nproject guidelines with efficient procedures and planned with
\nenough sensitivity for the local culture and acceptable
\npractices.<\/p>\n
These should be aimed at more timely and successful completion
\nof projects that have been developed with great care, analysis
\nand commitment to implement them.<\/p>\n
The writer is a social and economic observer and former
\nregional development bank officer.<\/p>\n
Table: Range of Possible Proportion of Sources of Project Financing<\/p>\n
Project Components\/Activities Total Cost Bank Loan Government<\/p>\n
--------------------------------------------------------------------<\/p>\n
Staff Development<\/p>\n
(a) in-country 100 20-55 80-45<\/p>\n
(b) Overseas 100 100 0<\/p>\n
Consultants' Services<\/p>\n
(a) Local 100 50-100 50-0<\/p>\n
(b) International 100 100 0<\/p>\n
Furniture, Equipment, Materials<\/p>\n
(a) Furniture 100 0-100 100-0<\/p>\n
(b) Equipment\/Materials 100 20-70 80-30<\/p>\n
Civil Works<\/p>\n
(a) Site Development 100 100 0<\/p>\n
(b) Construction 100 20-70 80-30<\/p>\n
Research\/Special Studies<\/p>\n
(a) Research 100 100 0<\/p>\n
(b) Special Studies 100 0 100<\/p>\n
Operational & Recurrent Costs<\/p>\n
(a) Project Management 100 20-90 80-10<\/p>\n
(b) Recurrent Costs 100 0 100<\/p>\n
Taxes and Duties 100 0 100<\/p>\n
Contingencies 100 100 0<\/p>\n
Interest During Construction 100 100 0<\/p>\n
--------------------------------------------------------------------<\/p>\n
Total Project Costs 100 50-50 50-40<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/world-bank-aid-should-not-leak-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }