Eduardo Araral’s views on reform

Internationally, poverty has only been successfully fought where the private sector has thrived. How can and should a donor agency best support Asian countries in this respect?

German aid for developing countries in Asia should be strategically invested in two fronts: 1) help build and strengthen institutions (legal infrastructure) and organisations that support the development of the private sector; and 2) strengthen industrial and entrepreneurial capacity in these countries to grow their strategic domestic industries.

Building the legal infrastructure for private sector development is key, but this would take much time, patience and substantial effort. German technical assistance would have to decide whether it has the comparative advantage to enter into this business. It would be best if it could work in collaboration with other donors and strategic long term domestic partners. Donors should also coordinate to ensure there is focus and division of work on strategic institutional priorities – for example, securing property rights, reducing transaction costs, developing regulatory framework for public-private-partnerships for critical infrastructure and development of credit markets and trade facilitation, among others.

Building industrial capacity for strategic industries in developing countries through vocational / technical training and education should be another priority. Countries cannot achieve high and sustained growth rates without strong foundations for industrialisation, technical education and improving productivity. This is an important lesson from East Asian economies – for example Taiwan, Malaysia, Singapore and South Korea – all of which built their economies with strong industrial foundations. Germany has a comparative advantage in this area as countries like South Korea, Taiwan and Japan also learned from industrial development and technical training in Germany.

In particular, German aid should be focussed on Asian countries with the highest incidence of poverty but with limited capacities to address it. There is strong potential for private sector growth. These include most South Asian countries (India, Bangladesh, Pakistan, Nepal) as well as Southeast Asian countries such as Laos, Cambodia, Vietnam, the Philippines, Indonesia and Myanmar (which is starting to slowly open up).

Because of the magnitude of the problem, German aid in Asia must be strategically targeted in the context of bilateral aid from major players in the region, particularly China, Japan and the US as well as multilateral aid such as the Asian Development Bank (ADB) and the World Bank. China does not provide substantial technical assistance in the region for private sector development and its loans are mainly designed for mercantilist purposes (i.e. to develop supply for raw materials as well as external markets). Japan provides substantial technical assistance in a wide range of areas but comparatively little for private sector development. Its loans are mostly for big ticket infrastructure projects. ADB has a strategic plan to ensure that by 2020, half of its lending portfolio would have a private sector component.

The Millennium Development Goals stress progress in specific sectors. How can and should a donor agency for technical cooperation best support Asian countries in this respect?

There are many local and small scale initiatives attempting to address many MDG-targets – for example, primary health care, water and sanitation and natural resource management. These are mostly done by local governments and NGOs. Donors should help scale up these initiatives. In addition, donors should help create and sustain a market for reputation in order for national and local governments to give them incentives for achieving the MDG targets. These can include score cards, training of local journalists and academics, disseminating information on best practices, funding scalable demonstration projects (for example rural water supply schemes), helping to develop capacities to respond to natural calamities, etc.

The Paris Declaration and the Accra Agenda for Action stress the relevance of enhancing government capacities. How can and should a donor agency best support Asian countries in this respect?

German aid should adopt a new model of capacity building that departs from the traditional approach of training and technical assistance and small pilot projects. Instead, it should support strategic and sectoral policy reform projects driven by a coalition of domestic reform champions over an extended period of time.

German aid can learn from the experience of a small group of developing countries – Singapore, Botswana, Cape Verde, Malaysia, Mauritius, South Korea and Taiwan – which successfully managed to grow out of poverty in one generation by sustaining GDP per capita growth at rates averaging more than four percent a year. Achieving this economic performance required substantial government capacity spanning numerous policy areas (fiscal, trade, monetary, education, etc.) and strategic industries over an extended period of time.

These reforms were driven by a coalition of small, dedicated team of experts with 1) world-class skills; 2) direct access to the top level of government and 3) a large development budget. This combination of skills, access and resources gave them the clout to steer an ambitious reform agenda through vested interests and layers of government. For example, Malaysia had its Economic Planning Unit, Singapore its Economic Development Board, Korea its Economic Planning Board and Japan its Ministry of Trade and Industry. Today, these elite agencies continue to play a central role in the economic development of their countries.

The key functions of this coalition of reformers include: 1) designing development strategies; 2) leading the dialogue with the private sector (the state embedded with but autonomous from the private sector); 3) grooming political leaders as well as creating and leading deliberate efforts to create capable public institutions for effectively managing economic policies; 4) leading critical policy negotiations; 5) mobilising and allocating resources; and 6) compelling the administration to act.

Good and responsible governance have figured high on the development agenda ever since the World Bank’s World Development Report of 1997. How can and should a donor agency best support Asian countries in this respect?

Singapore’s statesman Mr. Lee Kuan Yew has often said that you cannot have good governance without good men and women in charge of government. Donors should realise this and not just attempt to reform rules, systems and organisational structures as is the current practice in governance projects. Donors may feel restricted in doing this because of sensitive issues of sovereignty but donors such as GTZ can support credible international German NGOs – for example the Konrad Adenauer Foundation – to help in the development of effective political leadership among developing countries. German aid should give this serious thought because without the right leadership, donor efforts will barely make a dent in the long run.

I would also suggest that German aid should help strengthen governance reforms among developing countries in Asia by stimulating serious and well informed, evidence-based public discussions about necessary institutional reforms in a country. This means that German aid should invest more in governance and institutional research done by credible academics, researchers, journalists and thinkers. The Konrad Adenauer Foundation in the Philippines is doing this type of work which I think has been quite helpful to the country.

In regard to the past, what are strong points of GTZ, InWEnt and DED that you would want to last?

Twenty years ago, I was a participant in a GTZ training workshop on Methods and Techniques in Project Management (ZOPP). It is one of the most useful training courses I have taken part in which I still use and teach to my students today. GTZ should continue to sponsor these workshops among developing countries in Asia to increase their absorptive capacity and effectiveness in managing aid and delivering results. Professional training institutes in Asia – such as the Lee Kuan Yew School of Public Policy – can help in this regard.

Also, German aid should continue sponsoring development publications such as D+C to facilitate knowledge exchange among policymakers. Finally, GTZ should also support regional organisations such as the ASEAN Secretariat. The reason is that GTZ has a comparative advantage – with experience in EU integration – as well as being perceived as a more neutral donor compared with other key players such as China, Japan and the US, which are perceived to have vested and competing interests in the region.